Solman: Fixing economy begins with understanding principles

 

Paul Solman, “PBS NewsHour” correspondent, speaks in the Amphitheater Tuesday morning. Photo by Demetrius Freeman.

Nick Glunt | Staff Writer

Music filled the Amphitheater during the 10:45 a.m. lecture Tuesday as Paul Solman hit “play” during his PowerPoint presentation.

The voice, belonging to soul singer Sharon Jones, sang the familiar lyrics to Woody Guthrie’s “This Land Is Your Land.”

Only this time, one verse wasn’t so familiar.

“As I was walking, they tried to stop me/ They put up a sign that said, it said “Private Property”/ Well, on the back side, you know it said nothing/ So, it must be that side was made for you and me,” the lyrics read.

This verse of Guthrie’s classic song was removed later because it was a little too radical. Solman said that verse has some meaning in today’s context, too.

Solman, a “PBS NewsHour” correspondent, said during his lecture that the U.S. should learn the differences between economic ways of thought. He was the second speaker for Week Seven’s theme, “The U.S. Economy: Beyond a Quick Fix.”

As a journalist, Solman was very careful not to pick sides in the debate.

Over the course of his lecture, Solman played several YouTube videos, including a rap battle between actors portraying rival economists John Maynard Keynes and Friedrich Hayek. Understanding the difference between these schools of thought, he said, is very important in discussing how to jump-start the economy.

Keynes, who lived from 1883 to 1946, was a British economist who subscribed to the thought that government spending will stimulate the economy. Alternatively, Hayek, who lived from 1899 to 1992, was an Austrian-British economist who said the economy is like a network, so having free markets and jobs for every person will boost the economy.

Solman said the U.S. government has been practicing Keynesian economics since the surface of the global financial crisis in 2007. However, some believe the opposite — known as Austrian economics — is the better answer. The two schools have posed a political and economic “standoff” for the past year.

Keynesian economics saved the U.S. from the Great Depression because of World War II, Solman said. However, this recession is different.

“(One of conservative economist Ed Yardeni’s clients) said, ‘We are living in the 1930s on Prozac,’” Solman said. “That is, we’ve been in an economic depression, in effect, lifted by fed money and stimulus spending. But if new money is now no longer an option, have we flushed our antidepressants down the toilet?”

Essentially, Solman said Austrian economists believe the U.S. shouldn’t be spending when it keeps borrowing from other countries, because that just puts the country further into the hole. Furthermore, those countries eventually will boost interest rates in an attempt to deal with “freeloaders” like the U.S.

Instead, Solman said Austrian thinkers tell the people to take the matter into their own hands. They should change how they act during crises like this. They should no longer be “living the dream” but should be saving and working to get everything back on track.

Though the U.S. already has a relatively high unemployment rate of 9.1 percent, Solman said, that value does not include those who work only a few hours a week — those people are considered employed.

Moreover, he pointed out, 84 percent of U.S. wealth lies in the top quintile of the population, while 0.3 percent of the wealth lies in the bottom two quintiles. As covered by Week Two’s final speaker, Michael Sandel, it is very difficult for Americans to leave the quintile into which they are born.

Economist Richard Freeman said the upper class has won the American class war, and that the U.S. and China have about the same amount of inequality in wealth distribution.

Part of this problem, Solman said, is the rising importance of connections rather than competence. He said we are suffering from structural, not cyclical, unemployment.

“Suppose we really are moving inevitably into an economy of can-dos and, for purposes of selling your wares, cannots, where those with certain skills and connections … will thrive in the job market, and those without them will thrash or drown,” he said.

Solman said some people think this means it makes more sense to tax the rich to stimulate spending. Government involvement, he said of those people, should be invited. They make huge amounts of money then retire early; by taxing them more, they would stay working longer.

“‘We haven’t been getting any richer,’ people say, ‘and the future looks even grimmer for us and for our children,’” Solman said. “Again, this is what America looks like today. Are we really OK with this?”


Q: Let’s start with the idea that what’s happened in the markets in the last few days is a result of the sense that the debt deal didn’t really address the question and didn’t go far enough, and indeed it was proven that our politicians aren’t capable of addressing the issue in a rational way.

