PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

We're continuing our discussion about Bob Pollin's new book, Back to Full Employment. And now joining us again from Amherst, Massachusetts, is Bob Pollin, where he is the cofounder and codirector of the PERI institute. Thanks for joining us, Bob.

ROBERT POLLIN, CODIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE: Thank you very much, Paul, for having me.

JAY: So, once again, watch the other parts of the interview, 'cause you really should get the unfolding of the logic here. But we're just going to pick up from where we left off. So we're talking now about what are solutions, especially to the pressures of globalization. And in the last segment we talked how significant it is that employers in the United States and Canada, and Europe to a large extent, can threaten workers with these pools of cheap labor and millions and millions of unemployed people all over the world, but many of whom can now produce at a very advanced level. And that pressure has led to stagnation of wages in the United States and Canada, and Europe, I believe, and in spite of higher productivity. And now we're going to talk about, well, then, what do you do about this. This is quite objective, this ability of capitalists to do this. We discounted in the last part the effectiveness of trade protectionism and lowering U.S. currency rates. And now we're going to talk about, well, then, what can we do. And then you get to, well, first of all, stimulate the U.S. economy. And the big attempt at doing that was President Obama's stimulus program. So, Bob, take us through that program, because the critique is it didn't really work.

POLLIN: The 2009 Obama administration stimulus program, the so-called American Recovery and Reinvestment Act, was an $800 billion government program over two years to inject spending into the economy. There are lots of debates as to whether the program was too big, too small. The point is that in absolute dollars it was huge. It was bigger than any stimulus program we've had, certainly since World War II, in absolute dollars.

That doesn't mean it was big enough, because the magnitude of the crisis was also massive, also unprecedented. So if you measure this $800 billion, $400 billion over two years, relative to the magnitude of the crisis, it turns out that it wasn't big enough. It did accomplish things. It did counteract the decline of the private economy due to the Wall Street collapse. But it was not enough to revive the economy back onto a path even close to full employment.

Let me just give two examples as to why that was true. One of the factors in the collapse, the Wall Street collapse, was the decline of household wealth. So you actually had household wealth between 2008 and 2009 decline by about $17 trillion—$17 trillion. That's more than 10 percent of U.S. GDP. So it was about—$70 trillion was the total level of household wealth before the crisis, and then after the crisis it's down to $53 trillion. Now, when people experience that much decline in their wealth, the decline in the value of their homes, largely, the value of their other assets, whatever stocks, bonds, pension funds they're holding, then they spend less.

And if we follow some of the economic research on this, what we would expect with that level of a collapse is that you would reduce household spending by about $500 billion right there. So more than half of the money that the stimulus is kind of injecting into the economy is getting withdrawn at the same time due to the collapse of household wealth. So that's one reason why the stimulus was too small.

Another was: while the federal government was injecting this $800 billion over two years into the economy, state and local governments were facing a huge collapse of their finances. So the money was—some money was going to state and local governments to keep them propped up in terms of their spending, but that was only partially compensating for the loss of funds that the states had. For example, our own institution here, UMass Amherst, I was on the budget committee of UMass Amherst, and we faced a huge crisis and the prospects of major layoffs. We got a stimulus check of $50 million. That meant that we could stop the layoffs, but it didn't mean we could add more jobs. So the stimulus program again was just covering in part the hole that was created by the state and local government financial crisis there.

So for those reasons and a few others similar to that, the stimulus was not enough to compensate for this massive Wall Street collapse.

JAY: So I think then some people would argue or ask the question: then why wasn't it made bigger? And some people have argued, actually, if you actually take the size of what was getting out of the economy, it should have been at least even double in size. But is perhaps one of the reasons it wasn't bigger is because if you take out this Keynesian toolkit, the banking and business elite, they understand at times when the economy's about to melt down you can take out some of these Keynesian tools, you can have a certain amount of stimulus, but they don't want enough to actually do what you're hoping it would do, which would actually significantly change employment rates, because that would shift sort of a balance of power back to workers, they would start to gain some leverage, wages would start to go up, so, you know, those who now have, you know, control of public policy at the federal level and state level, majority, they'll only do this stimulus just enough to stop a meltdown, and then they go right back to, okay, relatively high unemployment ain't so bad for us?

POLLIN: I think you may be giving them a little too much credit in terms of their ability to know how big the stimulus should have been. I don't doubt your overall perspective. I don't doubt that there are a lot of people, politicians, certainly virtually all Republicans and a high portion of Democrats, that do not want a high-pressure, high-employment economy through which workers have growing bargaining power. I don't disagree with you on that at all.

