tv [untitled] June 10, 2011 6:00pm-6:30pm PDT
about the earth. as. all of them are going to washington d.c. and here's what's coming up tonight on the big picture and this friday's edition of conversations in the great minds around economist and former advisor to the obama administration actor george burns to present the first half hour later in the show i'll debate it to polanski's lucian inspired studs really solution to solving our country's debt problem during our weekly rumble fan and the golden years are looking pretty bleak for many american seniors why they're most likely to have one
foot in the grave and the other still on the job it's a nice feeling to take. four times conversations of great minds i'm joined by renowned economist and learned his talents to president obama serving as a member of the white house economic team from two thousand and nine until this recent last month few months ago few months ago it was the chief economist an economic adviser to vice president joe biden and director of the white house task force on the middle class prior to his still white house he worked for the economic policy institute was the deputy chief economist at the u.s. department of labor currently he's a senior fellow at the center for budget and policy priorities and given our nation's current economic problems he's the man to talk to it's one pleased to welcome in the studio here dr jerry bernstein thank you tom thanks for joining us a pleasure. and first of all just
a personal question if i may. many musical prodigies were also mathematical privacies you know it's a great example there's a math the music you started out music how did you end up you know to me. i'm not sure if you know. new music is just a huge part of my life it always has been. it was very drawn to music early on but interestingly i think there is a connection there i always liked math and statistics and ultimately being a musician i think in another wrinkle here is being a musician i felt i wasn't really doing enough on kind of the political economy side of life i was brought up in a household where if you're not part of the solution you're part of the problem and . one gym session too many i decided to probably ought to try to do something else and went into economics and went in. and ended up you know for the record being one of the one of the contributors to the economic recovery act i was a little school so-called stimulus and. i'm curious about your your
reaction to conservatives who reflexive really say what it stimulated and what it. and on the other hand progress is to say you know had we not had that stimulus act as relatively feeble as it was by the standards of paul krugman who said you know i've got a two point seven trillion dollars hole and we're fixing it with a hundred billion dollar package and without that we would be in a genuine great depression right now so we get these two i'm wondering what your thoughts are on how it actually worked out well on the first point you raised about people who would i would say pretty mindlessly critique the stimulus package i'm reminded not to just pick on him but it's a clear example of a senator from massachusetts scott brown i remember the day he got to washington after that special election he gave a press conference and he said the stimulus hasn't created one job and we could easily have taken him up to massachusetts and shown in lots of people at work fixing bridges roads highways from. stimulus so you're right it got i think
fair rap but in many ways because of the second point you made when we implemented the stimulus the cut the unemployment rate was maybe around seven percent or so and and it went up after that now lots of independent analysts including the congressional budget office rigorously nonpartisan argue as you suggested that the unemployment rate would have been considerably higher probably a couple of points i would be looking at eleven percent now instead of nine but that is a very very hard message to get people to wrap their head around economists call it the counterfactual that is what would have occurred had you not done intervention acts it's a very thankless task trying to get people to accept that but it is it is true that we need another one. i don't think we necessarily could you know it's i think setting aside the political right i always think of kind of the show what we
should do and what we could do what we should do sure there's still a very significant hole out there's no real real room for more keynesian kinds of stimulus but that said i think given where the system is really obviously no appetite for for something of that magnitude however it does seem especially with the urgency around the economy and the job market over the past few weeks that we could pull off some pieces of that do some things but would help maybe shift the target off of immediate deficit reduction reduction in aggressive spending cuts and toward some things that would help with jobs this is the state level is a good example shutting really hundreds of thousands of school teachers across this land at a time when that that's not what we need so that's one example but we could help employers get a little bit of a break on the payroll tax perhaps that maybe incentivize hires or a number of things we could do that yeah it's looking at the politics of it it seems i mean the stimulus is kind of. the tail end of it it's it's it's trailing
