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Can Biden Successfully Govern?


American Prospect editor Robert Kuttner talks about how the faith in Democracy and in the state have suffered tremendously over the past two decades, how it can be restored, and what impact this loss of faith will have on the Biden presidency

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Transcript:

Rob Johnson:

I’m here today with Bob Kuttner, who was the founding co-editor of the American Prospect. I will add, in addition, he is an alumni of the Bill Proxmire team, as I am, at a later date, but he was a great mentor to me, and how do they say? Managing to be connected to that experience. We’ve known each other for many, many years. He’s an author. Most recently he has a book called, Can Democracy Survive Global Capitalism? And even more recently, The Stakes: 2020 and the Survival of American Democracy. Bob, buddy, first of all, thanks for joining me. I must say, you’ve got your finger on the pulse of things. Other authors, other people talk to me. I always say with great reverence for your choice of topics, the things you explore.

Rob Johnson:

It’s really nice to be here today, despite the difficult circumstances that we have to address. As you look at the world, as you see it, right now, the middle of the pandemic, Biden administration, just after January 6th and the storming of the Capitol, what do you see that frightens you? What do you see that inspires you? What do you not see that you’d like to see as the world unfolds?

Robert Kuttner:

I think the big question that’s going to confront us for the next year or two, is whether Biden can successfully govern and have a reasonably successful administration, so that he solves some problems and reclaim some confidence in government. Some confidence in the premise that activist government can help people’s lives and a verge that typical wipe out that a new president experiences in the first midterm. The broader question it seems to me, is whether faith in democracy generally, and faith in the proposition an activist government can help offset the anomalies and the inequities of capitalism, whether that can be reclaimed, because that premise has taken a beating over the past couple of decades, both in Europe and in the United States.

Robert Kuttner:

I think the problem is that government, which is really, if you look at the democratic left, if you look at American progressive was going back to Teddy Roosevelt or you look to European social Democrats, going back to the same era. The entire proposition boils down to one idea, that if you have a strong democracy and you have an activist state, the activist state can serve as a counterweight to the unsavory tendencies of a market economy. If you lose that, what have you got? Not a whole heck of a lot. There’s no alternative, but to reclaim that, and a successful activist state and a strong democracy go together, because you need a strong democracy in order to elect the people who are going to carry out a Rooseveltian kind of program.

Robert Kuttner:

That then is necessary to manage a mixed economy, so that the constructive parts of capitalism, namely the propensity to innovate and the value of incentives and the value of markets are not overwhelmed by the corrupt aspects of capitalism, the concentration of wealth, the concentration of power, the circular nature of concentrated wealth turning into concentrated power. If you look at the past 20 years, democracy and the premise of activist government, actually helping people have been whacked on both flags. First of all, they’ve been whacked by the capture of government by economic elites. And then in response to that, you’ve had frustrated people turning to neofascists.

Robert Kuttner:

That’s the mess that we’re in. The question is, how do we begin to reclaim the possibility that we all experienced when we were young, in the post-war era, when the economy not only grew at a rapid clip, but became more equal. It was an era of a successful balance between the market part of the society and the democratic part of society. I guess for me, the big question is, what are the prospects of getting that back? If you look at the entire North Atlantic area, Europe and the United States, interestingly enough, we have a better prospect of getting that back in the United States, despite all the damage of Trump, than we do anywhere else. If you take a tour of the horizon and you say, well, okay, where do we have a competent, moderately left of center government anywhere in Western Europe? The answer is nowhere.

Robert Kuttner:

Germany and France are about as good as it gets. They’re reasonably competent center right governments. The level of popular frustration is very, very high. If you look at the EU, it’s like the articles of Confederation, it’s as if the founders of the EU said, how can we design a machinery of government that makes it almost impossible to govern, because there are multiple veto groups and the Maastricht Treaty ended up being much more of a constraint on activist government than I think some of its sponsors expected. You look at all these cases before the European court of justice. When government tries to do something activist or when trade unions try to do something, it falls foul of the four primary articles of the Maastricht Treaty, which is basically the constitution of the EU, that you have to have completely free movement of capital goods, services, and persons.

Robert Kuttner:

Those principles have been used to bash new deal-ish stuff. Although the EU is good on things like privacy and antitrust. If you want to build a society that is based on the premise that we need an activist state to temper capitalism, the EU is moving backwards and the frustration of ordinary people has increased pace. Why am I modestly optimistic about the United States? Well, first of all, it’s the only country in the North Atlantic area where left of center government, has even a very slender working majority. We’re seeing that play out right now where Biden has decided that he’s going to have to go it alone. The Democrats are going to have to go it alone with this $1.9 trillion relief package. We have just enough votes in the house. It passed 218 to 212. In the Senate, it’s probably going to pass 51, 50. It doesn’t get any closer than that.

