bill moyers:welcome. lately i’ve had phaedra on my mind. not the greek myth of the tragic daughterof that name, but the retelling of the story in a 1962 movie starring tony perkins andmelina mercouri. their illicit affair over, perkins crashes his cherished roadster overa cliff. a big sendoff accompanied by none other than johann sebastian bach. tony perkins in phaedra:oh john sebastian! you’re playing your music like crazy and i’m listening to it in greece!what are you doing here? oh john! why aren’t you home minding the children? i at leasthad some business in greece! i had a father that killed every phaedra! phaedra! phaedra!
bill moyers:that scene actually keeps coming to mind as i try to follow the melodrama in washingtonthat has us heading for a cliff. a fiscal cliff. but are we? or is this, another mythin the making? for some insight, we turn to two seasoned observers both of whose booksyou’ll want to as santa to leave in your stocking. bruce bartlett was an economic adviser tothe supply-side icon jack kemp, and to two presidents-- ronald reagan and the first georgebush. he got into hot water with his conservative cohorts when he wrote a widely quoted bookcritical of the second president bush. his most recent work is “the benefit and theburden: tax reform-why we need it and what
it will take.†yves smith is the founder and editor of thepopular blog naked capitalism. after 25 years in the financial services industry, she nowheads the management consulting firm aurora advisors. she’s the author of this book:“econned: how unenlightened self interest undermined democracy and corrupted capitalism.â€â€¨welcome to you both. yves smith:
thank you.

bruce bartlett:
thankyou. bill moyers:is the fiscal cliff just a metaphor? or is it for real? yves smith:
well, the cliff is an inappropriatemetaphor. and it does conjure up images, precisely
the one you said, of cars or people or companiesfalling over and landing in a great mess at the bottom. in fact, it would be much moreaccurately described as a fiscal slope. there are certain changes that will occur on january1st if no budget deal is arrived at. but they're very gradual in their impact. in fact, manyof them could be reversed. for example, if, you know, payroll tax increases would takeplace. but if a deal were arrived at on february 15 or march 3rd, you could even put the rates,the old rates in back retroactively and have everybody get a credit. so the notion thatwe have to have a deal by december 31 or there'll be a disaster is really overstated. bruce bartlett:
i would liken the fiscalcliff to the y2k problem, remember? at the
end of 1999, there were many people who wereworried that all the computers would cease working and the planes would fall out of thesky. and, of course, none of that happened. but, of course, one of the reasons it didn'thappen is because everybody prepared for it ahead of time. and that's essentially what'shappening right now. i think the important thing to remember isthat there's no possible way of a deal before the last possible minute. and one reason forthis, is that john boehner is, the speaker of the house, is in a very precarious positionregarding his own membership. and it's article of faith among republicansthat any deal that is arrived at too soon is to their disadvantage, because they couldhave always gotten a better deal if they'd
simply held out and hung tough longer. andso boehner is in a position where even if he knew exactly what the deal would be today,he cannot deliver on it until, you know, 11:59 on december 31, or else his own members willattack him for having given away the store. bill moyers:
this is the second year ina row we've had this crisis over budget, deficits, taxes, spending cuts. is this any way to runa democracy? two years in a row? bartlett: 
well the worst part of it isthat the real fiscal cliff is something called the debt limit which was the key part of theproblem in 2011 that actually tanked the markets. and republicans understand they're going tohave to give on taxes and give on the budget. but they still think that the debt limit issomething they can use to ransom their true
agenda of slashing benefits for the poor andslashing taxes for the rich. yves smith: 
this is one place where i differwith bruce. i actually don't think the deficit is the problem that it's being portrayed tobe. and there are sort of two levels of-- bill moyers:
you mean the long-term deficit. yves smith:
the long-term deficit. i mean,there are two, you know, there's, one is the immediate issue that cutting budget, reducinggovernment spending when the economy is weak actually makes the situation worse. they'vebeen running this experiment in europe where they've implemented austerity in a numberof countries with the idea that we're going to reduce government spending in order toreduce deficits, because we want to get the
ratio of debt to g.d.p. to the size of theeconomy down. what happens when they've done that is even though they may have shrunkenthe numerical value of the debt, the economy has contracted so much more that the debtto g.d.p. ratios get worse. it actually makes the problem worse. so, austerity is bad medicinenow. bill moyers: 
i just read the other daythat this campaign “fix the debt†raised $60 million and hired and it recruited 80corporate ceos to go to washington and lobby for fixing the debt. what do they want?bruce bartlett:
