PAUL JAY: Welcome to The Real News Network.
I'm Paul Jay in Baltimore.
On Friday, the so-called sequester hits $85
billion of cuts.
As we do the interview, it looks like there
will be no last-minute reprieve.
And if there is, it won't really change what
we're about to talk about, because both sides
of the sequester debate--Democratic Party
leadership and the Republican Party leadership--both
are arguing, in our opinion, more or less
the same point: there's a need for austerity,
for cuts.
The debate on those parties' part seems to
be only about how much.
Well, our next guest thinks it's completely
the wrong debate altogether.
Now joining us from just outside Geneva, in
France, is Heiner Flassbeck.
He served as director of the Division on Globalization
and Development Strategies at the United Nations
Conference on Trade and Development, known
as UNCTAD.
He's also--was the vice minister at the Federal
Ministry of Finance in Bonn in Germany from
October 1998 to April 1999.
And he also is now teaching at Hamburg University,
where he's a professor of economics.
Thanks very much for joining us again, Heiner.
HEINER FLASSBECK: Thanks for inviting me.
JAY: So, first of all, what do you make of
this political fight that's happening in the
United States over sequester, and also, of
course, the whole debate around austerity
and cuts here?
FLASSBECK: Well, I think, to be mild, it's
going to end in a disaster, because in the
U.S., the recession is not over.
It's not a recovery, as everybody expected
a couple of years ago.
It is a standstill, it's a stagnation of the
economy.
And this situation, where everybody is uncertain
about the future, in particular the workers
uncertain about their jobs, about their wages,
as the president acknowledged in his nation
speech some weeks ago, so how can you, in
this situation, cut in this way and in this
dimension from the government side?
It will end up in a deeper recession, in not
only slowdown but an absolute fall of GDP,
possibly for the whole year.
And this adds up for the whole world--take
Europe, which is in a deep recession, and
developing countries that are shaken by the
development in the developed world, and Japan,
that is still very fragile.
So this is the global picture.
And in this global picture, any further cut
is a disaster.
JAY: Now, in the president's State of the
Union speech, I was actually wondering whether
he would even mention the word wages.
And he did, but he did two things which I
think sort of missed the point.
Number one, he didn't tie wages and lack of
demand to the recession.
He just talked about how it's not a good thing
that wages have been stagnant.
But he didn't have any suggestion what to
do about it.
And the idea of raising minimum wages to $9,
I guess it's something, but it doesn't alleviate
families in poverty, which he said it was
going to do.
He said no American family should live in
poverty, and I think every study shows a $9
minimum wage isn't going to solve that.
But he also did nothing about the issue of
a general rise in wages because of lack of
demand.
FLASSBECK: Yeah, that's the point, you see,
where we have still a taboo in most economists'
brains, so to say.
You have a cut where you're not allowed to
go beyond because this violates the holy laws
of economics in the past.
But we have to understand that this cannot
go on.
We are in a situation where we have high unemployment,
extremely high unemployment all over the industrialized
world.
That puts pressure on wages, but on wages
that are already low.
We have the lowest wage share in developed
countries for decades, and putting pressure
on this very low wage share doesn't make sense.
It's against the market rules, so to say,
that this should happen, but it happened due
to the financial crisis.
And here comes the point of make and break,
where the president indeed didn't go far enough,
namely, by saying we have to intervene, we
have to intervene into the labor market to
make sure that the people get a fair share
and to make sure that we get out of this destabilization
that comes from the labor market and prevents
us from going into a normal recovery.
JAY: Well, the argument coming from, you could
say, the right or the conservative faction
of all of this is that a stimulus will be
inflationary, a rise in wages will be inflationary;
if the debt continues at this rate/level,
it will be inflationary.
And they seem to be far more concerned about
that than unemployment.
FLASSBECK: Yeah.
But the point is we are living in a period
of deflationary danger.
Look at what happened in Japan.
We do not have to mention that anymore.
Now we have a Japanese government that has
at least understood that something has to
be done, and on the wage front also.
Mr. Abe, the new prime minister in Japan,
mentioned wages several times and said we
have to go beyond just having a certain minimum
wage.
What is necessary is an intervention into
the market, because the balance of power has
shifted so dramatically.
It has shifted anyway in the last decade towards
the side of the employers, but now, with the
rise in unemployment after the financial crisis,
has shifted one more time.
And this imbalance of power cannot go on.
And there the government is needed to intervene
and to make sure that the people come back
not with inflationary income expectations,
but with normal income expectations, income
expectations that reflect the productivity
increase.
Nobody's talking about productivity increases,
but we have productivity increases all over
the industrialized countries, and that has
to be reflected in wages.
And it's not just about setting a new minimum
wage; it's about setting a reasonable minimum
wage and making it a dynamic minimum wage,
a minimum wage that increases with productivity
and the inflation target.
So in nominal terms what you need to get is
the expectation that your wage in real terms
rises like productivity and in nominal terms
rises like productivity plus the inflation
target of the central bank.
JAY: But isn't that at the heart of what you
could say the struggle is about, that all
that value, that wealth that's been created
by this increase of productivity--when you
look at wages and then you look at productivity,
productivity has over the last ten, 15 years
gone up like a rocket, and wages have not.
But that wealth has gone into, you know, a
very few hands, whether it's the 1 percent
or it's spread out even more into the 5 or
10 percent, whatever.
It's at the very top end, who has captured
the value of that rise in productivity, and
they don't want to give it up.
FLASSBECK: Yeah, sure.
But that is why we need a government.
And if there's a democratic government in
the United States, they should take it up.
If there's a president in his final term,
he should take it up and should make the point.
But he has to go beyond where he has gone
up to now.
He has to go to the point, as I said, to intervene,
to say, this is against the market, it's not
even market, you know, it's destabilizing,
it's a destabilizing market.
And whenever we have destabilizing markets--take
it in financial markets, whatever you take--then
the government has to intervene, because there
is no solution.
The market cannot produce a solution.
And you cannot hope for another round, as
was in the first decade of this century, that
the people are reducing their savings rate
to zero.
That will not happen again.
And so there is no way out.
The United States will be stuck in stagnation
and high unemployment for the next ten years.
Imagine.
That would be really a disaster.
So this has to be overcome.
And one instrument, surely, is fiscal policy,
would be a huge stimulus program for fiscal
policy.
But if this is blocked, if this is blocked
and you block political also, the intervention
into the labor market, negotiations between
employers and employees that make sure that
the people get a fair share, then you're gone.
Monetary policy has no instrument at all anymore.
They have done what they could.
They have no powder anymore.
So the only way out is incomes policy, is
intervention in the labor market, because
we see, we see it absolutely clearly in the
whole Western world that the labor market
is destabilizing our economies.
JAY: Okay.
In the next segment of our interview, we're
going to dig into this further, because of
course those people who have gathered all
the fruit of this gain in productivity and
don't want to give it up, they don't say that's
the problem.
They say the problem is something that's a
problem for the whole economy.
In other words, it's everybody's problem.
So they have a theory of inflation.
They have a theory on labor market.
And, of course, it's not about rich not wanting
to give up their wealth; it's about, oh, they're
very concerned about the whole economy.
So Mr. Flassbeck, I think, disagrees with
their theories, and we're going to dig into
those in the next segments to come.
Please join us on The Real News Network.