On the issue of how big the stimulus needed to be at the moment, it was actually hard to know it. And I confess I myself underestimated the magnitude of how big the stimulus should be. I mean, I wrote an article in The Nation right after Obama got elected, and I sketched out a level for the stimulus which wasn't all that different than the one that got enacted, and I didn't have the motives that you are—.

JAY: Yeah, Bob, I understand that, but within the first two years of the administration, when the Democrats still controlled both houses, a year, a year and a half in, one then could have said, okay, it wasn't big enough, there should be another one, and you and a lot of others were saying that, but we sure didn't get that.

POLLIN: Sure. The other part of the story, which is also in my book, is the other side, which is monetary policy, the role of the Federal Reserve in mobilizing the credit system. And here we also have this massive blockade, which you and I have talked about many times but deserves to be talked about—especially, the Fed is meeting just today to talk about some new policy measures they might pursue. The point is that monetary policy looks like it's highly, highly, highly stimulative, 'cause they've dropped the interest rate that banks have to pay to get money, to get liquidity down to zero percent. They get money for free. But that is not working in terms of stimulating activity in the economy, because the banks take the money and are sitting on it and are hoarding it. So they're now sitting on $1.6 trillion—again, 10 percent of GDP. So the idea that we have a stimulative monetary policy is not true inasmuch as the money is not getting out into the economy.

JAY: And just—we've talked about this before, but let's do this again, too. And it's not that they're just sitting on it, too. They're also making money out of it (they're just not loaning it into the productive economy) in terms of carry trades, where they, you know, pick up money on foreign currency exchanges, or even still derivatives plays.

POLLIN: Well, yes, they're doing all of those things, Paul. But I'm even talking about an even simpler thing. They're holding this money in cash accounts at the Fed, $1.6 trillion. They're also doing the things that—the other things that you're talking about, speculating in derivatives, in carry trade. They are doing those things. The only thing they're not doing is lending money to small businesses to get them going, so that if we don't have a government stimulus, a public-sector spending stimulus to, for example, keep public schools growing, to hire teachers, to hire bus drivers, to hire cafeteria workers, for example, to hire firefighters, if we don't have that coming and at the same time we don't have money coming through the private credit system to the small businesses, that's why the economy's stuck.

JAY: And does there not also be, if there's going to be this kind of stimulus instrument used, that it's targeted and it's big enough to really have an effect on workers' ability to demand higher wages? Otherwise, don't you just have a period of time where the stimulus has an effect and then it starts to peter out, but you're right back to the same situation, which is there isn't enough real demand in the economy and you're back into paralysis again?

POLLIN: That is exactly why I try to stress so much full employment as the goal and also say full employment is not just about a statistic with the number of people who have jobs. Pushing the unemployment rate down, say, in the range of below 4 percent, will empower workers. And, yes, capitalists will resist it. But it will also bring demand into the economy, and that, businesses are going to find, is going to be good. They're going to find that people have more money to spend. And that will allow them to invest more and expand their businesses. And that's exactly why the small businesses in particular would benefit tremendously by a successful stimulus program.

JAY: And, again, that's if you had a political regime, a government that actually had as an objective full employment, 'cause right now these guys are actually quite happy selling into the emerging markets and actually don't seem that concerned—these guys being the business elite—don't seem to be that concerned that the American market isn't as robust as it could be, 'cause they can make their money through cheap wages in the U.S. and also just the global market.

POLLIN: Well, except the global market isn't doing very well either. I mean, Europe is a basket case. Europe is worse than the U.S. So at a certain point we have to have some serious interest in stimulus. I mean, we do have—if you read The Financial Times, The New York Times, The Wall Street Journal today, you have a lot of talk about the meetings that are going on at the Federal Reserve and the European Central Bank, and these elite newspaper outlets are encouraging a stimulus through the central banks, except nobody talks about what the stimulus actually is, what the techniques are, how to do it, how to do it effectively. And so they're stymied, and that in all probability this round of central bank meetings aren't going to be any more successful than all the previous ones.

JAY: Right. And as I pointed out when I did my commentary on the G20 documents in Toronto, there's a five-letter word that never gets talked about in any of these meetings, and that is wages. And the idea that wages need to go up as part of a solution you don't hear within the business pages, unless they're talking about China. Then all of a sudden, yeah, the wages should go up.

