Discussing President Obama’s Address to the Joint Session of Congress, Thomas Palley, economist, and author says “we’ve heard nothing about trade, we’ve heard nothing about globalization … worker rights and labor markets, we’ve heard nothing about corporate power. You’re seeing here the absence of issues that deal with the structural problems … in the US economy.”
Story Transcript
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay, in our makeshift studio in New York City. Back in the real Real News studio in Washington, DC, is Dr. Thomas Palley. He’s an independent economist. He writes for many academic journals and has written for The Atlantic Monthly, American Prospect, Nation Magazine. Thanks for joining us, Thomas.
THOMAS PALLEY, ECONOMIST AND AUTHOR: Thank you, Paul.
JAY: So let’s start off by playing a clip from President Obama’s speech to Congress, where he talked about the economic measures that are going to be taken to help increase the purchasing power and wellbeing of the middle class, as he refers to it. Here’s the clip.
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Courtesy: C-SPAN
BARACK OBAMA, US PRESIDENT: You don’t need to hear another list of statistics to know that our economy is in crisis, because you live it every day. It’s the worry you wake up with and the source of sleepless nights. It’s the job you thought you’d retire from but now have lost, the business you built your dreams upon that’s now hanging by a thread, the college acceptance letter your child had to put back in the envelope. The impact of this recession is real and it is everywhere. Now is the time to jump-start job creation, restart lending, and invest in areas like energy, health care, and education that will grow our economy, even as we make hard choices to bring our deficit down. That is what my economic agenda is designed to do, and that is what I’d like to talk to you about tonight. It’s an agenda that begins with jobs. Over the next two years, this plan will save or create 3.5 million jobs. More than 90 percent of these jobs will be in the private sector—jobs rebuilding our roads and bridges, constructing wind turbines and solar panels, laying broadband, and expanding mass transit. Because of this plan, 95 percent of working households in America will receive a tax cut, a tax cut that you will see in your paychecks beginning on April 1. Because of this plan, families who are struggling to pay tuition costs will receive a $2,500 tax credit for all four years of college. And Americans who have lost their jobs in this recession will be able to receive extended unemployment benefits and continued health-care coverage to help them weather this storm.
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JAY: So, Thomas, President Obama talks about certain measures that will alleviate some of the effects of the crisis and do a little bit of stimulation on the tax side. But many economists have pointed to the idea or fact that as wages have been more or less static since the early 1970s, that this is really the underlying cause of the crisis, or at least one of the most profound causes of the crisis, that there just isn’t real purchasing power. So people borrow money, and they borrow money on credit cards with enormous interest rates, or they get into the subprime mortgage business. So did you see anything in this economic policy that will lead to higher wages?
PALLEY: Well, Paul, let me say that, first of all, I agree very much with that perspective. And, actually, in a book I wrote ten years ago called Plenty of Nothing, that was the basic theme, that in 1980 we abandoned an old economic system in which we had wage-led growth, and we broke the link between wages and productivity growth, and in its place we substituted a reliance on asset-price inflation and on debt, and that’s all come crumbling down. Now, I don’t think sort of small tax measures, no matter how progressive, are up to solving this problem. We had a before-tax problem, not an after-tax problem, as it were. And so we really need measures that deal with the underlying structure that has undermined worker bargaining power. And that really gets you into the pieces of the speech and, I think, the pieces of the administration’s program that are not present. So we heard nothing about trade; we heard nothing about globalization; we heard nothing about worker rights and labor markets; we heard nothing about corporate power.
JAY: We heard nothing about the Employee Free Choice Act, which is something he’s promised the unions, that there’s a piece of legislation that makes it easier for workers to get into unions. But it wasn’t mentioned in the speech.
PALLEY: That’s exactly right. You’re seeing here the absence of issues that deal with the structural problems, at least as I and you perceive them, in the US economy. And it got me thinking about why that was the case. And what I saw here very much was the fingerprints of an economist, say, like Larry Summers or Gene Sperling, who come out of the New Democrat camp, their view about long-term growth is how you get it is you have fiscal discipline, you do engage in some infrastructure investment, and you offer people a few helping-hand programs—assistance for health care, assistance for education—and that’s it. Now, I just fundamentally believe that that will not address the issue, so that even if the other policies we’ve talked about earlier do succeed in stabilizing the economy, these policies will not succeed in getting it back onto a growth path.
