Robert Reich: Freezing Domestic Programs Doesn't Make Much Sense

Well it looks like Robert Reich isn't too thrilled about the President's latest proposal to freeze spending on domestic programs either. Ron Paul thin
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Well it looks like Robert Reich isn't too thrilled about the President's latest proposal to freeze spending on domestic programs either. Ron Paul thinks it's not going to go anywhere in the Congress and from what I've read so far he's likely right. As Reich noted, when the economy is headed for the tank the government needs to act and is the purchaser of last resort. Sadly as so many have noted like Paul Krugman, we've gotten nothing but a weak stimulus bill that really didn't do enough to get us back on the road to recovery. I don't know how much worse the economy has got to get before someone in Washington decides to start taking the problem seriously.

When I hear more than talk about reigning in Wall Street and some regulation passed and the repeal of our crappy trade laws, I'll start to believe that our leaders in Washington are actually concerned about us not turning into a Banana Republic some time in the near future. Talk is cheap folks. We need some action.

KING: Before we get into the stimulus project, as promised, CNN's Ed Henry reports tonight that President Obama is set to announce a three-year freeze on non-security discretionary spending. That move would freeze discretionary spending at 447 billion dollars.

Joining us now to talk about that and to debate the stimulus and whether it is actually working, Robert Reich -- he was secretary of labor in the Clinton administration and now professor of public policy, University of California Berkeley. His most recent book is "Super Capitalism." And Representative Ron Paul of Texas, a member of the House Armed Services Committee and the Joint Economic Committee. He's the author of "End of the Fed."

What do you make -- we'll start with you Robert -- of the freezing of domestic programs for three years?

REICH: I don't think it makes much sense, Larry. I'll tell you why. The government, under the circumstances we now face, is the purchaser of last resort. Consumers are not buying. They're still scared for good reason. Businesses are not investing very much. They don't want to invest if they're not consumers out there.

So government has to spend. This is something that a lot of people have difficulty understanding, because you don't want bigger deficits in the long term. But in the short-term government has to spend more to get the economy moving, to get jobs, so people can actually work and generate a larger economy and therefore get the outside budget, the long-term budget down.

Having a freeze right now on discretionary spending, and effectively saying to the world, to Wall Street, to the country, we're not doing any more deficit spending, makes absolutely no sense.

KING: All right. Congressman Paul, your thoughts?

PAUL: Well, I don't think Mr. Reich has too much to worry about. Nothing is going to be frozen in Washington, DC. As a matter of fact, even what Obama is saying is not going into effect for a year, and the Congress won't let it happen.

I think Mr. Reich's sentiments are well represented in Washington. -- because I actually want to see more money spent, not less. It's just that who has the discretion to spend it? That's the issue. When the government spends it, they mal-invest, they misdirect it. They can't correct capital directly.

We don't have our problem because there's not enough consumption or spending. We have too much. We borrowed. We're in debt. So that is not going to solve the problem. What we should have done is maybe suspend the income tax for three years. It would have cost us less than bailing out the big banks and the special interests. They've been more money -- then the people could make a decision on whether they should liquidate their debt and how they would invest. This would be a wiser choice.

REICH: Larry, let me agree --

KING: Address the stimulus. Do that quickly, Robert.

REICH: I just want to agree with the congressman on one point. That is bailing out the big banks instead of helping main street was a version of trickle down economics, and it doesn't work.

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