Following President Obama’s State of The Union address, Democratic Perspective invited Dean Baker to discuss the economy.
A highly respected macro-economist and co-founder of the Center for Economic and Policy Research, Baker writes a weekly commentary on the economy which is available on his blog, Beat The Press. He was among the first to raise concerns about a bubble in the housing market beginning in 2002 and he has written extensively about the bubble economy. He is also consultant to the joint economic committee for Congress.
We began our interview by asking Mr. Baker where we are now. “The economy fell off a cliff,” he responded. “We lost 7 million jobs and we’re now 10 million jobs behind where we should be. There is very weak growth and a huge backlog of unemployed. The reduction of unemployed is due almost entirely to people giving up looking for work. It’s a really bad picture. Lots of people are suffering.”
Baker continued, “The Larry Summers memo recently released in a New York Times article shows the administration was way too optimistic. They were given erroneous information. Unemployment went to 10.5 percent before the stimulus took effect.”
“President Obama should have said the stimulus was a good start, but we’re going to need more,” said Baker. “Unfortunately, he began to focus on deficit reduction, instead.” He believes that will make it difficult for the president to earn a second term. “No president has been re-elected with 8.5 percent unemployment since Franklin Roosevelt,” he said.
When asked about Republican statements that the stimulus failed, Baker responded, “There is a lot of research on the stimulus. It all points to the creation of 2.3 million jobs. The president has done a poor job of explaining that.”
“The loss of jobs all happened before he took office in the fall of 2008 and the beginning of 2009,” he continued. “The stimulus was not large enough and was never expected to do more.”
In regard to Republican demands for large cuts to reduce the deficit, Baker responded, “The Republican argument is ridiculous. How much evidence do I have to beat you up with? Austerity has deepened the recession in the countries that have tried it.”
As for claims that the government can’t create jobs, Baker said, “That’s ridiculous. How is cutting teachers going to create jobs in business?”
Turning to the controversy over capital gains taxes, Baker said, “The big cut was under Bush. He cut the rate from 20 percent to 15 percent. By comparison, the rate was 28 percent under Reagan. Why should you pay a lower rate on earnings from investment?” he asked. “Why should it be lower than the tax rate on ordinary income? I don’t understand why.”