PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore. And welcome to this week's edition of The Bill Black Financial and Fraud Report.
Mr. Black now joins us from Kansas City, Missouri. Bill's an associate professor of economics and law at the University of Missouri–Kansas City. He's a white-collar criminologist, a former financial regulator, and author of the book The Best Way to Rob a Bank Is to Own One.
Thanks for joining us, Bill.
BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you.
JAY: So the sequestration cuts and drama—what do you make of it?
BLACK: So both parties have conspired to bring us disaster. In this case, sequester is the fourth shoe to drop in austerity, and collectively this has strangled the recovery and may even put the U.S. economy back into recession.
So the first major act was in mid 2011 when they reached this budget deal that created the sequestration. And the budget deal in itself caused over $1 billion in spending cuts at the worst possible time.
JAY: So, just to remind everybody, the sequestration formula deal was a proposal by President Obama.
BLACK: Well, indeed it was created by President Obama—now, under, of course, Republican pressure, where they were threatening not to raise the debt ceiling, but it was an Obama idea. And the principal framer of it was Jacob Lew, the president's selection to be Geithner's replacement as a disastrous Treasury secretary. And then the president blocked a Republican effort to get rid of sequestration. And then the president went so far as to threaten to veto any bill that got rid of sequestration when the Republicans tried to get rid of it again.
Now, you shouldn't think too well of the Republicans in all of this. What they were worried about, pretty much solely, was defense spending and making sure there'd never be a drop in defense spending.
In any event, what you see is neither party, even at this time of crisis, where all the supposedly serious people finally agree that this act of austerity is insane, self-destructive, might well cause a recession, neither party is getting behind a clean bill that—it would be literally one sentence: the sequestration provisions are repealed. Right? And we could be free of at least that aspect of the insanity. We'd still have the debt ceiling insanity, but the sequestration, we would no longer be shooting ourselves—not in the foot, but substantially farther up our anatomy.
So, as I said, the sequestration is large, but it's not the sequestration all by itself; it's the fact that it is this fourth act of austerity. I began to mention the mid 2011 pact. Knock off $1 billion in spending at the worst possible time. Then we raise taxes on the wealthy, which you may well support, but it is an act that pushes you towards austerity. And then the far larger and vastly more destructive resuming the entire payroll tax on Social Security, which economists think all by itself knocked a half percentage point off of growth—and our growth is really small, so that's a massively important thing that is going to cost hundreds of thousands of people their jobs. And now the fourth shoe to drop of austerity, of course, is going to be this sequestration.
And meanwhile this is happening while we see Europe forced back into a completely gratuitous recession. The entire Eurozone on average is back in recession, and the European Commission's just come out with dreadful projections saying things are going to get worse.
Spain just announced today that a single bank that they were bailing out, or, you know, which is really seven failed thrift type entities, is going to cost them roughly $25 billion just this year. And Spain's a large economy, but nowhere close to the United States, so this is bigger by far than the most expensive U.S. banking failure in history, all occurring in Spain, all being driven both by the bubble and fraud and then this self-inflicted wound of austerity.
And we can't even get the president, who, you know, on day one will say, the sequestration—disaster, insane; and on day two refuses to put forward a clean bill to stop it; and on day three says, hey, that Jake Lew, the guy that created this disastrous scenario that is going to potentially hurl us back into recession, he should be our Treasury secretary and create our financial policies.
JAY: So when you read the business press, some of the stories are about how blase Wall Street is and corporate America is, and they're not very concerned about $85 billion cuts. And the stock market's doing fine. It's not seemed to be affected by it. Why is that if the recession or threat of recession is looming?
BLACK: Well, recession isn't necessarily bad for the stock market. We've had a record recovery in stock market prices with an extremely weak recovery from the Great Recession because it's been strangled. So they love the current system in which wages have not simply plateaued—you know, household wealth for the middle class is down to where it was 18 years ago. There's over a 15 percent of loss in wealth of the middle class and the working class and a massive increase in corporate profitability, where we get all these productivity gains, which is what allows you to pay workers higher wages without any inflationary risk. And virtually all of those productivity gains during the Great Recession have gone to the richest not 1 percent but the richest 0.001 percent.
JAY: Thanks very much for joining us, Bill.
Thank you for joining us on The Real News Network.
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.