Robert Kuttner:

But because of the press of events and because of the combined COVID emergency and economic emergency, Biden is governing more as a progressive than you or I would have expected and I think than he expected. Part of this is because of the nature of the crisis that he faces. Part of it is because the progressive community has been very active in putting pressure on him. Interestingly enough, I would say most of that pressure has been constructive. Progressive’s have not been beating up on Biden. They’ve been beating up on the transition team every time that transition proposes to appoint somebody from Wall Street or from Silicon Valley, but they have withheld their hand in terms of whacking Biden, because they want him to succeed.

Robert Kuttner:

Of course that’s a legacy of the campaign, where any qualms that some progressive’s might’ve had about Biden were tempered by the fact that the only goal was to get rid of Trump and to get Biden elected. I think some of that has carried over. And so if you do it tour of Biden’s appointment, they go from very good to okay, to not so great, but on the whole better than expected. I think in the climate area, that’s the one absolute standard where everybody who’s appointed has been terrific. In the financial regulatory area, Rob, that you and I care about, they’ve been pretty good, although the jury’s out on a couple of them. Gary Gensler, having come out of Wall Street knows exactly how the game is played, became a born again regulator when he was the head of the CFTC, and now is going to be a great SEC chair.

Robert Kuttner:

There’s all kinds of byplay going on, over who becomes the controller of the currency. Scarcely a day goes by that the Michael Buhr camp doesn’t leak something political on how Buhr’s appointment is imminent and yet Buhr keeps twisting slowly in the wind. And so that’s very, very contentious. But on the whole, if you look at the council of economic advisors, if you look at treasury, these have been pretty good appointments. Most of the domestic appointments have been pretty good as well. I think the pressure on Biden to appoint of very different team, has had a secondary, somewhat unintended benefit, as follows. If you look at the centrists or the center right people at senior levels of the Biden demonstration, every one of them is a white guy. If you look at the Progressives, almost all of them are women or people of color.

Robert Kuttner:

By going all in on diversity, he ended up with maybe more of a Progressive administration than he might’ve otherwise gotten. I feel pretty good about that. I feel pretty good about the initial package. I feel pretty good about the green infrastructure package. I think the bullet that they’re going to have to buy very, very soon, lest they be completely stymied by Republican wall-to-wall opposition, is whether to scrap the filibuster. I think the good news there is that, Manchin, Senator Joe Manchin of West Virginia, has left the door open, even though he’s previously on record saying that he doesn’t want to scrap the filibuster. He’s basically said that if Republicans started using the filibuster to block everything, which they will, he might revisit that. I think there’s going to be a moment of reckoning, a month, two months, three months in, where the Democrats just have to take that on.

Robert Kuttner:

Otherwise they will stymie Biden every step of the way. Then you look at the other side of the aisle, the Republicans have some problems. They don’t know what to do about the lunatic fringe, that now represents about half of the parliamentary Republican party. Probably represents two thirds of the base and probably represents three quarters of the people voting Republican primary. You’ve got center-right chamber of commerce business round table Republicans being scared stiff of the Trump base, with or without Trump. Even if Trump goes off to prison in New York state, the Trumpy and base, the tea party base is all to alive and well, and some other fewer will emerge as the next Trump, and God help us might even be more competent than Trump. That’s a very mixed story.

Robert Kuttner:

On the one hand, it means that one of our two parties, in a two party system, is now an anti-system party. It’s as if the AFD in Germany were 46% of the vote. That’s not pretty. On the other hand, it means that the Republicans are going to be doing each other in. And the question is how successful they’re going to be at doing each other in. I think the optimist in me as a good progressive Democrats as well, if you look at these swing districts, you’ve got about 30 Republicans in purple districts, swing districts, who did not vote to reject the electoral college results and therefore are going to be primaried. If they get primaried by far, right Trumpists who then become the candidate in 2022, the Democrats could pick up those seats.

Robert Kuttner:

Structurally I think the Democrats are in line to lose some seats because of gerrymandering, but that may well be offset by the fact that they’ll pick up some purple seats, where Republicans dumped moderates in favor of extremists. I feel tolerably good about Biden beating the midterm Jenks. I also think that Biden’s going to have some tailwinds, the pandemics going to be over, some of the Biden recovery program will bear fruit. People will be feeling a lot better about the economy and Biden will get some credit for that. Biden is also a likable guy. I think his popularity ratings will probably hold up longer than the usual honeymoon period. Another really interesting question is, whether he will peel off some Republicans on some of these infrastructure bills, that will actually benefit people in red States. And whether if Biden has a really ingenious rural development program, whether that will peel off some Republican support, both in Congress and also for that matter at the base.