i think reason why the corporate executives are so big on fixing the debt isbecause they know that if they don't-- they have some control over the political systemthrough their political action committees
and republican control of congress, they can'tcut entitlements now. they do eventually become a problem that will require some immediateaction, they know that it will involve higher revenues. and the higher revenues are goingto be on them. if you check any poll, you find overwhelming support for raising taxeson people making more than $250,000 and raising taxes on corporations. and so i think they'retrying to fend that off. bill moyers:
obama campaigned on higherrates. and he won. why can't republicans come to terms with that that's how the electioncame out? yves smith:
the republicans have becomevery dedicated to the idea that taxes in any form are bad. that when, in fact, there aretimes when taxes can fund productive investments
and actually, again, lead to more economicgrowth. but it's the republicans and ironically, wall street, have basically adopted the samestrategy of being non-negotiable. that if they have a blocking position, and they feelthat they have a blocking position by virtue of their majority in the house, that they'regoing to take advantage of it. so regardless of what the election said, if they can stymiea deal to their own advantage, they will. bill moyers:
given what both of you aresaying, why are we talking about reducing the deficit instead of creating jobs? becausewhen people have jobs, they spend money. when they spend money, businesses have customers.when they have customers, the money keeps circulating. and yet washington isn't talkingabout jobs.
bruce bartlett:
and i think one reason forthis is the decline of labor unions. it used to be that when the union movement was muchbigger and more powerful, and especially when private sector workers dominated the unionmovement, the afl-cio sort of looked out for the working class. looked out for all workers,not just union workers. they understood that a healthy working class having lots of jobswas ultimately to the benefit of their members. and i think the decline in power of the unionsand now and the fact that public sector unions now dominate the afl-cio is a key reason forthat. the other thing is kind of a dirty secret, which you may not agree with is that fundamentallybarack obama's pretty conservative. he really is. he's an eisenhower conservative.he's not a liberal. i mean, he's-- and i think
that's one of the problems with the democraticparty is they're looking for leadership to a guy on an issue like why aren't we creatingjobs? why isn't there more aggregate demand in the economy? and it's because their guydoesn't really want it. yves smith:
i agree 100 percent. i mean,obama has been-- i'm always shocked when people call obama a socialist, because he's in fact,i think you might be doing a disservice to eisenhower. and even, you know, nixon is tothe left of obama on many, on most social issues. i mean, nixon proposed a negativeincome tax, which everybody forgets about. and the other point is that this is reflectedbroadly in the democratic party, at least in the sort of elite level of democratic party.i mean, know, i've seen people like, for example,
gene sperling speak at conferences. bill moyers:
former clinton economic advisor. bruce bartlett:
right, he's now obama advisor. bill moyers:
now obama-- yves smith:
and he for example, he talkedabout middleclass jobs. and you could tell the way he used the expression middleclass,these are, like, people he didn't know personally. i mean, there's this weird-- you've got thisbig class stratification, where the people in d.c. don't see this, right? yves smith:
what's even worse is we nowhave a close-- in the democratic party it's
explicit and my understanding is in the republicanparty it's pretty close to explicit, pay to play systems. it used to be that the assignmentson the prestigious committees were based on seniority. now in the democratic party, theyhave a price tag that if you want to be on the head of an important committee, you literallyhave to kick in a certain amount to the d triple c. bill moyers:
the democratic congressionalcampaign committee yves smith:
right. and then the committeecontrols more goodies that are perceived to be essential to congressmen. for example,they do the studies. they help buy the messaging. they'll do the policy research. and they providea lot of support to the congressmen beyond
what the congressmen get for their staffers.so you know, it's not just that you need their money at election time. they give you a lotof support on an ongoing basis. and you don't want to alienate them, because you want notjust the money, you want all the other support that they provide. so they've created thisparty, this very tight system where the party exercises more control over the members thanthey used to. bruce bartlett:
but there's another importantpart of this that we saw the other week when senator jim demint announced that he was becominghead of the heritage foundation. and what you're seeing now is the permanent campaign.i mean, it used to be these political action committees would come into existence and essentiallygo out of business the day after the election.
