[Marxism] Barack Obama's economics

Louis Proyect lnp3 at panix.com
Thu Jun 19 07:17:12 MDT 2008

Wall Street Journal, June 17, 2008
Barack Obama on Economics:
'We're Going Through a Big Shift'

Excerpts from Bob Davis and Amy Chozick's interview with Barack Obama on 
his campaign bus in Flint, Mich. Some questions have been paraphrased.

WSJ: I wanted to talk about long-term economic growth, sort of following 
on your speech. I noticed that in an interesting way you use Lincoln, 
FDR and JFK, heroes in many ways. Maybe you can talk to me a little bit 
about your view of the government's role in economic growth.

Sen. Obama: This dates back even further, to Alexander Hamilton. The 
strength of our economy has always been the dynamism of the private 
sector, but at critical junctures, particularly when we're at a 
transformative time, say the shift from agricultural era to the 
industrial era, where you've got some broad-based investment that needs 
to be made, they're very expensive. They're difficult for any private 
investor to want to make on their own. …

I think Lincoln's Homestead Act or the land-grant college system was a 
great example of opening up the West. It's still the American people and 
business taking advantage of these opportunities, but you needed the 
government to help get them started.

Obviously, infrastructure is a classic example of these types of 
investments, whether it is the interstate highway system or the 
Internet. I think education is another example, whether it's the 
creation of public schools or the GI Bill after World War II. I think 
now we need to be thinking about similar investments in critical areas 
like the ones I listed today.

WSJ: Why do you think at this particular juncture we need it now?

Sen. Obama: Partly because we're going through a big shift from a 
national economy that was also dominant across the globe to a truly 
global economy in which we're seeing competition from every corner. 
We've seen an additional three billion people added to capitalism, 
partly because of the success of the U.S. creating a working liberal 
economic order, but also because of technology and the rapidity with 
which technology is moving. You look at a place like Flint, Michigan, 
where the old industrial structures have been completely uprooted and 
we've got to help the residents here transition to this new economy and 
we've got to make sure that we are putting in place the kinds of 
structures that will allow us to compete long term.

WSJ: Some people would say with this kind of change that you'd need the 
opposite -- less government -- because in a globalized world, markets 
are so much more important. You seem to say that at a point when the 
global economy is getting so important you'd redouble …

Sen. Obama: I wouldn't say redouble. Revitalized, I would say. Because I 
think the danger is always to equate size of government with 
effectiveness, and I don't. It's not clear to me that we want a larger 
government, but we certainly want a government that is setting more 
intelligent priorities and using taxpayer dollars more wisely and 
structuring tax policies that are conducive to long-term economic growth.

As I mentioned during the speech, there may be programs that no longer 
work. There's certainly all kinds of previsions in our tax code that are 
antiquated and are not spurring economic growth. We've got offices like 
the patent office that are outdated to take advantage of new discoveries 
here in the United States. We need to retool our government so that it 
works with a 21st century economy and in some ways our campaign has 
shown what happens when you retool political campaigns to a new 
requirement. I think we need to do the same thing with government as well.

WSJ: What about the role of taxation? ... For the most part, the way I 
look at your tax policy, seems to me that you look at it and say, tax 
policy over the past decade, and maybe even before that, has produced an 
outcome that has benefited people mostly at the top, and your goal is to 
try to redistribute it in a different fashion.

Sen. Obama: Here's what I would say: I do believe the tax policies over 
the last eight years have been badly skewed towards the winners of the 
global economy. And I do think there is a function for tax policy in 
making sure that everybody benefits from globalization or at least the 
benefits and burdens are shared a little more easily. If, as some talk 
about, we've got a winner-take-all economy where the highly skilled, 
highly educated are reaping huge rewards and the unskilled or even 
semi-skilled are getting a much smaller share of the economy, then our 
tax policies can help cushion some of the blow through providing health 
care. So if people lose their jobs they're not losing their health care 
as well. That actually makes a more flexible work force that makes 
workers more mobile and less resistant to change.