Robert Kuttner:

If 5% of the people in this country who voted for Trump can say, you know what, actually Biden’s doing more for us than Trump ever did. You’re not going to peel off a lot of those, because a lot of that is racist, and a lot of that is just a solemn populism based on the fact that those people have been getting the short end of the stick for a very long time. They sense that Wall Street has captured both parties. It’s going to take a lot to move many of them, because you only need to move a few of them, to really reinforce the fact that the Republicans are the minority party. And of course, the reason why the Republicans resort to all these anti-democratic tactics like gerrymandering and like voter suppression and like the filibuster, is that they know they’re the minority party.

Robert Kuttner:

The only way they can claim the power is by frustrating the will of the majority. I feel better than I maybe ought to feel about the prospect of Biden having a successful enough administration in the first two years, that he won’t get wiped out in 2022. I think longterm, the project of repairing faith in government, repairing faith in activist government and repairing activists government’s capacity to really solve problems, that’s a tall order. I think Biden is still partly captured by Wall Street and Silicon Valley. I spent a lot of the past six months reporting on who was in line for key appointments and really trying to embarrass them into not appointing bad people. I’ve had some success. I did a piece back in March, as soon as it was clear that Biden was going to be the nominee, called the Biden DNR list, as in do not reappoint.

Robert Kuttner:

I mentioned 12 people from the Clinton and Obama era who should not be back in government. I’m happy to say 10 of them did not go back into government. The most important of whom was, Larry Summers, who was out with a piece in the Washington post saying, 1.9 trillion is too much money. He wins the sore loser dog in the manger award. This is all payback for Biden not bringing him into the administration. The economics is also lousy, because he looks at the so-called output cap and says that the output gap is a lot less than the 1.9 trillion. But of course, most of the 1.9 trillion, even though macro economists use the word stimulus, most of the 1.9 trillion is not stimulus in the macroeconomic sense. It’s, let’s put money into schools and let’s put money into vaccine production and distribution, and let’s put money into state and local government, so they don’t have to lay off people, only 420 billion of that.

Robert Kuttner:

About a fifth of the total is putting money directly into people’s pockets. Some of that money is going to go to pay down credit card debt. The idea that Larry Summers who six months ago, when he was still auditioning for a job, was saying, hey, we need a big stimulus man. It’s more important that we air on the high side than we are on the low side. Now that he didn’t get the job, he’s being a dog in the manger. The good news about that Washington post column that got so much attention, is that, Summers who was never great at tactics has now burned his last bridge to the Biden administration, and now he’s never going to have any influence whatsoever. That’s a silver lining.

Robert Kuttner:

I think the good news is that people like summers and there are lots of them who were really the center-right crowd that brought us deregulation and brought us the financial collapse and didn’t get us out of the financial collapse sufficiently well. Didn’t use it as a basis for a strong enough Dodd-Frank Act. Most of those folks are not back in government. A few of them are. I worry about Silicon Valley’s influence. There are a lot of Wall Street donors who have influence. There is this undertow on Biden, and yet the people making economic policy at the highest levels, council of economic advisors and national economic council, they’re pretty good. There are people who, you or I might’ve appointed if we were in charge. I’m reasonably pleased with where he is, but he’s really, he can’t make any mistakes in terms of the strategy of dealing with the Republicans in Congress, who are going to try and block anything he wants to do.

Rob Johnson:

I’ve been doing a lot of reading about what I will call analogous situations. I’ve been reading a lot of the work of a man named Ed Pavlik, about how James Baldwin viewed the rise of the aggressive black power movement at the time Martin Luther King was killed. I’ve been reading a book recently called the recovery of confidence by John W. Gardner who was the HEW secretary under Lyndon Johnson, despite being a Republican. I wanted to flag those two works. But what I sense is that Republicans maybe in great danger, because that radical populous group, particularly after January 6th has ignited a fear. Just as James Baldwin warned, that Stokely Carmichael in that group, who he quite liked and he understood their frustration, but their militancy, he thought would create a large coalition for which your mind calls stabilization stronger law enforcement, because everybody became afraid.

Rob Johnson:

I sense right now that there is, say since the pendulum started with approximately Newt Gingrich and Trent Lott, there is a place now where people might vote for Democrats, because they think it’s safer, not in a national security sense, but in the cohesion, in the social sustainability sense. What I think is fascinating about that is, businessmen, business men and women, who think they have something to sell that’s profitable, probably should be afraid of a system that’s disrupted and generates, and they never get to realize their dream. I think there are, what you might call constructive, conservative, I don’t mean liberal and conservative, but creating social continuity takes on a premium right now.

Rob Johnson:

The only thing Biden probably does have to be scared of, and this isn’t about him personally, this is about the structure of the system, is that if he’s too aggressive, vis-a-vis Wall Street, which might deserve it, it may chase money to supporting that Republican coalition. I’m really interested in watching how someone like Mitt Romney is going to perform in this context, where he clearly is not a Trumpian, he is a Republican, was a candidate that didn’t prevail. Where do the moderate Republicans go? I used to work for Pete Domenici. Where do the people like he and John Danforth, Nancy Kassebaum Landon, how can they reemerge?

