March 15, 2010

I agree with Digby and her response to Fareed Zakaria bringing Amity Shlaes on GPS this weekend.

If you get a chance to see Amity Shlaes on Fareed Zakaria's GPS on CNN today, don't miss it. This mendacious twit has no business on respectable television show, and least of all Zakaria's which hit a low point by having her on today. He validated her lies by presenting her as a serious person and somebody should make him answer for it.

Susie already pointed out here at C&L why no one should be taking this woman seriously -- Amity Shlaes is A Right Wing Hack:

The person who's the point person for the wingnuts on the "FDR's actions made the Great Depression worse" meme actually has an op-ed piece in today's Washington Post. (I know you're shocked!) The former member of the Wall St. Journal's editorial board (a body known for free-market, fantasy-based editorials that openly contradict their reporters' own fact-based stories) is flogging her book on said topic, and says some pretty wacky things about how we should handle the Current Economic Unpleasantness. Read on...

That didn't stop Zakaria from bringing her on as someone we should take seriously in a discussion about the U.S. economy and what needs to be done to repair it. One of her suggestions, "reforming Social Security", in other words, privatizing it. "That's the easiest one" in her words. Oh yeah, tell that to George Bush.

Transcript via CNN below the fold.

ZAKARIA: We are back for our round table with Jeff Sachs, Chrystia Freeland and Amity Shlaes. Jeff, what do you think the American economy looks like right now? At some level, there's been a really remarkable return to normalcy. Stock markets are back to normal, but credit markets are now almost booming again. And yet, lots of people worry about a double dip because underlying all of this remains very weak consumer demand. People are just not going out and spending.

SACHS: We had a panic of course in September of 2008. And last year was battling the panic and it was gotten back under control, so we turned from a panic that could have slid into utter disaster into a recession which now looks like having some weak recovery. But there is no great impulse of long-term dynamism in the U.S. economy for the moment because the consumers are still burdened by debt. The unemployment is high, the budget deficit is still out of control, let's be clear about it. And given all of that, what we're doing is kind of inching up, but nothing very satisfactory. What I find missing in all of this is really a strategy.

ZAKARIA: Amity, interest rates are close to zero. The consumer is burdened with debt, does not seem to be consuming. Isn't this the classic case for some kind of second stimulus because if you don't and you allow the economy to maybe fall back into a second recession or even very weak recovery, you risk the kind of situation that you had in Japan, which is a downward spiral of consumer confidence which is very difficult to lift up again.

SHLAES: Fareed, Japan is a good model. We look at it very closely, the '90s and they had more than 10 stimuli. And at the end...

ZAKARIA: After 2 1/2 years of doing nothing, that was the point because they allowed...

SHLAES: We've had our two years now almost, right? So they built airports, they built roads to nowhere, concrete tsunami of construction and many Japanese feel that it wasn't necessarily worth it, most of it, certainly didn't bring back -- well, you know where their debt it.

ZAKARIA: So, how do you get the dynamism of growth?

SHLAES: I would look at it from the micro-economic and from also I would say the non-Keynesian point of view. That's not say a happy consumer who goes to the mall equals recovery. Let's do a more common sense thing and say, a happy person is a person who gets a job. And then let's say, how do we get people to offer other people jobs in the U.S. economy because that's the number one concern for all of us and why the shopping isn't happening at the mall. Wisely people are saving. We reduce the cost of employment. The big concern, uncertainty over the health care legislation in the United States is will it cost the companies who employ more and therefore, they postpone hiring or will a tax increase come on companies? Therefore, they postpone hiring.

FREELAND: I tend to agree with Amity that part of the problem right now is confidence in the business elite and actually, this week, I spoke to a couple of senior sort Wall Street Democrats, people who were very supportive of Obama, who to my surprise, are very concerned about what they perceive to be an anti-business coloring to what he says. That's surprising to me because I don't hear that. Actually, what I hear from people in the Democratic base is a sense of why the heck isn't the president going after Wall Street more? But I do think there's an insecurity in the business elite. The problem is, I don't think there are any magic bullets for the United States right now.

SHLAES: When we talk about the United States, we think the Federal government, especially in international context, it's Washington that must do this, but the states are very much labs in the United States. There are states that are doing the things we just discussed. One of them is Indiana, where they have a form of health savings account for the state employees, where they had to cut the budget. When anyone in the international market looks at the U.S. and says, it doesn't matter what size deficit they have, they say that because the dollar is king. That person is overlooking that our states are American experiments where budgets often have to be balanced and some of them are bailing -- California -- and some are not.

ZAKARIA: California on the other hand is a good example. You can cut your taxes, shrink your tax base and you basically go bankrupt in the long run.


SHLAES: Innovative part of the American economy, by the way. That's where Silicon Valley is. It's remarkable that that can happen there.


SHLAES: There's a big difference though between Indiana say and Michigan and what Governor Daniels is doing in Indiana is a market model.

SACHS: Amity talks about tax cuts. We're already by far lowest taxed country of all of these countries, and we busted so many of our public functions at this point, and we have a 10 percent of GNP budget deficit. You do the basic arithmetic. We come again and again to the same point that since we have the lowest tax take, that is as a share of our income and I'm not talking about the structure of the taxes, we can't fund basic things to have a normal, civilized country right now. That's what's eating us alive. We can't do anything right now. We're just paralyzed because of this huge gap and the idea that no, we got to cut more, cut more taxes, cut more taxes, rather than take an honest piece of arithmetic and say, it's going to have to be both. We're going to have to have some spending cuts. We're going to have to have some tax increases, but let's take this seriously because otherwise, the rot that will come will be very, very serious.

ZAKARIA: Tax increases. Can you go along with the value-added tax?

SHLAES: No, I can't. When you do an honest bit of math and say, supposing I want to get rid of the deficit this year, I want no deficit for the United States, well, the tax foundation did some math this week on that. They said we'll do it through taxes and they found that the top rate would be 65 percent. We would need statically (ph) to get to zero deficit. Also, everyone else's rate would go up, too. It would be needed across, what we call across the board increase. The future of the U.S. --

ZAKARIA: Nobody's saying you have to go down to zero and nobody's saying --

SHLAES: But the future of the U.S. lies in the reforming of the entitlements, not in adjusting the taxes or even necessarily adding that. I would argue that the VAT is part of Europe's trouble. Europe lies about its financial data, its national economic data more than the U.S. does. I remember and Jeff remembers, the days when Italy said, you have to count our black market economy in our GDP --

SACHS: ... are you going to save on Social Security as we have 5 percent of GNP on Social Security, 10 percent of GNP gap. Are you proposing to eliminate Social Security?

SHLAES: Let me just go back and say --

SACHS: Are you proposing to eliminate Medicare? Are you proposing to eliminate Medicaid which you defended about five minutes ago?

SCHLAES: Social Security is very easy to reform.

ZAKARIA: Would you get much savings?

SHLAES: That's the easiest one. You start with that to show that reform of entitlements --

SACHS: How many percentage points of GNP of our 10 percent of GNP budget gap are you going to get that way (INAUDIBLE) 2011, 2012, 2013, 2014. That's the arithmetic.

SHLAES: Jeff, you asked for an answer to this year's budget gap and I gave you the tax data, the tax rates we need to get to this year (INAUDIBLE) -- in the longer term, which is what we are all concerned about and in the longer term, reform of entitlements is the answer.

ZAKARIA: We are going to have to end on a bipartisan note which is that we have run out of time. Thank you all very much and we will be right back.

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