oh i'm sorry are going to washington d.c. and here's what's coming up tonight on the big picture economist and author james k. galbraith before the first half hour of our conversations great minds will discuss how the middle class continues to get trampled by the new head of the well it's been a very eventful week president obama caves into the birth of a gallon of regular gas is now the same price of one donald's happy meal those are just a few nice topics for our weekly romel and later in our show my daily take up how

ten a c. is fueling a new race to the bottom in america that will give corporations were actually total control over that state. for ties conversations in the great minds i'm joined but american economist and author whose work is focused on how the american economy as falling victim to a powerful class of predators who are feasting away at the one strong middle class our nation is currently the professor at the lyndon b. johnson school public affairs at the university of texas a senior scholar with the levy economics institute of bard college and the chair of the board of week of economists for peace and security he's written hundreds of articles and policy papers and five books including his most recent predator state i'm pleased to welcome now from austin texas professor james caviezel professor

geld with welcome welcome to our program. good evening so glad to have you with us in for not able to deal with the predator actually even before before that question let's define that you use the term predator state other times you've used the word predator class predator groups but he's talking about well the theme of the book which appeared in the fall of two thousand and eight was that. conservatives had long since abandoned any serious commitment to small government supposedly free markets that had come to a sensible and accurate realisation that the fundamental institutions of our economy were in fact those programs created in the new deal and the great society that these were not just peripheral to economic activity but central to it things like social security and medicare just to name two of the

of the largest and most prominent ones so they. the essence of conservative policy came tapping into those programs and diverting some part of the of the cash for associated with the tax revenues from those programs associated with the benefits paid in those programs to. the constituents of a conservative ministration and i think we've seen that pattern and that policy continue. under. the president ministration that is to say this remains the central objective of the conservative movement in the united states and so that that it is in essence what i mean by a predator state a state which is. where programs which were in fact the foundation of the american middle class become bit by bit diverted to the service of

a very much smaller group i mean of course a fundamental ok go ahead sorry i don't know if i if finish your thought please yeah i was going to say if a fundamental piece of this was in housing finance. what we saw in the run up to the financial crisis was the conversion of a few what had been for many decades a very stable and successful effort to put to create the american middle class try putting people into their old homes basically taken over by corporations that were in the business of issuing were going to is that they knew very well would never be paid. under the. blind our. regulators who could have stopped them who certainly had the information on hand that ought to have alerted them to the need to stop them and who simply

failed and refused to act. i'm curious your thoughts on what the and king might look like certainly you know your father wrote the book the great crash of twenty nine you wrote the forward to the most recent edition of it and yet things have changed a lot since then we've had the new deal with the great society and there there maybe there are even some international. comparisons and i was in argentina and she doesn't too as they were you know sort of recovering i mean middle class households had their furniture out their front yards for some with for sale prices on it back in the eighty's i was in thailand when the bought crash i was there a year later when bangkok was a city of rusting cranes. are any of these is the vision your vision your imagination of what might happen if this predator class actually pulls off this feist well i think in many ways we are in the care of

the. financial and economic meltdown that burst into the open in the fall of two thousand and eight was fundamentally transformed the way our economy works it's still very much with us what it did essentially was to put an end to the expansionary phase of this particular. series of events and throw everything into. what economists call a debt deflation which is still going on and housing prices continue to fall at a very rapid rate so all across the country people continue to go deeper and deeper underwater on their mortgages and for foreclosure rates continue to rise that's the good that's what we're seeing played out right now. does it seem to you that this series of bubble economies that we've been witnessing since the eighty's basically . and that are getting more and more that we're relying more and more heavily on is

our industrial base has gone from thirty some odd percent of our economy down to around eleven percent or around me. that that this series of a bubble is simply being reflate it now that that's what the fed is all about that that's what what what this administration for that matter is doing however much we may like it or dislike some of their policies whatever it may be and that there really isn't anything to catch us other than those institutions the new deal and great society and they're as you point out in the process of being shredded. i think the great tragedy of the obama administration was the belief by his economic team that they could really expand the border that they could make this. kind of expansionary cycle that we saw in the one nine hundred ninety s. in the two thousand happened again but the fact is they couldn't what happened in the one nine hundred ninety s. was an expansion based upon

a whole of of the promise of new technologies information technologies which was in part real and in part exaggerated but in any event it came to an end in the summer of two thousand what happened in the two thousands was in effect the strip mining of the home equity of the american middle class and it's gone now you have to ask if you're going to have another bubble it has to feed on something it has to feed on somebody some some body of hope or some body of equity right now it's raining commodities isn't. that is correct and commodities are far too thin a basis for a true economic expansion they certainly can help. transfer resources to commodity producers most of whom are outside the united states and at the center of oil production for example is no longer in our country and has not been here for forty years. but they cannot form the basis of a sustained expansion of american of the american economy or sustained recovery of