Robert Kuttner:

It’s a good question. I think some of them will defect to the democratic party. I don’t want too many of them to defect the democratic party because that will further increase the business influence in the democratic party and make the democratic party a more centrist party. I think some of them like a Susan Collins, or my governor in Massachusetts here, Charlie Baker, they’re just fine being center-right Republicans. Although interestingly in Massachusetts, a Trumpist just got elected as state party chair of the Republican party, in the Massachusetts. I don’t think you’re going to find too many Trumpers get elected state of the state legislature. I want to respond to your first point. I do think that people who are not hard right, are seeing a Biden and a democratic led administration as a source of stability.

Robert Kuttner:

Ordinary people were terrified by the invasion of the Capitol. The good thing now, is that, that law that we all as good civil libertarians love to hate, the USA Patriot Act, gave all kinds of police state authority to the US government, to do domestic surveillance and domestic anti-terrorism, and now happily those tools are being used against real domestic terrorists of the sort who invaded the Capitol. It just happens at the attorney general is Merrick Garland. Garland’s first big job was as associate deputy attorney general in charge of domestic terrorism. He was the guy who was running the Oklahoma City investigation. He was the guy running the Unabomber investigation and the investigation of the bombing of the Olympics in Atlanta. This is a guy who knows in his bones, how dangerous domestic terrorism is and knows exactly what to do with a fight and he’s attorney general.

Robert Kuttner:

I do think there will be a constructive association of the Biden administration with greater domestic tranquility, to coin a phrase, and safety and stability. Now that is going to infuriate the hard right. I think there’s the hard right and then there’s the violent right. I don’t think all of the hard right is the violent right. You get a pretty good indicator of the relative size of the hard right in the house of Republican caucus, based on the Liz Cheney vote. Only about a quarter of them, 40 something voted to kick her out of her position as the number three person in the Republican house caucus. That’s an indication of the strength of the hard right in the house. I think the violent right, the part of the right that supported the insurrection to Capitol, that’s even smaller.

Robert Kuttner:

And to the extent that they’re willing to resort to force, I trust Merrick Garland to shut them down. I’m modestly optimistic on that front. The Biden administration does have the capacity to arrest and put out of business, domestic terrorists. Now it doesn’t answer the question of where business goes and it doesn’t answer the question of whether Biden ought to spend a lot of chips on reregulating Wall Street. I think the GameStop saga really reminds us, not as an evil in and of itself, but it’s a good reminder of all the unfinished business of reform, from the 2008 collapse. I just did my own interview with a guy whose name you’ll remember, Lynn Turner, who was the chief chief accountant of the SEC back in the day, who really is a font of wisdom of this stuff.

Robert Kuttner:

I said to Lynn, okay, what basic concerns do you have, using the GameStop saga as a target of opportunity? What should this remind us of? The fact that there’s too much leverage all over the financial economy? Yes, of course. The fact that insiders, traders have knowledge that ordinary investors don’t have and can take advantage of them and corrupt markets? Yes, of course. The fact that there’s not nearly enough disclosure, the whole Roosevelt era, a schemer of financial regulation, was partly based on prohibitions, but very substantially based on disclosure. And so Lynn’s idea was let’s have a year long investigation, spearheaded by the SEC, but with the with the help of the treasury and the fed and F sock, to really look at financial markets and looking where they’re corrupt. Now, if that’s attacking Wall Street so be it.

Robert Kuttner:

If that corruption is what Wall Street has come to, then I think a reform administration needs to go after it. That is not to say that we don’t need the help of the chamber of commerce and the business round table in distancing Republicans from true crazies. And so this is going to be fascinating to watch how this plays out on the Republican side, but I think on balance, having a Republican party this fragmented and this much at each other’s throats, on net has to be good for the Biden administration.

Rob Johnson:

I heard a panel the other day where former secretary, Robert Rubin, was talking about the medium term requirement for debt stability, which would be consistent with these historic reputation. Joe Stiglitz and he were on together. But he said a couple of things that were quite fascinating, which alluded to the fact that American healthcare ranks according to the World Health Organization, about 38th best in the world, and yet we pay about, we pay, how would I put it? Most of the OECD pays about 40% of the amount of Americans pay per capita. And so the question was, are there savings from a more efficient, better performing healthcare system, including the pharmaceutical industry, that could allow, how would I say? Rubin some comfort vis-a-vis the debt growth at the same time as improving what we have, for people in the care of their lives.

