Bill Moyers Journal

by Bill Moyers

  What kind of regulation wouldn’t punish entrepreneurial talent but protect the public interest?

  Well, first of all, anyone who thought that voluntary regulation could work was either being dishonest or delusional. Voluntary regulation is regulation that, by its nature, you can evade. And what happens is that the people who are most intent on evading it, on not respecting the standards, come to take over the process. Their profits are better. And so they drive the complying firms and businesses to the wall. They outcompete them.

  You need to have a mandatory system so that the firms that are more technologically progressive, which are safer, which are more compliant, which are prudent in the financial sector, which maintain credit standards, have a competitive chance. That’s the first purpose of regulation. When it’s done properly, it’s a framework that favors the more efficient, the more progressive, the elements that are prepared to work within the guidelines set by a larger public purpose.

  What kind of regulation do you think might be most effective?

  Well, first of all, we need to clean up the mess that’s there. The regulatory system, going forward, is going to have to treat banking like a utility, with limitations on growth, on rate of return, and on credit in such a way as to be much more transparent, to make it much easier to evaluate financial products that are traded. None of this over-the-counter, occult, too-complex-tovalue stuff.

  We need to end the offshore tax havens and other ways in which institutions have hidden from their responsibility to the country to pay their share of taxes. And we need to have a set of prudential standards that are reasonable and that basically can put the business of finance on a sustainable footing. It’ll be a much less glamorous business going forward. But it will be more reliable for the country as a whole.

  You are such an experienced economist in your own right that I hesitate to bring the spirit of your father to this table. He would have been one hundred last week. One of his classic books is The Great Crash of 1929. Is the situation today comparable to what happened then?

  The situation today is very similar to the moment of panic and collapse that we saw in 1929, and for very similar reasons: an abandonment of the supervisory responsibility that should have been applied to keep the speculation and the fraud and the abuse from getting out of control. So there’s going to be a major period of correction. But Dad, in writing this in 1954, talks about how memory fades and how, so long as people remembered ’29, it wouldn’t be repeated; eventually it would be forgotten, and the underlying speculative impulse would come back.

  So the book, in addition to being a great read, is really prescient in a very balanced way. But I will say that we’re not going to go back to 1929 because in 1929 we hadn’t had Roosevelt. We hadn’t had Kennedy and Johnson. We have had them now. So we have a body of history to work with.

  There’s a precedent, you’re saying; there are tools there if people want to use them.

  Not only precedent, there are institutions. There’s a government structure. And if we use them, we can’t avoid ’29, but we can avoid 1930 and 1931, 1932, when output fell by a third, unemployment rose to 25 percent of the labor force, and a third or more of the banks in the country closed and people lost their savings. In fact, we are already in a position of moving to take steps to prevent that from happening. We need to recognize, though, that we can never go back to a system of this kind of buccaneering, financedriven, Wall Street–led economy in which a group of people who are profoundly unqualified to run the country are, in fact, dictating policy from their perches in Manhattan.

  What about the argument that it was actually the government’s excesses and failures in the ’80s and ’90s that contributed to what began to happen in 2007 with the meltdown. That we must not criminalize business or raise taxes and dry up the economy.

  First of all, I very much agree that it was failures of government that were responsible for this. It was the actual failure, the abandonment, the neglect of the supervisory and regulatory responsibility. That’s at the root of this. Just as you cannot prosper without a private economy, you cannot prosper without an effective autonomous government capable of thinking for itself, capable of balancing things out, of standing for other interests, of standing for labor and consumers and for the public interest as a whole. If you don’t have that, you’re going to get these pyramids, these bubbles, these epidemics of fraud and abuse, and ultimately the collapse of trust and the collapse of the economy itself. That’s what happened in the predator state.

  You wrote that after World War II our American system wasn’t imperial: “We spoke instead of community, of freedom, of common purposes and common values, and the world took us seriously because we had paid our dues.” What’s happened now?

  It’s clear that the world has lost its confidence in the responsible role of the United States. The invasion of Iraq is seen as reckless and self-serving rather than a necessary step to protect the mutual security.

  In the financial sector, the world viewed us as a safe haven because they believed we had effective systems for legality, transparency, and security. That’s taken a hard knock. But we are rescued for the moment by the fact that other people’s systems turn out to be even worse.

  How does this compare with what happened after the Great Crash in ’29?

  If you look at the trends in world trade and manufacturing, they’re very similar. There’s been a massive collapse that is comparable in scale to 1930. The overall economy hasn’t come down nearly as much, and the reason for that is that we have the institutions that were created in the New Deal and the Great Society, institutions of the welfare state, Social Security. And, of course, there has been the influence of John Maynard Keynes, which gave us a very quick reaction in the form of the expansion bill and of the stimulus package. That also has kept the damage from being as large as it was from 1930 to ’32.