american jobs so the belief that they could the belief that the president articulated that the purpose of the policy was to get the banks lending again was profoundly you lose to read from the very start the it's like a saddle cian a new normal when the old normal was highly abnormal and not only don't we want to go back there and buy their i'm talking the last fifteen or twenty years maybe thirty years we can't and we shouldn't go back there. well you know what is normal and what is not. regulated or inadequately regulated capitalist systems tend to be unstable financially they tend to have booms and busts we had a period of thirty years or so in which we had we avoided that and that clearly is what we should be aspiring to but it's impossible to get there if the government is not prepared to do its job of

supervision and regulation in a serious and independent way. and in fact have. correct me if i'm wrong but i believe that from the founding of the republican till one nine hundred thirty five we never went more than fifteen years without a major bank yannick and it's those institutions and regulations that been offered us for all those years those thirty or forty years that protected the i'm curious about your idea of the common good. the concept of the commons has been with us for a long time but you've written talked about the common good when when the majority of the people have adopted or agree with this notion that a common good is a desirable thing that we should all work toward it and that society works and that when the idea of a common good is discarded as it has been largely since reagan you know is now it's greed is good the individual is good the whole i and rand but that leads to crashes

can you first of all am i ever accurately characterizing you on that and secondly can you expand on that. well actually i think american society has a very strong underlying sense of the common good and i think whether or not his policies. reflected this and of course in many respects they didn't i think ronald reagan articulated a strong sense of the common good that was true of president clinton true of president obama. the difficulty is that. the substance of policy has moved away from the substance of policy in particular in areas which are obscure to most people regulation of the banking system being a very prominent. once that falls under the control of the institutions that ought

to be the objects of regulation then you know it doesn't matter what people say and i think what the larger sense that the public has of what the common good should be we're not going to make progress toward it and the frustration that most people feel i think is understanding that we're not. the common good is not in control. in bank regulation not in control of the federal reserve not in control of the department of justice which ought to be actively pursuing the greatest wave of financial fraud in human history and has done effectively nothing about it and therefore it's continuing. oh the people responsible for it are to a considerable degree still in control of the major financial institutions. are

they doing what they were doing three years ago no of course not they have markets for. residential mortgage backed securities and collateralized debt obligations completely collapsed and will never be restored this is not coming back in the form that we had it five years ago and i call that they are doing other things of course yet now they are doing it with wheat and oil and gold and most are worried come up this they have the advantage of commodities is that you can make money on them in a very short term way and that it does not involve any sustained commitment to new production or speaking with james k. galbraith will be back in just a few months. let's

not forget that we had an apartheid regime right. i think. well. we have the government says they're safe get ready because their freedom. you know sometimes you see a story and it seems so silly you think you understand it and then you glimpse something else you hear or see some other part of it and realize that everything is

off. the top part of the big picture. and we're back with conversations of the great minds i'm joined by the american economist and author james k. gallery's professor at the university of texas chair of the board of economists for

peace and security and author most recently of the book the predator state welcome back with us or your father talked in the great crash of twenty nine and i believe that you have spoken about this is well. about this notion of a speculative mood being the kind of thing that could bring about another crash. isn't isn't there a strong movement afoot as a speculative mood as it were and and virtually an industry devoted to encouraging . you know actually i do not see that strongly at the present i think the last time we experienced in a billion speculative speculative mood in the country was in the late one nine hundred ninety s. when a great many people got very enthusiastic about the information technology boom and to some degree with with good reason the arts of interesting things were going on

and people were working very hard on them and overall the economy was prospering the unemployment rate was very low i don't think that was true in the two thousands in housing but it was happening in the two thousands was. in many ways a vast criminal operation a very large share of the subprime mortgages were refinances refinancings a very large share of those were cash out refinancing often loans that were going to be unsustainable were peddled to people who might have qualified for prime loans and who might have been all right if they taken them. you i don't think this was a speculative boom nearly so much as it was a vast raid on the home equity of the middle class of the lower middle class and as of right now i mean i don't see it i think i see

speculation certainly i think there is a common movement actually in commodities in gold in the stock market and against the dollar all of these things are in fact part of the same strike it would have movement but it's not it's not very broadly based i think it is an operation that is carried out by a very relatively small number of very big players and. not one that is represents anything like a mass of mass sentiment you've spoken in the past about. rather than. you know going back to bubble economies that we really need to establish a new economic basis please and again correct me if i mis characterizing my recollection of your words and that a green economy for example that president obama laid out during the campaign could provide the basis for that in the last six months two of the three largest solar companies in the united states one has moved builder manufacturing facilities china

the other just moved a hundred thousand or more square foot r. and d. facility to china how is it going to be possible for us to rebuild and industrial base in united states or any kind of a base that is non bubble based on speculation and speculation based as long as we have as long as we don't have some sort in some way some sort of protectionist system or like we had from seventy nine hundred three to the to the to the one nine hundred ninety s. are you. well i think of one has to recognize that china exists it's not going to change and it's not going to go away we have to live in a world where the. the the chinese economic engine is present and so our responsibility is to work out how to have

