The economist assesses economic reform under Obama.
Question: Does Obama mark the end of Reganomics?
Dean Baker: Well, it’s a mixed picture. I don’t think it will ever fully end. I mean, Reaganomics, to put it simply, was trying to get low taxes for wealthy people. And [wealthy people] are still there pushing for low taxes. So President Obama said, and he’s expected to carry through on this, that he will restore the Clinton era tax rates so high-end people will pay somewhat higher taxes. But it’s not as though the people pushing for lower taxes are about to go away. And basically, it’s going to depend on President Obama’s performance: if he does well in office, if in 2012 we see the economy recovering—I don’t expect it to be fully recovered; I don’t think anyone does—but if the unemployment rate is down and heading in the right direction and if the economy is growing strongly, he’ll get reelected and that’s going to push back the people who want to have lower taxes. But they’re still there.
Now, as far as the larger, pro-business agenda, all that’s very much up for grabs. Again, I was referring to Wall Street. Is Wall Street going to be reined in? You could say that’s part of Reaganomics, i.e. Wall Street running amok. I would. And we don’t know that at this point.
Healthcare reform is a huge issue. I think President Obama’s pushing the right way but it’s far from a done deal that he’ll get any healthcare reforms. It’s certainly not a done deal that he’ll get, to my mind, effective healthcare reform which would involve, first and foremost, a creation of a good public plan that will compete with private insurers. So there are a lot of question marks there. He’s certainly taking a different path than what President Bush did or what Senator McCain would have done if he had become president but it’s way too soon to pronounce the era of Reaganomics dead.
Question: What financial reforms does the Obama team favor?
Dean Baker:As best I can tell, their view is to basically set things back to where they were before the crisis. They’re talking about some pro forma changes but it seems to me very little real substance will change if they have their way. Now, I don’t take it as a done deal that they’ll have their way because obviously there’s huge anger at the financial industry, at Wall Street, and much of the public including some people in Congress would like to see things change. But the reality is that even in spite of what we’ve just seen, Wall Street remains an incredibly powerful lobby. They give huge amounts of money to candidates in both political parties. So I think it’s very much up in the air. If I were placing a bet simply to try and win some money, I bet that not much changes.
Question: Is Obama investing enough in Green technologies?
Dean Baker:One of the things I should’ve said in there is getting money to state and local governments because they’re making cutbacks right now. And that’s the quickest way to boost the economy, not to have the cutbacks. But in terms of infrastructure in green tech, there’s a lot of good things that we can and should do, but the problem with that as stimulus is that I’m not sure we could do much more than we’re doing at the moment. So basically, Obama’s team—and I think they’re pretty conscientious about this—they looked over the budget and they tried to think of everything reasonable they could spend money on. Not to say they got every last thing but they tried to look at everything reasonable that they could spend money on in 2009 and 2010 and they threw out as much money as they thought they could get through Congress.
There are some things I shouldn’t say they necessarily overlooked, but things they might have decided otherwise and perhaps made the wrong decision. One thing that jumps out at me is why not subsidized mass transit? Suppose we just said that we’ll subsidize every ride that anyone takes anywhere in the country. It would be a little more systematic than this but say “We’ll pay a buck a ride.” Well, that will give people a lot more incentives to use mass transit and also put money in the pockets of people who use mass transit who tend to be lower and middle income people. That would have been a good thing to do. It would not have been a huge amount of money, probably in the order of 15 to 20 billion dollars a year, but that would’ve been a very good thing to do. So there are some other things like that.
But in terms of having some massive green program, we could have gone on a much larger scale than what President Obama did. Now, if we want to lie something out for 2012, 2013 or 2014 then that might well be worth doing. And frankly, given the state of the economy, I think it’s extremely unlikely that we’re going to be fully recovered or anything close to that by 2011. So if we look to spending that took a little bit longer to roll out, I think that really is fine. So I think we should look to do some more by way of conservation, promoting alternative forms of energy than is in the stimulus package. But I don’t think that will be the major source of stimulus for the economy.
Recorded on: April 28 2009