out and and the deal that president obama made with the republicans to extend unemployment benefits was that he would give them two years of bush tax cuts in exchange for one year of unemployment benefits which will run out at the end of this year really sickly so he's going to be going into an election year with unemployment benefits running out the stimulus petering out. and and the republicans with their tax cut still in place which is going to make you know arguably some situations even worse it almost seems like you know they saw on conan you know like they they just set up the situation to say you know mitch mcconnell he said his job was to make sure obama was a one term president that next year is going to be a really rough year you know. no question about that but i think there's some things that they said that we could do very much in the spirit of what you were just talking about you just mentioned that a couple of very important things that are helping to boost hiring right now and to help provide a safety net for the many long term unemployed people out there are expiring at the
end of this year at the end of two thousand and eleven that could create a real air pocket in the economy so we don't need that i mean boom that is what i mean by your pocket and you don't want that if the economy were on a much more solid growth path if we were kind of hitting escape velocity kind of on the g.d.p. in the jobs front without that sure let it fade for fiscal reasons this stuff should be temporary but wasn't that the assumption in the white house that by now the economy would be back on its feet more or less and so they would begin going to that would be more strongly moving towards the on your feet kind of conditions and and that doesn't look to be the case so i would say to avoid that in our pocket another year of kind of a wage subsidy made maybe on the payroll side but certainly unemployment extended unemployment insurance benefits rip very relevant as far as the tax cuts going or we're going to see a real real fight on that in twenty to life fully expect the republicans to come out trying to force the president and to. the high end tax cuts i mean president
very willing to extend the middle class tax cuts and frankly those folks don't need them but on the high end that you know a seven hundred billion dollars of tax cuts for folks who frankly are actually doing pretty well i think the president's going to hold firm on that so we'll see we'll see a real battle there it's absolutely what would you consider at the time that you were the chief economic advisor vice president biden and part of the president's economic team what was your major accomplishment during that time and what was the biggest challenge that you had working in the white house. you know you when you think about accomplishments there are a couple of things that stand out i mean we talk a little bit about the recovery act and that's kind of a complex accomplishment because it really did a lot of good but it certainly has been perceived that way another one that maybe share some of those characteristics is the. helping to restructure the i mean there are two american auto companies g.m.
and chrysler that are up and running today that are profitable that are adding shifts that are adding workers and tom i'm telling you beyond a shadow of a doubt in my mind you would have been melting down that equipment they would have liquidated had there not been it was mitt romney. he said it was also president obama's decision and the reason i that comes to mind is as an accomplishment i was a member of the auto task force team by the way there's no there's no individual accomplishments very much teamwork in this kind of environment. that was not a slam dunk i mean the political winds were blowing one way and some advisors wanted to go one way some of the other and i thought the president made a great decision there and i think it's really it's really paying off not just for the companies in the workers but but for the communities and history has demonstrated that it worked i mean we still have those jobs we still have those businesses and why was that. very practical approach here we have not just a bank but a business that employs makes things that actually generates wealth in the classic
man in fact adam smith sense the right you know the alexander hamilton of manufacture seventy nine he wants we have a real pro you know and and let's put some money there we did that with those but there were thousands of businesses across america that were in the position of creating wealth of making things and they got buckets the banks got all the money now i realize all that most of that happened in the bush administration these were decisions were made by henry paulson and tim geithner and george w. bush and his team but why not more phone. this particular in the first year of the obama administration on american manufacturers to quote hamilton rather than on the banking industry the financial services sector i think the idea there was that the this notion of too big to fail which is really a very unfortunate. set of circumstances is actually there's actually something to it economically the credit system the way i think of it is much like the
bloodstream of the economic body if you will and when that blood stream stops running you die so while helping some individual business is made it made a lot of sense and we actually tried to do a lot of that in the recovery act the small business administration was really beefed up in ways that kind of flew under the radar it was these lords structural parts of the global financial system that to this day and again not something that you get a lot of applause for to this day i think helping to kind of get that system back up and running when we did was just integral to keeping this great recession from becoming the great depression and yet we went from arguably ten or twelve major too big to fail banks to what i think so you know ronald reagan with the s n l's i mean he actually went in and said a thousand banks just in jail fired people when you see them came in sort of the