POLLIN: That's true.

JAY: Okay. Well, in the next part of our series of interviews with Bob Pollin we're going to kind of wrap up what should be done and talk a little bit more about the politics of all this. So please join us for our summation segment of Bob's new book Back to Full Employment on The Real News Network.

PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I'm Paul Jay in Baltimore. And we're continuing our discussion with Bob Pollin about his new book, Back to Full Employment. And he joins us again from Amherst, Massachusetts, where he is codirector of the PERI institute. Thanks for joining us, Bob.

ROBERT POLLIN, CODIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE: I'm glad to be on, Paul.

JAY: So we're going to kind of jump to the big picture and what should be done. There's a lot more in the book breaking down many parts of the various arguments. And, you know, we'll give you a link to where you can get the book. But we're going to cut to the strategic vision.

And just before we get there, although we heard some of what we're about to hear in President Obama's election campaign in 2008, we didn't see very much of it after 2008, and that was that the engine for driving a transformation of the American economy, both in terms of ending the recession and dealing with global warming and climate-change issues and such, would be to reshape the way American manufacturing works and turn it into an engine of green economy. Obviously the big opportunity for that was the essential nationalization of General Motors. But instead of giving General Motors that kind of mandate, they more or less went back to making cars as they were, but with lower wages, and maybe a little more efficiently, a little bit higher standards on carbon emissions, but not something transformative.

So, Bob, in your book, you talk about what should be done and it should be something transformative. And based on our earlier conversations, you're talking about, well, what would—if a government came to power that actually had as an objective full employment, what would they do? And you're kind of laying out what some of those policies would look like. So, then, what does this green economy look like?

POLLIN: I think that the stimulus program of 2009 that we've talked about before incorporated a green stimulus feature, a clean energy program that actually could have been transformative. It was orders of magnitude more ambitious than anything that had ever been attempted or even thought about in the U.S. It was on the order of $100 billion to promote energy efficiency, solar energy, wind energy, geothermal energy, public transportation, and so forth. So the roadmap was there. Now, it did not get enacted in the way that I would have liked, even though, full disclosure, I was a consultant on this project, but the basic features of the model are there.

And the reason why the green economy is such an outstanding model in terms of moving forward is that, in my view, it combines two things. Number one, obviously, it addresses the problem of climate change. It addresses the issue of having to dramatically reduce greenhouse gas emissions over the next 20 years. The other thing is that in the process of transforming the economy such that it relies much more heavily on efficiency and renewable energy, you also will create millions of jobs. The reason you create millions of jobs is that investing in the green economy is about three times more efficient in terms of creating jobs. It creates three times more jobs per dollar of expenditure than retaining our existing fossil fuel economy structure. Again, that is in the book. The green economy will create about 17 jobs per $1 million of expenditure, the fossil fuel economy about five. So that's—in my view, it's the combination of the two things, that it'll help us solve the climate change crisis and as a result will also be a major engine of job creation.

JAY: Now, in the book you talk about some other—you know, they're not so much strategic as short-term fixes, but they lead to a strategic idea of how things might be done, and that is, you talk about canceling a certain amount of mortgage debt. I think it's especially for people whose houses are now worth less than their mortgage.

POLLIN: Right.

JAY: Some people have suggested canceling student debt, which between those two things would be a major stimulus. So let's talk about those first two. Certainly on the housing side the critique would be that do you then start another housing bubble.

POLLIN: Well, the housing bubble was started because we had an unregulated financial market and you had, you know, hundreds of billions of dollars in Wall Street looking for a high return. If you eliminated all household mortgage debt right now, it doesn't mean that you necessarily have to create a new housing bubble. That's why when I talk about industrial policies to advance manufacturing, to advance a green economy, I see those as an alternative engine to relying on another bubble generated by Wall Street. So we could have—we can dramatically reduce debt. That would, of course, effectively put money back in the hands of people to spend, because then they don't have to use it to cover their debts and they can't get out of their houses, they can't move, they can't go look for a job someplace else 'cause they're stuck in their houses because their houses are worth less than their mortgages. We have to clean that up. So that's why in the book I see that as part of the solution for moving us out of the ditch, the recession ditch that we're in.

JAY: And part of the argument there, I guess, would be is the banks should do this because they're the ones that created this housing market crash, not the people living in these houses, so why should the people living in these houses bear the burden of something they had no control of.