A: Yeah, it really took S&P to tell us that our politicians weren’t addressing the issues in a rational way. I find that thought extravagant. No, I think it is more plausible that the markets are reacting to the fact that there isn’t going to be short-term stimulus in America. You may know that the Federal Reserve chairman, they are meeting today, and the Federal Reserve chairman is going to make an announcement, but what in the world this guy is going to say today that would reassure anybody, I can’t for the life of me imagine. The Federal Reserve, its main tool is to create money and buy securities, but not stocks. Of course, today he isn’t going to worry about buying stocks — maybe if it stays up — he’s going to say reassuring things, but I’d take a voice vote on this: How reassuring is Ben Bernanke when he speaks? So I don’t think he’s going to rouse the masses and get everybody all excited, and his policy tools, he’s already expanded them and made them much more radical than previous fed chairs, and he may well be credited with avoiding a Great Depression in 2008; I think there’s some reason to say that, but is the market tanking because Washington is suddenly realized to be irrational because S&P said so? I find that a tenuous set of syllogisms.

Q: What percentage of Americans have substantial investments in the stock market? Why the obsession with the stock market?

A: Because it pays better. I was talking to someone, who will remain unnamed, who said to me, “Look, the stock market hasn’t gone up for 10 years, so I’m more invested in the stock market now that I’m closer to retirement. Why? Because I need the higher rate of return.” Stocks, as you know, historically, have returned — I’m going to make up a number. I’ll be off by a percent or two, maybe — but it’s something like 8 percent net of inflation over 60 years or something like that, or it was; I think it must be down a bit now; last time I looked at that number was in the late ‘90s, and of course, as you know, it’s barely budged in the 10 years since. So you think, “OK, I’m taking a risk.” Remember, if you remember nothing else from what I’ve said, remember that for every increment of reward you get on a financial instrument or any investment, you are taking an extra increment of risk, but you are shooting for the reward, so you’re taking the risk, and then of course, you have that empty feeling in your stomach when the risk turns out to be what risks are, which is chances that you take that sometimes turn out very badly.

Q: How can we start to bring manufacturing jobs back to the United States?

A: No, we cannot. We can bring some. I was mentioning to you earlier that I have been in factories, more than one, and we’ve been talking about this because we’re doing a story on structural versus cyclical unemployment, and there are factories in the country who cannot find enough — what’s the right word — capable employees. The complaints are they don’t show up on time; they’re disheveled when they appear; they don’t seem to be committed to the company, and they won’t work hard, and they don’t have the skills to run the modeling machines. John Stropki is here on Thursday, and you should ask him about this. Lincoln Electric is a great, in my view, company, but it is one hell of a hard job working there, and they can find enough people to work there, but it is no easy task for them to do so. So there is this mismatch between what Americans expect, in terms of what they would get at a job or put up with at a job and what is out there, but that total number of jobs is not enough to revive manufacturing in America, and frankly, I don’t know if it’s in our lifetimes, but at some point, there are going to be virtually no manufacturing jobs at all. It’s just going to be like agriculture. There will be people who have highly skilled jobs programming, what I think of as the cornucopia machine, where it basically makes anything you punch in. If you’ve seen some of the new 3-D printers, we are already moving toward that with regard to actually things that can be so-called printed, but they’re printed in 3-D. We’ll get there, and maybe sooner rather than later. Those are not manufacturing jobs. No, and then there are people elsewhere in the world who will still do those jobs for much less than any American could afford to live on.

Q: How should the stimulus have differed from what we got?

A: One of the problems of being a journalist is you hear people say how things could have been different, and then you go and talk to a lot of people, or you were there at the time, and you realize that it’s balderdash. That there are so many things, so many moving pieces, that to actually mobilize an effective stimulus policy … I’m sure it could have been better, but for example, a civilian conservation core, which I would love to see in this country, personally, even as a member of the pathologically even-handed news hour, but you’ve got unions. Are you taking the jobs away from them? Are you driving down the wages? Civilian conservation core people were paid almost nothing. It was young people, for the most part. It’s complicated. It’s very difficult to do these. We are a very highly structured, very complicated, some might say complacent or even spoiled economy. It’s not a knock on us. Why wouldn’t we expect to live the way we’ve been living? Seems reasonable to me, but in fact, it creates all sorts of complications with regard. So I don’t know how the stimulus could have been done differently. More of it might not have been a bad idea if, in fact, what we were trying to do was put those idle resources to work, but as a long-term solution, I’m suggesting that we’d have to do something a lot bigger than that.