resolution trust corporation took over management of all these things you know there are definitely different ways this could have been done some people particularly on the left would like to have seen a more. you know nationalization or conservatorship and more. and the economics of it are very interesting by the way there's two ways to look at this kind of thing one is that it's an insolvency problem a lot of people think about greece that way right now and the other is that it's a liquidity problem if it's insolvency then you're right you have to take the place over. and the creditors take a haircut and by the way that's not cheap those interventions cost countries like sweden a real significant chunk of change but you know our our our approach was much more of a liquidity kind of approach the idea was that these institutions were temporarily constrained by dint of holding all these toxic assets and if we the government and the federal reserve could play the role of the nation's banking system and help
just get over this period of very tight lending perhaps we could get through it and i think the evidence is actually very supportive but again not a popular thing but that it worked much the way that we and treasury and i wanted it to and at a price far below what people would have expected so i wouldn't if you thought he would just liquidated those banks though wouldn't there have been i mean in the free market economics of it would there have been hundreds of smaller competitors that would step in and like you know one eight hundred got broken up you know it was you know it's something would have taken out oxygen something would have provided it but perhaps it would have been you know this is one of these cases where you don't know the counterfactual would have happened otherwise but remember some of those institutions did go to lehman. and some of those institutions really did go down and man the ripples through the global economy were really felt pretty cataclysmic when being there at the time and you think that the northern rock
solution with the u.k. did with their largest bank they basically just seized it they did what reagan did with the us now i'm totally wiped out well and by the way what we did with the two big housing finance or fannie and freddie so it's not like this idea of conservatorship or taking over a failing institution it's not for now we thought that the insolvency route going the conservatorship or taking over the liquidation was going to be too destructive for the global system and i actually think that events have proved that to be a good decision the banking system. it's largely a back up and running with some important still some important. problems still in the system particularly the smaller banks but again. we can history's going to have to review that what it is and what it is and will be seeing more of that right after the break we'll continue our conversation with economist dr jared bernstein in our conversations with great minds.
back to conversations the great minds i'm speaking with dr gerard bernstein former member of president obama's economic team and previous chief economist and economic advisor to vice president joe biden is currently a senior fellow at the center on budget and policy priorities. dr bernstein today a. woman's op ed in the new york times suggest to there's you know trying to come up with some logic about why europe is all concerned about the debt crisis and let's throw the money basically at the top of the bond holders let's keep them safe and solvent what happened here with the banking that we were just talking about why everybody's talking about. tax cuts and not about jobs and these kinds of things that the and in the most macro sense in the in the biggest picture possible he said maybe this is all about what randy a's you know the whole kind of henry george notion even going back to that economics school work or arguably even ricardo if
you go back to the value theory of labor and take forward anyway that that it's the that let's protect the bondholders basically let's protect the wealthy people right let's protect the world message to washington right and to hell with the middle class to hell with the working people. what do you think is is that is could that be what's really driving economic policy right now in this is and i'm not going to look at obama administration well what i was just looked up to tom you know i've been writing about precisely that well before i got into. politics as it were well before i worked with the obama administration i do think that they are i think all this has a real point there i mean i think that the the economic system writ large in today's advanced economies and much more so here by the way than in europe. are very much tilted against the middle class probably the best way to see that is to just take a look at how the gains of growth and productivity in particular have how they have
