My friend John Amato has been asking where are the economists debating what's going on in this country on my television. Well, Fareed Zakaria had just that kind of discussion on his show GPS. This is a debate worth listening to with some actual economists on where we're at right now. The one thing that struck me with watching this clip is just how severe the problem of poverty is that is not being addressed by the media in the US and being ignored as part of our national dialog.
Full transcript to follow:
ZAKARIA: Well, it's been another bad week for the economy. It's almost a cliche now. And it seems that the same ground gets covered with each discussion. How bad is it? Could we have a depression?
But what we have that's new here is, we have all three parts of Obama's package laid out -- the bank bailout, the fiscal stimulus and now, the housing plan.
So my simple question is: Will it work?
We have Joseph Stiglitz, winner of the Nobel Prize in economics; Edmund Phelps, winner of the Nobel Prize in economics; Jeffrey Sachs, who one day will win the Nobel Prize in economics, but 25 years ago became world famous for telling countries how to get out of economic crises.
If you were advising a country, you know, the United States, would you say that the Obama plan is enough?
JEFFREY SACHS, DIRECTOR, EARTH INSTITUTE AT COLUMBIA UNIVERSITY: I think they have, so far, put a patch on what was a collapse. And so, that's good.
But I don't think that we have yet seen the forward-looking steps that are going to be needed for the longer term. And...
ZAKARIA: You don't have a fiscal stimulus has within it the investments... SACHS: It has the seeds of it within it. But it was so weird -- I have to use that word -- how Congress held back anything that looked beyond 2010, said that that was even illegitimate.
Our country has become so short-sighted and so short-term, that we're not thinking about the real way out of this. And the model that the Congress -- especially the Republicans -- seem to have in their mind, is this quick rebound. And that's the wrong model.
And so, that's what's held back so far. We haven't really had a proper discussion yet in the country, except by the president himself. He's the only one seriously, systematically talking about the longer term.
JOSEPH STIGLITZ, NOBEL PRIZE WINNER IN ECONOMICS, 2001: But even in the short run, it was deficient in two respects -- first of all, too much emphasis on tax cuts, which are not likely to give a stimulus.
But secondly, the states are facing an enormous shortfall of revenue, estimated at $150 billion or more per year. Now...
ZAKARIA: California alone has a $40 billion revenue...
STIGLITZ: That's right. So the $150 billion keeps getting larger. It's probably $200 billion.
Now, the states have this balanced budget framework, which means that, if they don't have the revenue, they have to cut back spending.
So, while we are talking about stimulating the economy, the states are engaged in de-stimulating the economy.
The first thing that we should have done is to say, we have to prevent this downturn. It doesn't make any sense to have the states fire teachers when we're -- you know, and say, OK, now we're going to build some roads.
SACHS: That was another strange part about the politics of this, which is the Republican objection was to try to cut the transfers to the states, which was absolutely the first thing to be protected in this downturn.
STIGLITZ: Exactly. That was where they should have begun, because that's preventing things from getting worse. And we didn't do that.
SACHS: Didn't do it adequately.
ZAKARIA: Professor Phelps, would you spend the money the way the fiscal stimulus is...
EDMUND PHELPS, NOBEL PRIZE WINNER IN ECONOMICS, 2006: No. I was shocked by the nature of the stimulus package. I recall Obama's very moving speech after his North Carolina win, in which he was recalling how central work was to his father-in-law.
Candidate Obama used the term "rewarding work," which happens to be a title of a book of mine, advocating low-wage employment subsidies, subsidies to companies in proportion to how many low-wage employees they have on their books.
So I thought, "Oh, this is great."
And so, I was really amazed when the actual package come out, and it seemed like such a collection of mostly shop-worn ideas.
ZAKARIA: So you would rather, in a sense...
PHELPS: I would have rather gone with a surgical instrument, like subsidies to companies for their ongoing employing of low-wage workers.
ZAKARIA: You know there is...
PHELPS: That would have worked. That would have created jobs and pulled up some earnings, too.
ZAKARIA: You know there's a country that's doing this -- Singapore.
PHELPS: Yes. Yes, that's absolutely right.
ZAKARIA: And so, we should be following the Singapore model.
PHELPS: Can I brag a little bit? They mentioned me in the "Singapore Times" as behind that.