Rob Johnson:

Similarly, military industrial complex, when we’ve got all these priorities, including climate change, which is almost like a war from Mars, do we not need war preparation and the use of the state’s resources to fight that war, really to modernizing the nuclear arsenal or adventurous in other various places? I just made three part video with Daniel Ellsberg, about the dangers that exist of a nuclear winner, and that this could be taken down, but we have to overcome some of what you might call the rent seeking money politics. Where are the democratic fiscal conservatives in taking on those battles?

Robert Kuttner:

Well, let me start with an unkind word for Robert Rubin. God knows, it doesn’t take Robert Rubin to tell us that the American health system is not cost effective and spends twice as much as the OACD average, and gets half as much back. People have been making that point for decades, and the problem, is that, we have a hyper commercialized fragmented health system. It isn’t just that we don’t have a single payer system, is that we have a for-profit system. We have a commercial system. And so with the commercial system, you’ve got all kinds of middlemen making money off the system and not providing care and utilization reviewers, huge amount of money spent on billing and on all kinds of stuff that that adds no value.

Robert Kuttner:

Of course, we’re never going to have the votes for a single payer system. We’ve got people like Jacob Hacker making the argument that, well, maybe we can get informed mentally towards Medicare for all, by allowing people at a certain age to buy into it, which I think is a good idea. The problem is that, nips and tucks around the edges don’t fix the cost escalation, and Obamacare, even though, it helped upwards of 20 million people get care. It only made the system more complicated. Medicaid is a much better deal if you fit the income limits, than any of the policies you can buy in or the Affordable Care Act, which have a blight of deductibles and copays, and the whole promise that competition would somehow reduce prices, has not been realized because in so many counties in America, there’s only one provider who’s offering policies under the Affordable Care Act.

Robert Kuttner:

It’s a problem of incrementalism in a society where you have filibusters. And even when Democrats have a working majority, they’re not able to have the reforms that we had in the Roosevelt era or the Johnson era when there was super more and more majorities in both houses of Congress. Those were the only periods when we had that.

Rob Johnson:

And where both parties, candidates didn’t need to raise so much money, that the currency of votes was much more powerful than it is relative to the currency of dollars.

Robert Kuttner:

Yeah. On the whole question of the debt, I think, given the very low interest rate environment, given the absence of inflation, given the history that countries have lived with much higher levels of debt and not had their economies tank, we’re just going to have to live with higher levels of debt for a while, until the economy recovers and until we have invested a lot of money in climate and infrastructure and other things that the society needs. The fact that corporate America has spent so much money on stock buybacks and has so much cash that it doesn’t know what to do with other than investing in treasuries, tells you that there are not enough opportunities for productive investment in the private economy. And therefore it logically follows that the public economy ought to be doing the investment. This is gains 101.

Robert Kuttner:

It happens to particularly fit the current circumstances. If that means that the debt to GDP ratio has to go to 150%, so be it. The interest rates are so low. Is it Austria that has 100 year bond now, that pay I think 0.88%? Or maybe you go back to consults where the bonds are just [crosstalk 00:35:38]. This is what the United States government ought to be doing. It ought to be borrowing very, very long, locking in these low interest rates and investing the money in public goods that are going to pay a higher rate of real return to the economy than anything that the private economy seems to be able to find to do with its money. If the short term consequences of that is a higher debt to GDP ratio. That’s no longer the fearsome indicator that it used to be.

Robert Kuttner:

I think solving the health crisis, the crisis of the healthcare system in the United States, is its own separate challenge, quite independent of the debt ratio. If that’s what it took Bob Rubin to focus on the health care crisis, okay, we’ll take that. There are two separate problems, I guess, two separate challenges. How much do we need to spend and invest? How much of that do we get from debt? How much of that do we get from tax reform? And then separately, what do we do about the mess that is the American healthcare system?

Rob Johnson:

The military question, it’s an unstable world. We’ve talked about different dimensions of fear. Other times, people are expressing, particularly people of color, the dangers of an overly weaponized law enforcement system and a cruel prison system, which even people on the right, like the Koch brothers have started to back philanthropic initiatives to make the prison systems less profitable, less privatized, less costly, and about training and healing. So people don’t go back to prison because they have the means to conduct a constructive and confident life during the time they’re incarcerated, they’re helped not tortured.

Robert Kuttner:

Let’s start with the military. And you also raised the question of China before we went on. Let me connect the two. Clearly we spend too much money on the military, and clearly we have a challenge with China. My worry is that the challenge with China will be defined as a military challenge and will then become the basis for even more military spending. I think the China challenge is a geo-economic challenge. It’s a geopolitical challenge. They have a system of state led capitalism, where even if a company is nominally private, there’s a minder from the communist party, in the boardroom of that company. Nothing of any consequences happens in China without the communist party agreeing to it. And so we have a system of state led quayside capitalism that is phenomenally successful, that is connected to a system, that is authoritarian bordering on totalitarianism.

