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Bill is 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.


JAY: So you've been talking in many of our interviews and you've been writing about what you thought was the likelihood of a coming grand betrayal, in other words, President Obama making deals for cuts to the social safety net and various other kinds of austerity measures, as part of a deal dealing to get the fiscal cliff done, and then to get the debt ceiling deal done. But President Obama recently has been saying he's not going to, he says, negotiate under the gun of the debt ceiling. So isn't that what you want to hear?

BLACK: Well, it may be. I certainly agree that you certainly shouldn't make concessions to people who engage in extortion, 'cause if you do, they'll simply extend the debt limit for only a very short time period, and they'll keep coming back, and it'll be the death of 1,000 cuts. So Obama, if he has any competence as a negotiator, should be refusing to give in to the extortion.

Problem is that he's been engaged in unilateral disarmament as a negotiator leading up to these talks. He had a couple of ways, clear ways, that he could have completely defused what Donald Trump called his "nuclear weapon" of threatening to use the debt limit to extort concessions from Obama. One is the requirement under the Fourteenth Amendment to pay U.S. debt, and the second was the idea of minting this $1 trillion platinum coin.

JAY: Okay. Let me just ask you about the coin thing, 'cause John Stewart on The Daily Show went after Paul Krugman—

JOHN STEWART, HOST, THE DAILY SHOW: If somebody's ruining their brand with a $1 trillion coin idea, I don't think it's the non-economist. [snip] So I stand by our research on the topic, the due diligence, and my ignorant conclusion that a $1 trillion coin minted to allow the president to circumvent the debt ceiling, however arbitrary that may be, is a stupid [bleep] idea.

JAY: —'cause Krugman apparently in one of his articles took this as a serious idea that he could do this, and Stewart was kind of ridiculing him about it. I mean, this is a serious thing he could do. I mean, do you think it's a legitimate policy alternative? And let's explain to everybody this is the idea the Treasury mints a $1 trillion coin, deposit it—the Fed mints it, is that it? Who mints this coin, anyway?

BLACK: The Mint mints the coin.

JAY: The Mint mints the coin. Under whose direction? Treasury Department.

BLACK: Under the Treasury, and which is to say the president's direction. And they could—and the law expressly says you can make it in whatever denomination you want. So if people are trying to extort you using the debt limit, make it a $1 trillion coin, or $2 trillion, $4 trillion. It doesn't matter. And then you deposit it at the Federal reserve, and, poof!, all of the leverage goes away by the House Republicans and the Tea Party in particular that's trying to use this nuclear weapon of extortion where they hold hostage the U.S. economy.

So it was actually a very good idea. And, you know, it would have required all of about $0.80 worth of platinum—that's literally how much platinum would have been required, because you just make it a clad, you know, coin.

And for reasons that, you know, make perfect sense as a humorist, you know, John Stewart's had a lot of fun with this. And then Paul Krugman, I think, made the tactical mistake of playing in John Stewart's garden by saying, hey, this is, you know, a serious idea, and you didn't research it at all; it just sounded funny to you, so you made fun of it. And, you know, John Stewart says, yes, that's what we do; we make fun of ideas.

But then Stewart added: and obviously it's a stupid idea. Well, no, obviously it isn't a stupid idea. And if Stewart knew more about economics, he wouldn't think it was a silly idea. But, you know, he is a humorist.

JAY: But that being said, President Obama, I think, has said he won't do it.

BLACK: Well, Obama has said he won't do either of these things that would remove the leverage of the Tea Party to extort America and threaten to destroy our economy. So that's really completely imprudent on Obama's part. When you have somebody like the Tea Party threatening the U.S. economy and you have the ready ability to defuse that nuclear weapon, you should use that authority. And so this is at best an irresponsible action.

JAY: Now, is this partly because Obama knows that the corporate backers of the Tea Party, for example, the Koch brothers, don't want this to happen, in the sense they don't want another paralyzed economy, they don't want the debt ceiling legislation not to be enacted, and so that Obama's kind of calling their bluff?

BLACK: I wish that were true. I mean, you can certainly see a much harder politician saying this is just going to hurt the Republican brand, that they're going to threaten to ruin the U.S. economy, and if they ever did it, in fact it would cause such economic devastation that it might destroy the Republican Party. So that, of course, is a possibility, that Obama is that, you know, strategic and trying to bait the Republicans into doing their worst, with the idea that it will hurt the Republican brand.