a lot of good over the past few decades way this proportionately to those at the top of the scale middle class families all over the expansion of the of the two thousand which happens to be about the last economic cycle that we have in terms of you know beginning to end. the median income the income of the class families actually was it went nowhere and the economy groovy on flummery kind of came down a sleeve in that way ever since reagan and it's been that way for decades you've got a concentration of income at the top of the scale and by the way economic concentration like that leads to i think the concentration of political power and before you know it you're looking at a system that very much protects protects the winners at the expense of the losers and by the way if you thought you mentioned earlier that the current dynamic here in washington is all about spending cuts and you know never a tax increase but always a spending cut and in fact if anything look at the paul ryan budget perfect example that not only just it's just an example of exactly what we're talking about this is
a budget that proposes to cut taxes on those at the very top of the scale to the tune of seventy eight hundred billion over ten years while you take the savings. while you do that and while you're doing that you're cutting about two trillion in spending from programs that help folks in the middle in the bottom so it's to quote another paul krugman he said it's robin hood in reverse and when you think about how people are doing these days and kind of the middle class squeeze it's been on. going for decades it just seems nuts upside down by the way that's the reason i'm here as opposed to in the white house now yes i thought i was extremely frustrated and constrained not with what was going on in the white house actually the president has exactly the right vision on this but what was going on outside and i felt like i congress in congress in the public debate in all of the issues you're
raising i mean the fact that the kinds of policies that i just described from the house republicans are getting not only a hearing but everybody at least on the republican side support them there needs to be some very. deep. look a very deep dive very deep look at where things went off. by the way the value theory of labor was smith's frozen hard as the law of wages makes it right thomas my apologies. if you look at the period of time in the united states when we had arguably the greatest economic growth from from the late forty's early fifty's until until reagan's presidency basically it's early eighty's when the middle class was growing when industry was growing we had a couple of things that we don't have now we had a top marginal tax rate of ninety one to seventy seven percent on millionaires and billionaires and so they kept the money in their companies the average c.e.o.
salaries were three hundred thirty to one rather than three thousand one like in financial services and. we had tariffs that averaged. in the from the fifty's in the in the low thirty percent by the eighty's and low twenty percent we had to trade policies it was protectionist essentially and we had strong unionisation we had you know when reagan came into office twenty five percent of the labor force was unionized now it's seven percent of your labor force why are none of those things part of the public discourse you never hear any of those topics being brought up on the on the sunday talk shows or on the. anywhere in the in the corporate media i mean i'm not hearing it anywhere all i'm hearing is a discussion about taxes and spend i think i can answer that. it's because of the way economic arguments have. morphed devolved over the years such that any one of the things you just mentioned if you were to suggest
doing them and by the way not even going the whole hog on them if you were to suggest taking the tog marginal tax rate from thirty six percent and up to eighty or ninety but to thirty nine as clinton exactly i brought a surplus is exactly so even if you were to say something a minimum wage that. goes for seven seven twenty five day twenty that you know that no matter how tiny or more there isn't a robust economic attack squad that will explain how that is going to bring the economy to its knees and it's not like people weren't making wrong well yes i think not only are they going there but there are sixty years of history to prove it and they are demonstrably wrong because if you look just take this very simple example of the tax code and obviously during the clinton years you had a more progressive tax code and not only did the economy do a whole lot better than middle class did better you had a as you just mentioned a surplus on the revenue side so this is the reason why this situation you describe persists and it can be wrong is because fact based evidentiary arguments simply
don't have the sway that they should and that they used to so you can make policy based on ideology based on assertion it's not a surprise to me that temple and the guy who's running for president a republican comes out and says you know i'm going to my plan is to have g.d.p. growth five percent per year for a decade which is already out in the history of the so he's not even saying i'm going to do the supply side the looks are and all that magic that we know didn't work he skipped our part because we know that forget that only go there. and just says you're going to get five percent so you can say anything man and that's that's that's what's just bringing the whole thing bonnie thirty he said he's going to get that part by giving millionaires a forty two percent say let me let me leave if you're not invited which is it yes but let me give you even a better example this last week of. nobel laureate. one of the great economists are. just and someone who's area research is