Robert Kuttner:

That violates every premise of orthodox economics 101, but the Chinese have figured out how to pull this off. On the level of industry and technology and the global trading system, what do we do about this? I think the short answer is, we take back or take forward a lot of technology, a lot of industry, we reshore a lot of supply chains and we make sure that we’re not cut out from the next generation of advanced production. There’s a military dimension to this, but it’s secondary. To the extent that national security concerns can be brought in as a rationale for a very forward looking industrial policy, that’s okay, as long as the military guys don’t take it over and turn it into a rationale to get all dressed up for a potential shooting war with China.

Robert Kuttner:

China’s a real problem and it needs to be understood correctly. Trump, I think did us a favor, he understood that the WTO was not helpful. And so Trump has refused to appoint people to the so-called appellate body, which is the court of appeals of the WTO system. And as a consequence has basically shut down the WTO. If the United States were to have an aggressive industrial policy to take back solar or take back wind, and China said, wait a minute, that’s a violation of the WTO. It takes a lot of nerve for China in the first place to be bringing any complaint to the WTO, given that the China’s entire industrial system is affront to the norms of the trading system. But the fact that the appellate bodies audit business is a good thing.

Robert Kuttner:

And until we figure out how to revise the rules and the norms of the trading system, we should go full speed ahead with bio America. We should go full speed ahead with industrial policy and start targeting these industries in the future, which I think is something that Biden is sensitive to. At the same time, we need to be cutting back the purely militaristic aspects of our military industrial complex. This is tricky, because some of the elements of the military industrial complex are ingredients in taking back some key industries. You have to be careful that they don’t become the hall ball game.

Rob Johnson:

The sense that you have is, I think a very good one. I remember when I worked in the Republican Senate budget committee, about the time the defense appropriation bill appeared, my staff leaders and the senators I work with would say, well, get ready for all of the anti Soviet Union and anti China articles to appear in the newspaper, because they’re essentially marketing for passage of the appropriations bill. I sense that, like you’ve said, animosity about suffering from globalization, integration, the exacerbation of income distribution widening, people being heard at the bottom is now being transformed into a nationalistic hatred. Hopefully it doesn’t take on a military guys or military shape as the, what you might call outlet for that anger. I think we have to correct the commercial system. When I’ve met with Chinese leaders, essentially everybody, but Xi Jinping over the years.

Rob Johnson:

What they’ve said to me is, China is about four times the size of the United States population. When we started this, we were 140th of the per capita income, and there were going to be adjustments. America could make everyone better off, but they need internal transformation transfers to bring that about, we are powerless. At the same time, some people from Scandinavia came to see me, and they said, we think given the intensity of technological change in the Silicon Valley era, that the growth model used to be America deregulates, makes flexible its supply side. Europe is sclerotic with social protections and then America always grows better, because they reallocate things in shuffle around. But they said, that’s changed.

Rob Johnson:

Now the scope and scale of the transformation between globalization and technical change automation, machine learning, is so vast that the population has become despondent. Things are going to break down in Trumplike nationalism, and the European model is the better growth model. Because as they put it, and this was Peter Goodman wrote this up in the New York Times, we don’t protect jobs, we protect people, meaning if you’re part of a dynamic evolution in Sweden, your healthcare, your children’s education, your pension and your retraining were all part of the social contract. But that involves a lot more collective leadership and responsibility from government than what we’ve experienced in the United States in recent years.

Robert Kuttner:

My only concern is that that describes European social model as it existed, about 30 years ago, before the neo-liberals got hold of it. Tragically in Sweden, a lot of the Swedish model has become more like the Anglo-Saxon model. It isn’t what it used to be. Then you went into a downward spiral where it loses political support, and then you get into a situation where there are weak coalition governments. You’ve got a social democratic prime minister presiding over a three party government, one of which is center, center, right. He’s a great guy, but he can’t do anything. You’ve got a similar situation in Denmark. It’s better than the United States, but a lot of Europeans use the phrase, the society of insiders and outsiders, the European social state is partial.

Robert Kuttner:

In Germany, God help us under a social democratic government. The social Democrats agreed to the so-called hearts fear reforms, where labor protections for weekend and a lot of people were shunted off into so-called mini jobs and not given social protections. And so you now have these European societies where if you have long term contracts and primary industries, or you’re working for the public sector, you’re still protected by the old social contract, but that’s fewer and fewer people. And so you have a fragmentation of the political system and you have a fragmentation of the consensus that we had during the post-war era now. And then you’ve got the EU, which is a recipe for political paralysis.

Robert Kuttner:

Whether Europe can take back this model that combines social protection with dynamism, with economic dynamism. It’s a very open question, for Denmark, I think in Sweden did this best. They’re not doing it as well as they used to. They’re doing it better than we do, certainly. Germany is doing it better than we do. But the problem is, with about a 20 year lag, these countries because of the infection of neoliberal ideas, are moving more in the direction of the United States than the United States is moving in the direction of them.