If we've got investments in education, that will make us more 
competitive in the long run. We've got to pay for that like anything 
else. But it would be a mistake to say I view our tax code only as a 
distribution question. I also think that our tax code has come to 
distort a lot of economic decision making so I'd like to see 
simplification as part of an overall tax agenda. On the corporate side, 
for example, one of the things I've asked my folks to look at is: Are 
there ways we can close existing loopholes in tax havens at the same 
time as we're lowering overall rates? We've got this new problem: The 
biggest problem with our tax code when it comes to the business side is 
that we have one of the highest tax rates -- corporate tax rates -- on 
paper but our effective tax rate is one of the lowest … You know, how 
much you pay in taxes as a corporation a lot of times is going to depend 
on how good your lobbyist is, as opposed to any sound economic theories. 
So those distorting effects I'd like to actually remove and eliminate 
from our tax system, but obviously that's a complicated and difficult 
task. The last time we did it was in 1986. We're going to have to, I 
think, revisit that.

WSJ: Would you like to reduce the corporate tax rate?

Sen. Obama: If we could eliminate loopholes in taxes, create a level 
playing field, then I think there's the possibility to reducing 
corporate rates.

WSJ: Have you proposed reducing corporate rates?

Sen. Obama: We're still working with our team to take a look at that.

WSJ: When you were talking about no taxation of startups, what 
immediately went through my mind is well, every corporation in American 
is going to have a "startup" so they won't pay capital gains.

Sen. Obama: There are always folks who are interested in gaming the 
system, and obviously one of the things you have to do with tax policy 
generally is to pin down definitions so they're not twisted beyond 
recognition. But I think the basic concept -- which is companies that 
are starting off, that have a good idea, that don't have a lot of 
capital, they should be allowed to accumulate capital, reinvest profits 
if there are any, to the point that they stabilize -- that's something 
we should encourage.

WSJ: You talked about the last eight years and the question of 
redistribution goes way back …

Sen. Obama: Oh, there's no doubt about it.

That's why I say that the combination of globalization and technology 
and automation all weaken the position of workers. I would add an 
anti-union climate to that list. But all weakens the position of 
workers, particularly blue-collar workers, in the economy, and some of 
it is just historical. You know after World War II, we were in this 
unique position where Europe was decimated, Japan was decimated. China 
was off the grid because of Mao. And so we didn't have a lot of 
competition out there, and now other countries are rising and automation 
has supplanted a lot of work that used to be done by middle-class workers.

We have drastically increased productivity since 1995, and there was the 
theory that if you increase productivity enough some of these problems 
of living standards would solve themselves. But what we've seen is 
rising productivity, rising corporate profits but flat-lining or even 
declining wages and incomes for the average family.

What that says is that it's going to be important for us to pay 
attention to not only growing the pie, which is always critical, but 
also some attention to how it is sliced. I do not believe that those two 
things -- fair distribution and robust economic growth -- are mutually 

You get to a point, I think, if you have a participatory income tax, for 
example, where you might be discouraging work because marginal rates are 
so high. You might undoubtedly get to a point where the capital gain and 
dividend taxes are so high that they distort investment decisions and 
you're weaker economically. But you know if you've got a sensible policy 
that says, we're going to capture some of the nation's economic growth … 
and reinvest it in things we know have to be done, like science and 
technology research or fixing our energy policy, and then that is 
actually going to be a spur to productivity and not an inhibitor.

WSJ: The last time I heard someone talk so much about infrastructure as 
a driver of economic growth was Bill Clinton in 1992, and he had a 
pretty big infrastructure agenda …

Sen. Obama: Bill Clinton had a lot of good ideas.

WSJ: But then he gets into the White House and deficit reduction becomes 
a more paramount goal. Also his energy taxes left little money for 
infrastructure. So why wouldn't that happen to you in spades given the 
deficit is still an issue and in addition entitlements are more of an 
issue than they were then?

Sen. Obama: Well, look, the difference I would suggest is that there is 
a strong recognition in the public mind that we can't continue on our 
current energy path. It's not sustainable. Which means there's a bigger 
opening to bring about change.