JAY: So what would you have liked to have heard in this area tonight? What should they be doing?
PALLEY: Well, I would have liked to hear more about, of course, the Employee Free Choice Act, labor markets, employee rights, minimum-wage policy. I would have liked to hear about some of the trade issues that are out there. How does he plan to tackle this enormous trade deficit? I don’t see how you can jump-start American manufacturing when you’ve got this huge hemorrhage on trade with China. I don’t know if this was the right forum to raise those issues, but I don’t see them being raised in the administration at all, and this is a real problem. We’ve got a global growth problem. The developing countries can’t grow, because the economic system puts constraints on them, and we can’t grow, apparently, either. We end up just sucking imports in from them, but then it causes an implosion. There’s a contradiction in the global economy, and we’ve got to sort of work our way through what does a new global arrangement look like that facilitates growth everywhere.
JAY: And the fundamental role of globalization seems to have been to lower wages everywhere, lower purchasing power everywhere, play one country’s workers off against another. And then we end up in a situation where the only way to keep consuming power is to borrow money.
PALLEY: I think that’s exactly right. It’s clear now that American wages have suffered. Globalization being part of a larger paradigm, you can’t put down all the wage effect to globalization, but it’s a piece of it, and globalization is part of the paradigm.
JAY: Well, how serious an issue is this? I mean, does this not go right to the core of whether this economic plan’s going to work or not?
PALLEY: I think the administration has two plans. One plan is about how to stabilize the economy now: fiscal policy; the home foreclosure policy; the Federal Reserve policy regarding Fannie Mae and Freddie Mac; the re-liquefying the banks. That’s the short-term stabilization piece. The piece that no one is talking about is: how do we get the economy to grow once we’ve stabilized the economy?
JAY: That’s even assuming these measures can stabilize an economy.
PALLEY: Indeed.
JAY: But there’s such deflation, wages are going to go down even further.
PALLEY: That’s exactly right. The verdict is still out whether these measures are enough. In my view they’re not. I think the fiscal policy piece was too small. You’re talking $850 billion over two years. It’s about 3 percent of GDP per year. That’s not enough, given the scale of the demand shortfall we currently have. I don’t think the Fed has been anything like aggressive enough in buying Fannie Mae and Freddie Mac paper and driving down the mortgage rate. And that’s a real problem, because the longer they wait, the more foreclosures there are. And this is a case when you start to create facts on the ground that are irreversible. Once someone’s been foreclosed, they can’t get a mortgage. So even if you do push down the interest rates, I’m very critical of how slow the Fed has been in addressing this. It’s terrible how slow we’ve been in getting mortgage foreclosure assistance. We have to keep people in their homes, both of course for the human need and the economic dimension to it as well. The more foreclosed homes you have, the more pressure you put on property prices, etcetera; the adverse feedback loop deepens, and it gets harder to dig yourself out of the hole.
JAY: So President Obama’s speech to Congress, while it was, I think, a marvelous piece of oratory and he asserted a tremendous leadership over the House, you know, this young man, really, when you look around the room and you see all the mostly ancient members of Congress—it was quite brilliantly delivered. But in the final analysis, do you think this is the beginning of a solution? Or do you think we’re really heading into double-digit unemployment and far, far greater dislocation? And are they really going to have to more or less go back to the drawing board to deal with this?
PALLEY: Well, the recession, at one level, has only just begun. Everyone sort of talks of 9 percent, 10 percent unemployment. And chairman Bernanke, in his remarks before Congress, now talks about recovery only in 2010, and everyone is putting off the date of recovery. What I saw in the president’s speech to the Congress, again, was the impact of his economic advisors. The president is not an economist, so his economic policy is going to reflect what his advisors put in front of him. His only check is his intuition and instinct, and on that side I feel quite comfortable. When the president was lambasting the bankers very, very seriously and not willing to give money for CEO pay and the like, that really showed, I think, his colors. The question is: will that be enough to counterbalance what are some really quite conservative economic advisors?
JAY: Well, we’ll see, as we see what the regulations are for the next round of bank bailout that we were promised in the speech tonight, whether there’s real teeth there or not. And if there aren’t, then one will have to question the advice he’s getting and, perhaps, his instincts on this. Please join us for the next segment of our interview with Dr. Thomas Palley.
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