Another possibility, though, of course, is that he wants the excuse to give in. And remember, we just had him propose to make concessions to the Republicans in which he was going to make very sharp cuts in social spending, and sharp cuts in the safety net as well. And we were saved only by Harry Reid, who took the Obama instrument of surrender and literally threw it in the fireplace and burned it up rather than to make that proposal. And before that, in the broader discussions in the fiscal cliff, Obama was very much in favor of an austerity package—back in July 2011 and November 2011, Obama was very much in terms of an austerity package. And even now, Obama is saying, once we get past this extension of the debt limit, we're open to doing the grand betrayal. So I think all he's saying is, I'm going to fight you on the debt extension, but then I'll give you the deal anyway. The Republicans, of course, are saying that they are going to demand austerity as the price of doing anything on the debt limit.

And so the column I just did today looked at what were the—you know, how did we get here? How did this austerity idea that has repeatedly caused recessions and depressions, where did it come from in recent times? And it turns out it's the Pete Peterson Institute. And Pete Peterson, of course, is the Republican billionaire who's said that he's going to spend his fortune trying to unwind the safety net in America, that he wants a combination of lower taxes and dramatically reduced social spending, and then, you know, to really go after—his ultimately goal, he has said, is to privatize Social Security. And, of course, this is the great dream of Wall Street in terms of their fees.

So I look back, and the Pete Peterson Institute is the place—and it still employs the senior fellow, an economist named John Williamson, a Brit, at least originally, who proposed the Washington consensus. So I went and looked at the original document, which he published in 1990—it was a speech he actually gave in 1989—in which he coined the phrase Washington consensus, 'cause, of course, there'd been a lot of reinventing history in his writing since. The original piece is entirely in the context of the Latin American debt crisis, and it starts out right at the first paragraph and says, hey, here's the deal: we're going to give some delay in the South American debt, Latin American debt, and in return we're going to require them to agree to strong conditionality, which is code for whatever we tell them to do, right? And the very first thing on his list—and he called it central to the whole idea of the Washington consensus was austerity.

So austerity, deregulation, privatization, the whole neoliberal agenda—although he objects to that term—is there in the first document as a way of forcing Latin American nations to agree to a completely new governance structure imposed by Washington, D.C., for the benefit of American banks and the IMF to collect debts from Latin America.

Now, that of course was a terrible experience in much of Latin America and accounts for why we have so many Latin American leaders elected over the last ten years on a platform of rejecting the Washington consensus—in other words, elect me 'cause I am going to fight against the Washington consensus. Go forward in time and this is the same mindset that caused Europe to adopt austerity.

And I have another recent column about, you know, Germany has just announced that in the fourth quarter, growth went sharply negative, probably by 0.5 percent, which is a lot. That would be, like, the equivalent, if you straight-lined it out, of -2 percent growth for a year. And the Eurozone has been as a whole forced into recession.

This news on Germany means that that recession is getting far worse in the Eurozone. And as I've stressed before, places like Spain, Italy, and Greece have Great Depression levels of unemployment.

And so we have an idea, a terrible idea, austerity, that makes recessions worse, that creates Great Depression levels of unemployment in many countries, that will not die, no matter how much damage it causes to the world. And, of course, when really bad ideas refuse to die, even though they're proven to be bad ideas time after time, then you know you're dealing with dogma, not with science.

So that which is called neoliberal economics is one of the only areas that I know of that purports to be a science in which we have gone dramatically downhill in the science content over the last 50 years, such that it isn't a science at all anymore, it's a weird religion of austerity that actually takes pleasure in causing suffering in other nations.

JAY: Alright. Thanks a lot for joining us, Bill.

BLACK: Thank you.





Bill is associate professor of economics and law at University of Missouri–Kansas City. He's a white-collar criminologist, a former financial regulator. And he's the author of The Best Way to Rob a Bank Is to Own One.

Thanks for joining us again, Bill.


JAY: What are you working on this week?

BLACK: Well, the odd convergence of Paul Krugman and President Obama. And so on the same day, they put out these odes to austerity that in the one case is ironic, because if Obama had gotten his way, he would have crushed his reelection opportunities, along with the U.S. economy, and the second, because Krugman has been fighting against austerity all these months.

So the first one is a Krugman column. And what he mostly wants to say is things like, you know, print the platinum $1 trillion and such. And he has a throwaway paragraph that says, you know, if you folks really want to deal with the budget deficit, if that's your issue, well, then there's a simple way to do that: you just raise taxes and cut spending. But elections have consequences and, you know, you don't always get that which you wish.