WSJ: So you think that will add to the political pressure behind it?

Sen. Obama: Absolutely. Because what happens then is we're able to say, 
look, developing our infrastructure has become the arsenal of a more 
efficient economy and just a very typical example is the huge spike in 
mass transit we've seen in the last couple of months. Unfortunately, a 
lot of these mass transit systems can't handle the increase in utilization.

I also think the fact that you've got both a Democratic and a Republican 
candidate talking about climate change and the possibility of a 
cap-and-trade system increases the likelihood of forging a bipartisan 
consensus on that issue. That can generate billions of dollars to 
re-invest in infrastructure.

Finally, you've got a war in Iraq that is deeply unpopular, where we've 
been spending billions of dollars. We're going to have to catch up on 
deficit reduction but I think people also recognize that if we can spend 
that much money rebuilding Iraq, surely we can find some money to 
rebuild America.

WSJ: With the cap-and-trade system, the estimates are as much as $100 
billion a year of income coming in, and you're proposing to spend $15 
billion of it. Is that right?

Sen. Obama: I think that's right. $100 billion is conservative, but I 
think $15 billion is about what we can wisely spend on R&D and some of 
the other proposals that I put out here. And we're going to have to 
rebate a whole bunch of that money to consumers to accommodate what will 
undoubtedly be efforts by these [inaudible] industries to pass on the 
cost of retrofitting the plant or changing processes to consumers. 
Consumers, potentially, and I've said this publicly, will see a spike 
short-term in, for example, electricity prices ...

WSJ: Why do you think the additional money is needed? I mean, there's 
tons and tons of money in Silicon Valley now for clean energy. What is 
it in your view that the government can do that the private sector can't?

Sen. Obama: Well, there are a couple things. Basic research, we don't 
see as much money going into that ... I have identified one gap that I 
think has to be filled, and that is the step between discovery and 
commercialization. You have this point in time where things haven't 
quite taken off yet and still entail huge risks. A lot of ventures may 
not want to get involved in that middle stage. They like the early 
stage, but if it doesn't take off right away, then oftentimes, 
innovation stalls. The model I'm looking at the model the CIA put into 
place in Quintella. But it basically partnered with the private sector 
to help subsidize investment in socially productive activities, but with 
an aim towards commercialization as well.

WSJ: Given the last time Bob Rubin played a role in deficit reduction, 
what role do you expect him to play?

Sen. Obama: I'm sure Bob will be one of numerous advisors. I speak to 
folks on all sides of that Democratic divide. I've got Bob Rubin on one 
hand, Bob Reich on another, folks in between.

WSJ: Are you going to give Reich another shot?

Sen. Obama: … I tend to be eclectic. I do think we're in a different 
time in 2008 than we were in 1992. The thing I think people should feel 
confident in is that I'm going to make these judgments not based on some 
fierce ideological pre-disposition but based on what makes sense. I'm a 
big believer in evidence. I'm a big believer in fact. You know, if 
somebody shows me we can do something better through a market mechanism, 
I'm happy to do it. I have no vested interest in expanding government or 
setting up a program just for the sake of setting one up. It's too much 

On the health-care front, for example, if I actually believed that just 
providing a tax cut to everybody would solve the problem of lack of 
health insurance and cure health-care inflation, I'd say great, that's a 
nice way to do it. It prevents a lot of headaches. But I've seen no 
evidence that the kinds of policies John McCain puts forward would 
actually work.

If I saw strong evidence that an additional $300 billion in tax cuts 
that John has proposed -- without a clear way of paying for it -- would 
actually boost economic growth and productivity, I'd be happy to take a 
look at that evidence. But I haven't seen that. It's all conjecture.

WSJ: A lot of folks would say cutting corporate tax rates are equivalent 

Sen. Obama: I don't want a distorting effect of our tax code on 
corporate decision making. But that's different from just saying you 
know, let's run up the deficit another couple of trillion dollars …

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