The National Debt Clock in New York made news (including here) last week when its operators had to drop the dollar sign to make room for one more digit. But, James K. Galbraith, Ph.D., professor of economics and government at the University of Texas Lyndon B. Johnson School of Public Affairs, told CPN that the more appropriate attitude is \u201cTurn off the debt clock.\u201d Galbraith is the son of the late John Kenneth Galbraith, the renowned economist and author, and his most recent book, The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too, was published in August. He\u2019s been thinking ahead about what comes after the immediate rescue efforts. For example, in a recent Q&A with Harper\u2019s magazine, Galbraith said that the Treasury Department buying subprime loans \u201cwon\u2019t change the fact that the value of your home has fallen and now you owe more on it than it\u2019s worth. And nothing has being done to address that yet; it will be the next administration\u2019s problem.\u201d Galbraith said he is \u201cvery pessimistic\u201d about the current crisis and its legacy, so it\u2019s no surprise that he isn\u2019t one of those observers looking for a turnaround in one or two years. Galbraith pointed out that the Texas real estate bust of the 1980s took about seven years (1985 to 1993) to straighten out. And while that recovery happened largely as a result of normal business cycles, he said, \u201cWe have to make the turnaround happen\u201d this time, through government actions and policies. \u201cThere\u2019s nothing that can put this right in six months,\u201d Galbraith told Harper\u2019s. \u201cNo bailout can achieve that, but the difference between three years and 10 years is important.\u201d In an exclusive interview, Galbraith gave CPN his top three priorities for the next administration to strengthen the nation\u2019s economy as we move past the current bailout efforts. \u201cThe first job is to stabilize the housing sector,\u201d he said, noting that a useful model might be the Home Owners\u2019 Loan Corp., which, under the New Deal, worked out about 1 million residential mortgages in the 1930s. \u201cThe idea was to keep houses in use,\u201d he said, and to avoid widespread home abandonment and the resulting blight on otherwise viable neighborhoods. Established in 1933, HOLC applied only to non-farm homes and only to those worth less than $20,000 and typically offered longer-term loans to homeowners in trouble. The agency stopped lending in 1935, once its available capital had been deployed, and by the time it closed up shop in 1951, HOLC had actually turned a small profit, according to a paper by Kristen B. Crossney of Rutgers Unversity and David W. Bartelt of Temple University. At its peak, the HOLC employed 20,000 people (easily the equivalent of 100,000 today, Galbraith noted) at its peak and used local groups, not unlike local draft boards, to help guide its decisions at ground level. Barack Obama\u2019s plan to freeze residential foreclosures for 90 days, Galbraith told CPN, would provide a window of opportunity to start setting up a similar federal agency. The next administration\u2019s second priority, according to Galbraith, is to stabilize the revenues of state and local governments, which are typically highly dependent on real estate taxes, by revenue-sharing with the federal government. The government\u2019s great power, he said, is that \u201cUncle Sam can write lots of checks.\u201d So has the growth of the national debt over the past half-dozen years, between the wars in Afghanistan and Iraq and the cuts in the estate tax, handcuffed efforts to set the economy back on the tracks? Not really, Galbraith said. The Clinton-era budget gains were heavily driven by capital-gains taxes from the booming IT sector, he explained, and so were not sustainable. In any case, Galbraith just flat out doesn\u2019t think that the national debt, at only 40 percent of GDP, is all that high. In fact, he said, \u201cIt\u2019s very problematic that it\u2019s so low\u201d in the current situation. And since the national debt will rise no matter what we do, we ought to increase the debt in ways that will stabilize the economy the most. Pointing to the strong overseas demand for Treasury securities, Galbraith said, \u201cThe U.S. is where everybody wants to have their money\u2026. It\u2019s the last safe investment.\u201d Finally, he recommends supplementing Social Security payments as needed to maintain the living standards of retirees (and their ability to contribute to the consumer economy) by compensating for losses in investment income.<\/p>\n","protected":false},"excerpt":{"rendered":"
The National Debt Clock in New York made news (including here) last week when its operators had to drop the dollar sign to make room for one more digit. But, James K. Galbraith, Ph.D., professor of economics and government at the University of Texas Lyndon B. Johnson School of Public Affairs, told CPN that the…<\/p>\n","protected":false},"author":1314,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[37301],"tags":[],"class_list":["post-1003874916","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"yoast_head":"\n