Show: Larry King Live
Larry King: Before we get into the stimulus project as promised, CNN’s Ann Andrews 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’s actually working, is Robert Reich. He was secretary of labor in the Clinton administration, now he’s a professor of public policy at the University of California at Berkely. His most recent book is “Super Capitalism” and is out in paperback. And Representative Ron Paul of Texas, a member of the House Financial Services Committee, and the Joint Economic Committee. He’s also the author of “End the Fed”. We’ll start with you, Robert. What do you make of the freezing of the domestic programs for three years?
Robert Reich: I don’t think it makes much sense, Larry, and 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 there are not enough consumers out there. So government has got 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 got 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. So having a freeze right now on discretionary spending and effectively saying to the world, to Wall Street, to the country, “We’re not going to do anymore deficit spending” makes absolutely no sense.
Larry King: Congressman Paul, your thoughts?
Ron Paul: Well, I don’t think Mr. Reich has too much to worry about that things are going to be frozen in Washington DC. Matter of fact, even what Obama is saying is not going to 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 malinvest, they misdirect it. They can’t direct capital correctly. We don’t have our problem because there has not been enough consumption, enough spending. We had 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 3 years. It would have cost us less than bailing out the big banks and all these special interests. I mean, with more money the people could make their decision on whether they should liquidate their debt or how they world investment it. And this could be a wiser choice.
Larry King: Quickly, Robert.
Robert Reich: I just want to agree with the Congressman on one point, and that is bailing out the big banks instead of helping Main Street was a version of trickledown economics, and it doesn’t work.
Larry King: Okay. We’re scheduled to discuss the stimulus, and we’ll begin by showing you an interview with Diane Sawyer that aired on ABC tonight; the president making his case for his handling of the economy. Let’s listen.
Barack Obama: We have stopped the economic contraction. The economy is growing again. And we did create or save several million jobs. That’s not my opinion, that’s the opinion of conservative economists, as well as liberal economists. But we still lost 7 million jobs, and so I understand why the American people, their attitude is not, “It could have been worse”, they’re attitude is, “how do we make sure how do we keep on getting better”. That’s what we’ll be talking about on Wednesday.
Larry King: Okay, simply put, Robert, is the stimulus working? Same question for both of you, starting with Robert.
Robert Reich: Well, I think the official unemployment rate, Larry, would be about 13% were it not for the stimulus, for all the reasons I just gave you. When everybody else has stopped spending, government is the spender of last resort. I don’t know, I can’t guarantee and nobody knows exactly what’s going to happen next year, but I think that we probably, given the fact that the states are, in effect, mounting an anti-stimulus package, because they are raising taxes and they are cutting jobs and cutting services, we’re probably going to have to rely on more from the federal government.
Larry King: Ron Paul?
Ron Paul: Well, I think it’s real hard to measure the number of jobs saved or not. I think the stimulus obviously helped Wall Street. Wall Street is doing very, very well. But to say the stimulus was the answer so just do more of it, fails to recognize that when the government spends money, it actually does help the GDP. But there’s a big difference if people get money, save money and then invest it on building cars or something, verses when the government takes the money and spends it on a make-work job or spends money on a weapons system that gets blown up overseas, or bombs blown up overseas. That raises the GDP. But right now the happiest people are at Wall Street. The very people who got bailed out and Main Street and the employment numbers […] were very unhappy. But I do think it’s a stretch to that they know exactly the number of jobs that they saved. And like you pointed out, Larry, there actually a lot. I mean, the president pointed out there are a lot less jobs available.
Larry King: Okay, we’ll pick up on that in a moment. All week on CNN is breaking down how the 787 billion dollar stimulus money is being spent. We’re calling it “The Stimulus Project”. You can get more in-depth information on all this at www.Cnn.com/stimulus. More with Ron Paul and Robert Reich coming up.
We’re back, talking about whether President Obama’s $787 billion stimulus is a success or failure with Robert Reich and Ron Paul. Let’s take a call from Hobart, Indiana. Hello.
Caller: Hello, Larry.
Larry King: Yeah.
Caller: Yea, my question is for the senator.
Larry King: It’s the congressman, go ahead.
Caller: President Obama spent more in the first year of his presidency than Bush spent in the last term. And to put the spending freeze on now, is he trying to act like a populist now, or is he pivoting to the right.
Ron Paul: Hahaha. Well, I think that the fact that this isn’t going to go into effect until 2011, I would say there is a little bit of politicking going on. And I just don’t believe there will be a freeze. And if they did freeze it, that will be very bad. I’m not necessarily for freeze, I want to reduce spending, I want to save tens, if not hundreds, of billions of dollars overseas and bring that money back home so that more of this money can flow into education and medicine and different things. So I want a lot of cuts, but I want the people to spend money. But when the government spends money on a job, they may create a job, but what you don’t see is you might have taken a better, more productive longer lasting job away from the productive economy. So even if you can prove there has been a couple of extra jobs, it doesn’t really solve our problem.
Larry King: Robert, are you generally optimistic in this climate?
Robert: I wish I could be optimistic, Larry. I see the extent of joblessness, the extent of misery and homelessness, or people who are worried about losing their homes or their savings. And frankly, I worry. I looked at 2011 and I say to myself, “Once the stimulus ends, as it will, and if there is a spending freeze and if the Fed does what the Fed is likely to do, and that is tighten and raise interest rates, where is the motivation going to come from? Where is the energy and where is the demand going to come from into our economy?” Because again, consumers and businesses and exports just can’t lift the economy by themselves. I wish I could be as optimistic as Ron Paul about the capacity of the country to just pull money out of national defense and bring it home and give it to consumers as tax breaks. It all sounds good, but I’ll tell you, I don’t know too many Republicans who would want to take money out of the national defense.
Larry King: Constana Macy, California. Quickly.
Caller: Yes, is it possible change the economy ultimately without getting out of these trade deals that we have: WTO and all these trade deals we have with China and the rest of the world. Do we have to get out of those?
Larry King: Ron?
Ron Paul: Well, I don’t think you have to. Some of those things we would get out of. But I think the problem with what Mr. Reich says is that the country is bankrupt; is our problem. And if I am bankrupt or somebody else is bankrupt what they do is they have to pull back, they have to quit spending, they have to work harder, they have to pay off their debt. And we have dreamed up this concoction under Keynesian economics that you don’t have to do that. You just print more money, run up more deficits, and pass it out. And everybody is going to do the right thing. So it’s the opposite thing of what Austrian free market economics teaches. They say what you should do is liquidate debt, get rid of the malinvestment, start over again, get the prices of house down, don’t prop the prices up and stimulate housing. What I see is we’re doing exactly the opposite than what we should do.
Larry King: Robert, you got 30 seconds.
Robert Reich: Ron Paul sounds like awful lot like Herbert Hoover. In 1932, Herbert Hoover and the secretary of treasury, Millen, said liquidate everything and everything will be fine. It took Franklin D. Roosevelt, and ultimately the second World War, to show everybody that Keynesianism was right. You got to spend and if you got to go into debt to get people back to work, that’s better than not doing it.
Larry King: Alright, we will call on these gentlemen. We’re out of time, guys. Robert Price and Congressman Ron Paul, I’m as sorry about this as you are, but we are.