particularly germane to the problem of high unemployment which we face right now the president in his wisdom appoints peter diamond governor of the federal reserve senator on the republican side named richard shelby says you know what i don't think his economics is up to snuff i don't think with the way he specifies is a kind of metric equation doesn't look right to me. so and blocks his nomination month after month after month until diamond very understandably says you know what i'm just i'm just not going to go there he pulls out if this country continues down this path and is truly. looking at economic decline and i think that's a big if i actually i'm much more can generally optimistic than that would suggest historians are going to look back at the time when peter diamond nobel laureate withdrew his nomination to the federal reserve board of governors because he was blocked by republicans as
a guidepost on the way to predict. it's that that's the problem we have in a nutshell we're simply not having the right substantive debate where we can actually bring facts to the table and it's a very tough situation it's like you're celebrating stupidity why is that i mean is this is this the consequence of a series of supreme court decisions over the years that have allowed. agents of great wealth and power to to you know you got to go back instead of why did you get the supreme court you know why do you get those kinds of decisions i think if you peel it back to the very basics you're going to find a collision in. the nomic theory an ideology that was extremely complimentary to preserving and increasing wealth concentration at the very top of the scale folks who. found ways to very much enrich themselves also found at the same time
a school of economics that would very much support them that school supported very regressive low regressive taxation that school supported massive deregulation. going back to like. well you know i really was thinking more about when keynes. keynes versus friedman basically that's where i'm going because this stuff kind of started around the seventy's and it was actually a unique moment in history where keynesian economics looked like it wasn't explaining what was going on the both very high unemployment and very high inflation that was kind of hard to fit into the basic keynesian model and at the same time you had this historical moment where. milton. predictions about the economy going we're actually very accurate and actually quite smart at least a monitor aside so that and that actually interacted with the beginning of a wealth concentration in a president named ronald reagan who came on the scene and explained how if we just
deregulate and cut your taxes that's all going to work out well and you know forgetting your spinach it's all desert everything will be fine and trickle down and yada yada and you know here's where we are yeah and we've been we've been we've been fools. in this new economy that we have such obs are returning but what can we look forward to. well interestingly we're seeing some improvement in the manufacturing sector and that's that's welcome it has a lot to do with the fact that the dollar the u.s. dollar has been. weak in national markets and that always sounds bad when you think how can that be good or exports makes our exports less expensive it makes imports more expensive so that's been helping our manufacturers. actually if you if you look at the jobs of the future you know people tend to think that they're going to be like all ph d. systems analysts and computer programmers not so i mean we're going to need lots of
folks in the middle in the low end of the of the employment scale we're going to need a lot of security guards we're going to be a lot of cashiers we're going to be a lot of home health aides and child care workers are going to be we're going to need teacher why not start making things here again well why not go back and look at hamilton suggests here's my feeling about that i mean my view is that we absolutely should and i do think that there is a strong will by the way president obama agrees with this point there's a strong role for the government actually helping some nascent industries get started to overcome some of the barriers that new industries face and i'm thinking of clean energy in particular but you could be talking about advanced batteries or the smart grid or health information technology all of these wind and solar all of these areas the president believes is an area for investment but frankly tom i think and i think that's really important and we should do it the productivity in those sectors just keeps growing and growing and growing and i remember in the in the heart of the recovery act we were funding. wind and solar
plants that were and that i think will end up being very productive plants that employ a relatively small number of people sitting around a bunch of computer terminals so we should do what you're saying but we shouldn't forget about the services either and the issue there because as i said we're going to need a lot of jobs at the low end a lot of job. for childcare workers and school teachers etc we want to make sure those are good jobs that's the thing is so it paid we have to make sure that they pay well that they're covered by health insurance that they provide people with the means to earn some kind of a middle class lifestyle because without that we want to have a little structure your bernstein thanks so much for that was my pleasure it's an honor to have you you can watch our this conversation as well as our other conversations the great minds at our website conversations with great minds dot com . after the break conservative strategist heather servo radio host joe madison and conservative columnist brian darling join the for tonight's weekly.