  What we’re seeing today is distress of a different kind. The great wealth that the American middle class built up, over seventy years, largely in their homes, has been impaired—in many cases, wiped out. Their mortgages are worth more than the houses that they live in. Many millions more simply can’t sell, can’t move, can’t change their circumstances, don’t have a cushion.

  My father was in his mid-twenties at the time of the Great Crash of 1929. That experience defined his life.

  The same was true of my grandfather on my mother’s side, who was a lawyer whose practice depended on the prosperity of the 1920s. My mother, who lived until last year, never really overcame the attitudes that were inculcated in her in the Great Depression. If something is not done to provide, particularly, young people, who are looking for work and cannot find it, with an opportunity to move on in life at this stage, it will mark them for the rest of their lives. I think there’s no doubt about that.

  The New York Times had a story just the other day about community colleges being so crowded right now that they’re holding classes up until two o’clock in the morning. What does that say to us?

  First of all, it says that people cannot find jobs. And second, they are looking to the educational system to provide them with something to do, and some way out of this dilemma. But until jobs are created, and in great numbers, there will not be places for those people to come out of the community college system and find useful work.

  So what are our options?

  We need to find another path for economic expansion. We need to set a strategic direction. Our problem now, our big social and environmental problem, is energy. It’s climate change. It’s the greenhouse gas emission issue. If we built a set of institutions that could deal with that problem effectively, you could employ a large part of the labor force for a generation. And you’d then make that profitable for private enterprise to get into in a serious way.

  After all of the mergers, shakedowns, losses of the last year, you have five gargantuan financial institutions driving the system, right?

  And they’re highly profitable, and they are
already paying, in some cases, extraordinary bonuses. And you have an enormous problem as the public sees very clearly that a very small number of people really have been kept afloat by public action. And yet there is no visible benefit to people who are looking for jobs or people who are looking to try and save their houses or to somehow get out of a catastrophic personal debt situation.

  When President Obama came into office, people said, “This is a Rooseveltian moment. This is a moment to seize a crisis and do what FDR did.”

  Well, the public is way ahead of the political system. The public certainly wanted a Rooseveltian moment. The Congress, the Washington press corps, wanted a return to their familiar patterns of activity. In general, they’re always more comfortable dealing with the issues they know than framing ideas. And so Obama’s objective situation is much more like Herbert Hoover’s than it is like Roosevelt’s. When Roosevelt came in, in March 1933, there were machine gun nests on the rooftops of Washington for the inaugural parade, the banks were closed, everybody knew that you needed immediate action. Roosevelt’s cabinet was sworn in on the first day. He had initiatives ready to go. This was not the situation that faced President Obama, by any stretch.

  Suppose that your father were around in September ’08, the time of the great collapse. Do you think he might have said, “Aha. Told you so?”

  He did say, “I told you so,” in The Great Crash. He talked about the conditions under which it would recur, and he said, “No one can doubt that the American people remain susceptible to the speculative mood—to the conviction that enterprise can be attended by unlimited rewards in which they, individually, were meant to share. A rising market can still bring the reality of riches. ... The government preventatives and controls are ready. In the hands of a determined government their efficacy cannot be doubted. There are, however, a hundred reasons why a government will determine not to use them.” And that’s the point about the crisis. It could have been prevented. The people in authority two, three, five years ago knew how to prevent it. They chose not to act, because they were getting a political and an economic benefit out of the speculative explosion that was occurring.

  You mean the people who could have prevented the dam from breaking were too busy fishing above it and reaping big rewards to want to fix the crack in it?

  Sure. The Federal Reserve in particular knew that the dam was cracking. Alan Greenspan, I think, almost surely knew this, and chose to wait until it had washed away.

  Why?

  Because they were getting a superficially stronger economy out of it. The ownership society, all that was a scam, basically, designed to lure people who could never afford these mortgages into accepting them. And yes, I think they, any rational person, certainly people in the industry, knew that this was not going to last. There was a little industry code, I’ve learned: IBGYBG, “I’ll be gone. You’ll be gone.”

  But that’s criminal fraud.

  Oh, sure. There was a huge amount of it.

  The perplexing question to me is whether or not you can reform a system that is so infiltrated by money from the people who are benefiting from what’s going on, who have a vested interest, and use their money to promote that vested interest to make sure nothing changes.

  I think you can. I think the law is powerful. I think you cannot legalize financial fraud. You cannot fully conceal the tracks of financial fraud. You have to put the resources in to uncover it. You have to prosecute it. You have to give appropriate punishments, but we have a system in this country for doing that. It is a question of making a decision to use the judicial resources that we have to clean up the system.