SACHS: We forget in our rhetoric -- and it was true throughout the whole campaign -- there is actually a poor part of this country, also. And I noted that in the presidential debates, all three of them and the vice presidential debate, the word "poor," the word "poverty" wasn't mentioned one time.
PHELPS: Always middle class.
SACHS: Always middle class.
PHELPS: The middle class is...
SACHS: Middle class, middle class...
ZAKARIA: Because they're the -- because they're the voters.
SACHS: Well, we understand why. It's politics. But on the other hand, we have an extraordinarily serious problem of poor people in this country. STIGLITZ: And it's certainly getting worse.
SACHS: And it's getting worse.
PHELPS: The working poor.
STIGLITZ: The working poor.
SACHS: Also the working poor. And Ed's idea is a terrific idea.
STIGLITZ: And now we have the unemployed.
SACHS: It really is a terrific idea, and it's been a terrific idea around for a long time, waiting to be picked up.
But we need a balance not only to the middle class, but also to the poor. And I hope that we move beyond a commission for the middle class, which we now have, too -- a commission for people that are in desperate need -- because this country's filled with people in desperate need right now.
ZAKARIA: Let's talk about the home mortgage problem. Is the president's plan the right one?
STIGLITZ: Oh, it's so much better than what we had before. And that's one of the things about all three parts of his program -- so much better than we had before, that I feel hesitant to say -- you know, to complain. But it's not what I would have done.
Many families have houses, the value of their mortgages much greater than the value of the house. They're called "under water." It makes sense to have these mortgages restructured, to write them down.
Bad loans were made. The question is, who's going to pay for it? To me, it's very clear. It should be the banks that bear the bulk of the cost.
ZAKARIA: And your feeling is that the Obama plan shifts it somewhat, but not enough.
ZAKARIA: That the homeowner is still on the hook for too much of it, in your view.
STIGLITZ: And what we need is to change the bankruptcy law. I've called for a homeowner's Chapter 11.
We have a bankruptcy bill for corporations. We use it all the time, the airlines, where you restructure the debt. The airline keeps going and -- because you want to preserve jobs.
ZAKARIA: Well, in this case what would happen is, the person would stay in his house, or her house, not walk away. But the debt would be restructured, just as in a bankruptcy, rather than having to walk away from the house, which would lead to a collapse of housing prices in the neighborhood, the houses around it, et cetera.
STIGLITZ: And it destroys the family. It interrupts the education of the children. It's bad for the community.
And what good does it do?
ZAKARIA: Professor Phelps, you, in a Nobel interview that I watched, you said something really interesting.
PHELPS: There is no more official recognition of what used to be the American Dream. The American Dream used to be that you'd go out there, you'd take some risks. You invest in yourself, invest in various ways. You work hard. And with some luck, you'll make it. They'll be various rewards in terms of pride and gratification.
And of course -- and now, the official dogma of the government is homeownership and Social Security. And why don't we have a government that celebrates adventure, exploration, discovery, problem solving? I mean that's -- there's never any talk of that.
STIGLITZ: What bothers me, though, is the asymmetry. It's that we're socializing the losses of some very well-off institutions, people, and privatizing the gains. It's that asymmetry that...
ZAKARIA: In other words, if you make $5 billion -- $1 million a year and make bad loans, your bank gets bailed out. But if you were making $40,000 a year and you took a bad mortgage, you would probably lose your job.
STIGLITZ: Exactly. That asymmetry is really undermining the fabric of our society.
ZAKARIA: Jeff Sachs, the last word on this?
SACHS: Well, I think adventure is fine, but the risks are a little bit high right now, also. And we dismantled the social safety net in this country.
People don't have health care. They can't take care of their children. We've got hunger in this country.
So, there's a hidden face, because we don't really talk about these things that affect tens of millions of people, and the numbers are now rising dramatically.
So, I think we want to be civilized about this. What Joe has said about the egregious transfers to the wealthy has greatly exacerbated this. And the nerve of John Thain and others to take bonuses after they've broken the world economy, that's literally scandal.
We've got to go back and claw back those bonuses, because that's tens of billions of dollars that went on taxpayer bucks -- or from shareholders, in fact, because it wasn't real income. It was taken straight out of the bottom line. And that's a shame for our society when people are desperately trying to make ends meet right now.
ZAKARIA: We have to leave it at that.
Edmund Phelps, Joseph Stiglitz, Jeffrey Sachs, thank you very much.
And we will be right back.