Rob Johnson:

Let me ask you a question about that. You wrote your book, Can Democracy Survive Global Capitalism? Obviously in the United States, we’ve seen some of the wear and tear from that. But is it not the case that, what you might call, capital and technology with wings, how do I say? In a scope of a market much greater than the domain of the sovereign, they can start to dictate the terms of participation relative to labor, which is less freely mobile. Are we not in a place where governance, because, again, the scope of the market is larger than the domain of the sovereign, cannot protect its people. I remember being involved with the Detroit bankruptcy and people were talking about, what does it mean to have a state go bankrupt? You were taking people who had worked as municipal workers. They don’t get social security, they don’t get Medicaid.

Rob Johnson:

And they’re having their benefits and pensions cut, from 19,000 down to 12,000, after working for 40 years as part of a bankruptcy. Well, you could raise the taxes on wealthy people and so forth and change the contract for the future. But what was interesting is that politicians said to me, well, we can’t do that, because the Capital will get up and leave. I showed him some things from the Center on Budget and Policy Priorities, Bob Greenstein group that said, that’s not what happens. They came back to me for real, and they said, you’re right, that’s not what happens. What goes on is they go primary us from the right. We lose in the election and then they rescind the tax.

Rob Johnson:

So we say, why should we put ourselves in harm’s way? At some level that mobility, that globalization, that turning tax evasion into tax avoidance with lobbying, where money can be kept off shore, weakens the Republic, weakens the democracy. I guess to close the loop from where I started this, Denmark and Sweden are subjected to those same forces of the weakening of the state as the United States. They may not have embraced them as whole heartedly or maybe with a lag they’ve had to, but isn’t globalization tearing away at what a nation state can do?

Robert Kuttner:

Oh yeah. I’m quite a radical on that subject. Danny Roderick, who I guess would not call himself a radical is my hero here. If you have to choose between globalization and the capacity of the state to solve the problem of its citizens, you choose the state. You choose sovereignty. And globalization has to go in some respects. Now, Denmark, very interesting little historical accident. A lot of the biggest Danish companies are owned by trusts. That means that private equity can’t buy them, that means that they’re not traded. They stay Danish and they continue to believe in the Danish social contract.

Robert Kuttner:

I think, for instance, it’s entirely possible to say that we have certain social standards in this country. If you are going to try to export from X country to the United States and you don’t have those social standards, you have unsafe working conditions or you have child labor. Or it’s an American company that offshore production to Bangladesh. You can do that, but you’re going to pay a social tariff. You’re going to pay a very stiff social tariff, because we don’t want to import your working conditions along with the products. There’s a huge divergence between elite opinion and mass opinion on that subject. Elite opinion says, Oh my God, that’s protection, that violates the competitive advantage. 90% of ordinary people say, right on man, let’s have those social tariffs. I think social dumping is a real thing.

Robert Kuttner:

I think we’ve been much too casual about giving into the race to the bottom globalization. You see it, of course, in the attempt to regulate capital. The United States is such a big market and such a big capital market that my belief is that, a lot of capital has to stay here. A lot of capital wants to do business here. You have this scandal of situation where the Dodd-Frank Act says that, credit derivatives are going to be regulated. If you move them off shore, but they are part of City bank or Morgan Stanley or whoever, they’re still going to be subject to US regulation under Dodd-Frank. Then Swaps Association says, well, guess what, we are not going to take responsibility for those Swaps and we’re going to book them in London or Frankfurt or Hong Kong or wherever.

Robert Kuttner:

That way we’re not going to be subject to Dodd-Frank. And so the SEC under Obama starts a rulemaking, which says, the hell you say, de facto, those are governed by American domicile banks. And then Trump [inaudible 00:52:48]. The ability of the United States to enforce its own financial regulations against a politically powerful Wall Street, that’s trans warfare, it’s always going to be trans warfare. But that doesn’t mean that it’s impossible to regulate capital or for that matter regulate the terms of labor, if we can just get a political coalition, that’s willing to do that. The race to the bottom of course reflects the fact that we haven’t had that kind of political coalition. Even when we elected Democrat, it is a Clinton Democrat, or an Obama Democrat, who is captured by the same forces of concentrated wealth.

Robert Kuttner:

We will see whether Biden is different. Of course, the question you raised in the hierarchy of things that we need to do, that there are imperative that we do. Where does reregulation of finance fit? Is that a fight that we can afford to take on? Or do we have to put that in the second tier things that we want to do, because COVID or climate change or public infrastructure are more important. I would argue that if we don’t get that under control, it makes it very difficult to do everything else.