  I think what you also have to do is aim to reduce the market power of these enormous, strategically, systemically dangerous institutions. And the way to do that is by reimposing some internal barriers, the Glass-Steagall separation of commercial and investment banking. By auditing and resolving the institutions that are really close to failure. Those institutions, if they’re taken out of the picture, would permit smaller banks that did not get caught up in this dreadful business to grow into their market roles. And you would have a more competitive and healthier financial system.

  Is our system so vulnerable that this is going to keep happening? After all, there was 1929, the savings and loan scandals in ’89, the great collapse of ’08.

  It’s clear that it’s vulnerable and that this is a recurring problem. This is something that comes back after a few decades, because people forget, and because when the system succeeds, then you build up prosperous institutions and they start lobbying. They say, “Everything’s fine. Things are going well.” And they start lobbying for a relaxation of the rules. It’s never going to go away, but you want to have these twenty-, thirty-, forty-year periods when you have relatively stable growth.

  When you’re focused on achieving a certain goal, you can eliminate poverty. You can deal with the environmental questions. You can, in fact, do this if you can sustain a course of policy for, let’s say, a thirty- or forty-year period. And then you may have strong institutions that can carry you even further. Social Security, for example, is a nice example. It keeps the elderly population of the country largely out of poverty.

  If I had one thing I could add to the health care debate, I would lower the age of eligibility of Medicare, say, to fifty-five. And the reason for that is that it would help workers who are only hanging on to their jobs because they don’t want to lose their medical benefits to move out of the labor force. And there are a fair number of those, and it’s a fairly heavy burden on the business sector. So what you want to do is to create jobs. We’ve lost seven million jobs. Many of those are older workers, and the jobs that you create, you want to give the first crack at those jobs to people who have started their careers. You want to get them into the workforce.

  Young people.

  Young people, sure. Let older people, you know, some of them, anyway, a fair number of them, pass to retirement comfortably, a little earlier than they otherwise would. I mean, you’ve got to think about every possible way to make getting through this crisis tolerable for the population. Recognizing that a year, even two years from now, we are not going to be through it. The official forecasts say we’re not going to go back to 5 percent unemployment till 2014.

  Didn’t you recommend that anybody who wants a job should be able to get a job, paid $8 an hour or something like that?

  I think it’s a very sensible idea. Why not have a large Job Corps involving, among other things, neighborhood conservation efforts, or home health care?

  Shades of the New Deal, right? But when you talk like that, you immediately bring chills to the deficit hawks, who say, “Wait a minute. We can’t afford to do what we’re doing now. We’re putting it all on our grandchildren’s credit card. How can Jamie Galbraith be arguing for more deficit spen ding now?”

  With all respect to the deficit hawks, they don’t understand the situation. And they don’t know what they’re talking about, in terms of federal finances. The United States is a large and powerful country. And it can, if it chooses, employ its workforce in a useful way. But the point I would make about jobs programs is that the alternative is not spending nothing. The alternative is keeping people on the dole, the term Roosevelt hated. And Lyndon Johnson. Keeping them on the dole is costly. But it’s also debilitating to those people. And you don’t get anything out of it, from the standpoint of the country. The obstacle here is not fiscal, federal finance. The federal government can finance what it wants to finance. It’s, as I say, the most powerful financial entity in the world.

  The problem here is organizational. It’s a matter of will. It’s a matter of creating appropriate institutions that are in the public sector, and incentives in the private sector, to get certain jobs done. When you approach it with that frame of mind, we wouldn’t be asking about the budget deficit, we’d be asking about the unemployment rate. We’d be asking about how we’re doing meeting our energy and our environmental goals.


  What is the one question you think all of us should be thinking about right now?

  Where do we want to be in thirty years’ time? How do we get there? It’s not a question of how we return to full employment prosperity in five years, but how we solve the fundamental problems that we face in a way that gives us a generation of steady progress, and living standards that people can accept, that they’ll live with, that they’ll be happy with, while at the same time achieving sustainability and reestablishing the American position as a leading and responsible country in the world. So that we are developing the technologies and the practices that other countries will then adopt, something that we have done very effectively for a century, but which we are certainly not doing now.

  It’s a test. It’s a test for the country as a whole, as to whether we have the capacity to state and pursue a truly public purpose. We’ve come through a generation where we have really denied the existence of a common good or a public purpose. And I think we’ve recognized that that path leads to collapse, the collapse that we’ve seen. And that the way out is to somehow reestablish for ourselves this vision of what we really could be.

  DOUGLAS BLACKMON

  It is curious to me that many conservatives, so deferential to tradition, rhetorically at least, can act as if tradition has no consequences. Slavery, for example—the tradition of extending property rights to include the ownership of other people’s bodies and lives—lasted for well over two hundred years in America and wasn’t abolished until a bloody civil war tore the country apart. Even then, slavery’s evils persisted in other guises for another century until the civil rights movement finally aroused the public conscience.