Q: Do you think we need to choose between more government and more inequality? Are there other options?

A: I can’t think of any. I mean, if you call government just tax policy. I’m calling tax policy government. No. We have been for 30 years moving into a world where certain skills — going to college, now going to professional school — no guarantees in any of this, of course — and it depends on what college you went into, and it even depends on your grades sometimes, but, as I said earlier, it probably mainly depends on your connections, which is why everybody is boning up their kindergarten kids or grandkids for the exams to get into the Shady Hills school when they are 4, which of course you all, I’m sure, are aware of, or for those of you aren’t aware of it, I assure you this is what is happening to get on the track early enough. Partly, of course, you get better schooling, more attentive schooling — of course, it costs a fortune — but also you’re with the same group of people. Why is it so great to go to Princeton, Harvard or Yale? Because of everybody else who goes to Princeton, Harvard or Yale. It’s also great education, but you also get a great education at Lehigh or Brandeis. I can think of probably 100 schools I myself have been to where the level of education is way beyond what the average student is getting to begin with, but it’s the value of the pedigree, and that value is becoming more and more important over the last 30 years. I don’t see why it wouldn’t continue. That’s inequality. Those people benefit, and I don’t see how else you adjust that if you don’t tax the people at the top. It’s going to be a lot harder and a lot more expensive, by the way, to get everybody up to the level of the average Princeton grad.

Q: Could you comment on the difference between the Fair Tax Act and the flat tax?

A: Uh, no. It’s because there are so many different versions of these things. It all depends how it’s implemented. What is exempted? What isn’t? Is it a flat tax, and you take away all current exemptions? — I’m sorry, deductions. All deductions are gone. For blind people? We’re not going to cut them a break in terms of taxes? I’m not saying yes or no. The second house, I bet you that carries here completely. How many people want to get rid of the deduction on the second home? Actually, now that I think about where I am, how many people don’t want to get rid of the deduction on the second home? I’m out of my mind. The homes are there, Paul. So how many people don’t want to get rid of the deduction on the second home? So the first proposition won, but there was not silence the second time. Do we want to get rid of the deduction for alternative energy? For charitable contributions? How many people want to get rid of the deduction for charitable contributions? How many people do not want to get rid of the (deduction for charitable contributions)? So there you have it. Here’s America right here. A somewhat more thoughtful version of America. I don’t think we’d have the same problems if this was America, but those problems are naughty ones at the very least.

Q: Where does health care reform fit into this problem?

A: I am going to obliquely answer that question. I am somebody who thinks that if health care, which is now about 17 percent of GDP and has been rising steadily throughout my lifetime, goes up to 19 percent of GDP, I am perfectly OK with it. If we got a cornucopia machine, or thousands of them spread out strategically all around the world, and we figure out how to deal with global warming and the stuff that might well kill us, and there I think it’s a horse race, and I don’t know which side wins; the bad Easter Sunday or Easter Island, as I was conceiving of it. Easter Sunday, we are resurrected and everything is going to be OK through technology. Easter Island, we all kill each other making the bigger and bigger statues, right? That was going to be about a half hour of this speech, by the way. You’ll be relieved to hear you’ve gotten it in 20 seconds. But if we solve those problems, which we will solve through technology, then why wouldn’t we be taking care of each other, broadly defined? I would include massage and all the things I was mentioning as part of health care. I am fine with health care being a bigger and bigger percentage of the economy. I don’t even mind drug companies making a lot of money. This is entirely self-interested, I suppose, for me and my family and you all. I want you to all live well and not in pain and as long as possible. So I am pro-health care, very pro-health care. I have a stint that was put in when I was 57, so about 10 years ago. I wouldn’t be here without American health care. You might have had a more interesting speaker, but hey, from my point of view, it’s win-win. How we deal with health care — the complete bologna with respect to the arguments about health care, how it became symbolic … single-payer would be cheaper than what we’ve got now; that’s absolutely clear. They may jerk you around at the local government provider, but then when is the last time you dealt with your private insurance company? There are all kinds of things that are wrong with it, but I’m in favor of more of it.

—Transcribed by Suzi Starheim