Rob Johnson:

I’m going to agree with you emphatically. First of all, I want to point out that Michael Greenberger, who you and I both know well has done tremendous work, illuminating how derivatives-

Robert Kuttner:

[crosstalk 00:54:21] his article, that I think you underwrote.

Rob Johnson:

Yup, exactly. But-

Robert Kuttner:

That what I’m alluding to. Thank you for underwriting that by the way.

Rob Johnson:

I felt like the point guard and you dumped the ball.

Robert Kuttner:

But the tragedy is, you can count the migraine burgers on the fingers of one hand.

Rob Johnson:

That’s right.

Robert Kuttner:

Because people with his knowledge and his sophistication of how financial markets work, get systematically purged from the ranks of regulators.

Rob Johnson:

That’s right.

Robert Kuttner:

That’s the Brooksley Born story. And so then, when the time comes to appoint progressive regulators, the bench is very thin. And so you got Gary Gensler. Great. All right. Who else you got? The answer is, well, Wall Street can give you 400 people who can do that job, but who have the wrong sensibility and the wrong mentality.

Rob Johnson:

Well, I want to come down to the home stretch here, back to the issue that you mentioned, was climate change. Because some of that race to the bottom with foreign direct investment, globalization, was about migrating to the place where there were the least rigorous environmental standards. We as a planet, destination, or the place you’re departing from, or wherever, have the public good of reducing carbon. We can’t afford to design, over the next 30 years, that tolerates people migrating to get away from environmental restrictions. If you were walking into the White House tonight, what would you be saying to the president and his core staff, is the way we have to address climate change in the coming four to eight years?

Robert Kuttner:

Well, I think very radically. I think we need to get away from fossil fuels and move towards all electric, but all the electric needs to be generated by renewables. I think diplomatically, the really interesting challenge with China, is to agree to move forward on climate with China, even as we agree to disagree on some of the versions that we have with China, over whose industrial policy has what impact. Biden is going after Putin on the latest imprisonment of the Sanders, even as we have just signed a five-year extension of arms control. It shows that you can have disagreements and still make progress on areas that are of common interest.

Robert Kuttner:

I think we may see the same thing with Iran. Climate and public investment in service of a green transformation, that needs to be absolutely top of mind. It also happens to create some jobs. It also happens to create some opportunities for rural redevelopment, where maybe we can take back some Trump voters and the United States really has to be back in the position of a world leader on this rather than the world embarrassment that it was under Trump. Climate is not my main expertise, but I know enough about it to know that he’s appointed very, very good people and I’m very encouraged by that.

Rob Johnson:

The former Michigan governor, Jennifer Granholm, is the energy secretary. I’ve met her. I hold her in very high regard. In addition, rebuilding the Midwest in the green new deal contexts may change some swing states and make the Democrats less vulnerable to the, which you might call Trumpian rage in places where the electoral votes have been in play.

Robert Kuttner:

Good economics and good politics go together. This comes back to the filibuster, he’s just got to get this through Congress. You can’t do that on the budget resolution. You’ve got to get legislation to do it. You can’t do it with executive orders. Filibuster elimination is going to dictate whether he can do any of the wonderful stuff that we want him to do and I think that he wants to do.

Rob Johnson:

I think there’s also a change in the mindset. I’ve recently been reading books like Elliot Janeway, the Struggle for Survival, about FDR and the preparation for world war two. Naomi Klein’s, older brother, Seth Klein has written a book called, the Good War, about how we have in Canada, which is a big fossil fuel producer. There’s more supply and demand side adjustments that need to be made. They have to look at the way in which Canada, which proceeded the United States in entering World War II, mobilize their resources. Instead of saying, the market will solve it, they say there is expertise, there’s the equivalent of engineering sophistication out there, in the private sector. We need to mobilize that genius, but we need to direct what the results are.

Robert Kuttner:

World War II, when we finally got into it, is the great model for this, the World War II scale mobilization that was technological and industrial as well as military. That has to be the model for a green mobilization.

Rob Johnson:

Well, we’ve covered a lot of different areas, any final thoughts, anything come to mind that you’d like to?

Robert Kuttner:

This is always a pleasure to have these conversations with you.

Rob Johnson:

And vice versa.

Robert Kuttner:

I think we are probably both a little more optimistic than we might’ve been two months ago, so that’s good.

Rob Johnson:

Well, how would I say? We have a lot of children and grandchildren and so forth, to care for, and how would I say? The urgency of now, is I think everyone understands quite profound. Thanks for coming on today, illuminating the nature of this challenge. We’ll just wait a few months and I’ll call you back and we’ll take a look at it a little bit further down the pipe.

Robert Kuttner:

Well, you’re welcome. Thanks for everything you do with INET. It’s very important.

Rob Johnson:

Thank you. Check out more from the Institute for New Economic Thinking, at ineteconomics.org

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