POLLIN: Yeah. And on top of that, the banks were bailed out. And on top of that, the banks can borrow at zero interest rate right now. And on top of that, after they get their free money, they can be redeposit at the Fed with zero risk and earn 0.25 percent just by doing that. So the system obviously is ridiculously rigged on behalf of Wall Street, on behalf of the banks. And, yeah, the political agenda has to be to fight against that.

Having a full employment program as a positive alternative is a way to organize a lot of thinking, a lot of goals around something that will be good for people in the short and long run.

JAY: Okay. Then let's then get back to the other strategic idea, which is this idea of an industrial policy. And we've talked a bit about this before, but it's worth revisiting, that there in fact is an industrial policy in the United States; it's just that it's being managed by the Pentagon. And what you're saying is there should be some thing similar, except managed by the government—I should say, not by the arms side of the government—and with the objective of employment and ordinary people's well-being.

POLLIN: Yeah. Again, if you set as the overarching goal full employment at decent wages and everything that follows from that, you definitely need to incorporate industrial policies to rebuild manufacturing, to advance the green economy.

And, yeah, to the argument that says, oh, you know, we're a free market economy, we don't believe in that kind of stuff, it never works, well, the answer is that it does work in the United States, it has worked in the United States. In some cases it's worked spectacularly well through the Pentagon. The Pentagon essentially created the internet through industrial policies, research, development, commercialization, incubation, all of these things that we say the U.S. shouldn't do, can't do, is antithetical to what we believe in the country. That's what created the internet in the first place. And that could certainly, for example, create a solar energy set of technologies that would make solar cost-competitive with traditional conventional energy like coal or nuclear power.

JAY: Now, one thing you don't talk about in the book but we've certainly talked about before—but it seems to me it's a big part of this equation on how you could get to a political alignment of forces that would come, you know, get elected, would run governments at federal and other levels. And if they—I would have to think it's a new set of political forces that would take up the kind of policies you're talking about, but in addition to that, the issue of the banking system and who controls it, how it's regulated, but, to some extent, even more who owns it, in the sense that if you don't start challenging that tremendous concentration of political power that comes from concentrated ownership of these enormous banks, that you can't get to these other policies, that somehow you have to have a democratization of the banking sector as a piece of this puzzle.

POLLIN: Right. Well, you know, we now have a new recruit supporting that position, which is Sandy Weill, who was the person that created the biggest banking behemoth as a result of deregulation, Citigroup. Just last week he decided that, well, having these gigantic megabanks is actually a bad idea and they need to get broken up. So this is becoming pretty conventional wisdom.

Now, what exactly you do about it and how you do it is the huge question. Now you have Sandy Weill, you have other people like that also saying that the Dodd–Frank, the regulatory laws that were passed in 2010, aren't going to be enough. They're too complicated, they're too favorable to business, and so forth. So yeah.

Well, it seems to me that, you know, what we really need to do is at least start to think about part of the banking system having a public option, as you have talked about many times, competing with the private banks and serving as a utility. One of the simplest ways to do that is if you just had commercial banks that were effectively utilities, which is what they were under the old regulatory system—they took in deposits, they were very heavily regulated, the deposits are guaranteed, the interest rates that they could charge were limited. And so that at least is a first step in the right direction. But more generally, it's very clear that under the existing financial system, it's going to be extremely difficult to take seriously the kinds of goals I lay out in the book.

JAY: So we get back to the political issue, which is there needs to be a different political alignment of forces who runs our governments if we're really going to see policies like this.

POLLIN: Yup, absolutely. And that's why, you know, the aim of the book is to mobilize people that actually care about the well-being of working people, unions, people that are supportive of unions, because I think there's no way we're going to move forward unless there is an agenda that is very tied to the well-being of the overwhelming majority of the people that earn their living, that go to work every day, and their interests have to be attended to.

I saw in—there was an article in the paper yesterday where Romney is thinking about his slogan being a job for every American. Interesting. So his slogan is kind of the same as my book. Now, how he intends to get there is exactly the opposite. He's saying we need to deregulate even more, we need to give businesses lower taxes, less regulations, less union strength. So, you know, we can have a big debate as to how you get to full employment, and my alternative entails giving workers power, regulating the financial system, fighting for the green economy, and moving forward from there.

JAY: Okay. Thanks for joining us, Bob.

POLLIN: Thank you.

JAY: And thank you for joining us on The Real News Network.