And then President Obama, in connection with Treasury Secretary Geithner leaving and nominating Jacob Lew to take that position, said something very similar. He said, hey, Geithner's the greatest Treasury secretary in modern times because he's produced 6 million new jobs, and now we're starting to reduce the deficit through a combination of taxes and government spending.

So let's go back to Krugman for a second. We're in a great recession and a weak recovery from it, in which unemployment is still twice as high as it should be, in which long-term unemployment is at record levels, in which poverty is at record levels, use of food stamps is at record levels. We have a jobs crisis and an inequality crisis.

But of course that's not what is good for the politics of all of these things. So President Obama wants to take credit for the creation of the jobs, which comes from the weak recovery. And then he wants to switch to his real love, which is the talking about deficit reduction. And that's the transition to Lew. And he says Lew is the guy that presided over three years of balanced budgets with Clinton, and he's going to be the guy to, you know, basically put austerity into force, full force, in the United States, and then all will be well.

Now, this is incredibly odd in the—start with Krugman, because Krugman has been writing for years about how austerity is not a simple matter, that in fact if what we did was raise taxes and cut spending, what we would do is cut private-sector demand by raising taxes, and then we would cut public sector demand by cutting spending [snip] would indirectly, since most government spending goes to the private sector, then also reduce private-sector demand. And the reason you have a recession is that demand is already inadequate. And this is not just any recession; this is the Great Recession, where demand was inadequate by trillions of dollars—and a trillion is a thousand billion, right?

So the stimulus program, everybody knew, was nowhere remotely big enough to replace the lost demand. But Krugman has been saying, don't do austerity, don't do austerity, that's the path that has pushed the Eurozone into recession into recession and put Spain, Italy, and Greece into Great Depression levels of unemployment, so don't go that route. It isn't simple. If you increase taxes, if you cut spending at this period, it will not cure the economy. It's just the opposite. It's more like medical malpractice in the old days of bleeding the patient. And then, because it doesn't, of course, help them recover, you bleed them more. And you do this until you cause an economic disaster.

So Krugman's completely off base if you quote Krugman on Krugman. And it's very strange.

Then you get to Obama. And what Obama doesn't realize is Geithner, of course, is the guy that pushed to kill stimulus. He is the guy that fought very hard not to create those 6 million jobs. If Geithner has gotten his way—and Geithner's famous quotation is that stimulus doesn't do anything for you, that it's like sugar: you just get a short-term high, and then, you know, you're cranky and rebellious and such and nothing gets done.

So had Obama listened to Geithner in the earliest months of the administration, Obama would have already been out of a job, because he would have thrown us back into a deep recession using austerity, and, of course, the Republicans would have control of the Senate.

Then Geithner tries to do it again in July 2011. This is what they refer to as the grand bargain—what I refer to as the grand betrayal—where they deliberately sought to cut the safety net—Social Security, Medicare, Medicaid, food stamps—where they sought to slash well over $1 trillion in public spending over the decade and raise taxes.

Had Geithner and Lew [incompr.] two, three principal aides pushing this—the third was a guy named Bill Daley, who was [incompr.] and Peterson is the guy that wants Social [Security privatized so that] Wall Street can make a fortune [snip] fees of our retirement accounts. These three aides—and they were the top aides for Obama on these negotiations back in July 2011—tried very hard to impose austerity. At the time, unemployment was 9.1 percent. This is, again, July 2011. Had they succeeded in getting austerity, the country would have gone back into recession within a few months, unemployment would have been well above 10 percent, quite possibly above 11 percent—European levels, in other words—and it would have been increasing every month during 2012, their election year. Hence Obama would have been destroyed politically and the Democrats would have lost the Senate. So that's the second time Geithner and Lew combined to try to create the grand betrayal and would have had the ironic effect of defeating Obama.

The third was after, despite himself, he gets reelected, Geithner tries the same thing, and with the support of Lew, where they go and they tell the president, we should, even though we don't have to, make deep concessions on spending cuts and on the safety net. And, fortunately, Senate Majority Leader Reed was so outraged, he took the proposal and threw it into his fireplace, into the fire, the raging fire in his fireplace, and burned it up. So we dodged the bullet again.

But now the president is signalling that's what Lew is going to try to do to the nation again. And so all the emphasis is now we need to start cutting spending even more, we need to raise taxes even more. And we can all look at what this has done to Europe and the devastation. But apparently the president and his principal advisers can't see that. And now it looks like even Krugman has become deeply clouded.

JAY: Thanks for joining us, Bill.

BLACK: Thank you.



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