a successful economy given that fact and i think we could do it i think there are a great many things that can be done here that cannot be done in china a great many areas where the chinese cannot compete and in fact probably wouldn't try to compete with us and also a great many things that we need to do jobs that cannot be outsourced i mean if we're looking at the energy area a great deal of what needs to be done has to do with the way we use energy with the way buildings waste energy with the structure of our transportation systems with the way i could culture works in this country if we went over all of these problems and attempted to solve them in a serious way we would create a great deal of employment and have a more viable economy going forward the problem is that we're not doing that we are not trying to set in an organized way a strategic direction for the economy and we need to we need to because the government needs to have a sense of what it's doing and because the private sector needs to have

a kind of reliable. signpost as to where the profitable opportunities are going to be one of the things that made the nine hundred ninety s. work reasonably well was that people got into the spirit of the new communications technology the opportunity was there and as time went on more private businesses realized that this was a place where you could get financing and you could take it was a good direction for taking this risk and they did i don't i don't see that as being a clearly understood well for she added. fact these days about the energy area and yes people understand that that's the future but where's the money and where's the assurance that if you really commit to it that you have a reasonable chance of. three five ten fifteen years it sounds to me that if we aggregate these things that you just described that we're looking at a period of tremendous weakness and danger would that be

a reasonable characterization yes the thing i fear is drift stagnation. and a generalized disappointment which also means that for private business which is an essential piece of the economy there just isn't the kind of optimism there that would you know get put into the act and have that contributed in a really serious and successful right to the recovery of employment on top of that we have the the republicans who control the house of representatives all. subscribe to not just a deficit hawk language but beyond that beyond that and many democrats including many in the sinister ation talking that way now you've said the deficit hawks and don't know what they're talking about or how an economy works. and you speak to that. well there are a couple of basic points one is that i think people have forgotten that the

government is part of the economy that government spending is private income and the government writes a check to private individuals those individuals then have money to spend that they don't otherwise have and so when you go ruthlessly cutting government spending just for the sake of cutting and indiscriminately you're going to be shrinking the private economy as a result people have some idea that if the government goes down the private economy will sort of automatically spontaneously grow to take up the slack but that's just not the case the private economy collapse into under-employment and stagnation and that's very much the risk. i think beyond that there is a very ancient notion which actually has a strong basis in the history of economic thought in the eighteenth and nineteenth centuries that some activities are intrinsically productive and others are not and i think that's a really bad idea is

a way of thinking about the world which just does not appreciate the importance of things that we do to modern times that. were necessary and weren't present to three centuries ago the structures of regulation that are required to make advances to its functional networks of care of education of health care. of. support for the environment that we're not really factors in the eighteenth and nineteenth century these things are very large parts of our economy today and they're into sensible without the whole sectors of activity would simply collapse like this a nobody would get on an airplane if they didn't have complete confidence that a completely independent federal aviation administration was conducting air traffic control with a successful one. there's no matter how good they think the airlines or the planes are they would not be comfortable if there was

a high risk that they would run into each other in the sky the argument that i make my talk with libertarians in concert is that a football game without goal posts or referees makes no sense. your suggesting more eloquently i think that regulation not only is a useful desirable thing but that it actually is necessary in arguably even establishes or makes markets everything that we do practically everything. has a framework of regulation around it if you think about the food that we eat and we rely on it to be transported over long distances from sources that we cannot inspect and if we did not think. that the fresh produce was reasonably clean and safe we would simply not needed and that market would collapse there is no market for lettuce in china precisely because the chinese consumer does not have

confidence that the that that a product that's meant to be raw will be safe actually there is a market for lettuce and cider you can get it in one place and that's the sam's club that is to say the chinese consumer will buy lettuce that has been produced in california under american standards that's that's quite remarkable. if i could just go back just a little bit to the to this concept of a dangerous period in the two minutes or so we have left the tea party i think reflected a genuine populist rage although albeit mr acted by its leaders in many ways and now we have the u.s. uncut movement that is you know shutting down the bank of america for every one hundred thirteen offshore facilities that don't pay taxes and going after exxon mobil and whatnot. where do you see this dangerous period slash populism moving. well i think that there are some fundamental

problems inside the democratic party which has been true for a long time but it's very very visible now which is that you can't have a democratic single political party that represents the predators and the prey equally effectively and one where all of the basic decisions are being guided by. where you have this but by by the financial sector sensually we have the phenomenal . development that two and a half years after the financial crisis the same people that are back dominating the airwaves talking about. the federal debt and deficit being taken seriously on this subject and nothing is being said very little being said about unemployment about foreclosures or about the energy and environmental issues which are the real substance of the actual economic and social problems that the american public faces this is extraordinary and i think there has to be

a serious discussion serious change inside the democratic party so that we can actually recover and effective can party system actually james k. galbraith thank you so much for joining us tonight. pleasure as always you can watch this conversation as well as other conversations of great minds at our web site conversations with great minds. coming up columnist brian darling conservative strategist other certain well and radio talk show host joe madison joined me in the ring for tonight's weekly rumble brought along right after the break.

let's not forget that we had an apartheid regime right. i think rock the bomb a beautiful one well. we have the government says we're going to keep you safe get ready for freedom. get some closure see the story at the scene so for later sleep you think you understand it and then you glimpse something else you hear or see some other part of it and realize everything you thought you knew you don't i'm sorry welcome to the big picture.