but karl rove's operation is still out thererunning advertising. 
 crossroads gps advertisement:
the time forpolitics has ended. we need bipartisan ideas we can all support. call president obama andtell him, “it’s time to show us a balanced plan.†because every day wasted is another$4 billion we’re deeper in debt. the heritage foundation, which once was a think tank ofanalysts writing papers has now morphed into another organization called heritage action,which raises tens of thousands of, i'm sorry, millions of dollars to run campaign commercialsand do that sort of political action, which reinforces the problem of money is so, vastamounts of money are sloshing around in the system. and the members of congress are almostlike, you know, flotsam floating on a sea
of money. they're just bouncing around. bill moyers:
so, what do you both thinkthe public needs to know about this economic debate going on right now? cut through allof that. yves smith:
that what they're being toldis necessary and good for them is, in most cases, 180 degrees opposite of what needsto happen. we need as you suggested, we need more spending to promote jobs. we've got plentyof targets. we've got crumbling infrastructure. it-- bruce bartlett:
this city alone, where we'resitting, new york city, needs $50 billion to repair from the hurricane.
yves smith:
once you get it rolling, thereis plenty of stuff to do. so the notion that we don't have things that need to be donethat could employ lots of people from very low-skilled people to more middle and high-skilledpeople, that's just a myth. bruce bartlett:
there was a poll just theother day that you probably saw. something like half of all republicans believe thatthe 2012 election was stolen for obama by a group called acorn, which was-- which wentout of business several years ago. it doesn't even exist. i mean, they just believe theseconspiracy theories. and they circulate without barrier, because nobody will say anythingto disagree with it. and if you hear the same propaganda over and over and over again, eventuallyyou're going to start to believe it.

yves
smith:
's this tremendous amount of brainwashingthat goes on. and i don't understand how it happens. people convince themselves, you canunderstand it more in the public companies, because these guys have to get up and tellthings to shareholders. and if you say the same-- they've done studies of, like, defenselawyers. you say, even if you know the client is guilty, but you have to defend him, becausethat's your job. they start believing their client's innocent, if they have to defendit. and similarly ceos have to, for public reasons, you know, sell a certain story. andthey've started to-- and they honestly believe washington is the problem, as opposed to they'rea big part of the problem, if not the problem. back to our earlier discussion about capitalism.
bruce bartlett:
but they'll never admitwhat the true washington problem is. so for example, republicans and conservative economistsare absolutely convinced that the only thing that matters for the economy is tax rates.customers don't matter, sales don't matter, none of that matters at all. bill moyers:
just this week a conservativecolumnist writing in “the washington post,†marc thiessen, you may know him, said republicansin this fiscal showdown should stand and fight. he told the story from the korean war whenamerican marines were encircled by communist forces and the commander of the marines colonel"chesty" puller reportedly declared, "we're surrounded. good, now we can fire in all directions."and thiessen says this is where the republicans
are. they can surrender or stand and fight,which means standing their ground on taxes, putting a plan forward to reform the tax code,passing those plans in the house, and putting obama on the spot. yves smith:
well, this is where obama wantsto go. he just needs the republicans to make noise so he can go where he wants to go. bill moyers:
which is where? yves smith:
obama wants to cut entitlements.he said this in a famous dinner with george will. i think it was even before he was inaugurated.he went and had dinner with a group-- bruce bartlett:
that's right, a group ofconservatives.
yves smith:
he met a group of conservatives.and he made it very clear at this dinner that as soon as the economy was stabilized thathe wanted to cut social security, well "reform." but that's just code for "cut" social securityand medicare. obama really believes that this will be a signature accomplishment of his.that he will go down in history positively for. bruce bartlett:
that's right. if you goback to 2011 and look at the deal obama put on the table, he was willing to make vast,vast cuts in entitlement programs. and the republicans walked away from it, which onlygoes to prove that they don't have the courage of their own convictions. yves point is exactlycorrect. obama really is maybe to the right
of dwight eisenhower and fiscally. and it'sreally at the root of so many of our economy's problems, because he didn't ask for a bigenough stimulus. has let the housing sector, basically, fester for four years without doinganything about it. he's really, you know, focused more on cutting the deficit than peopleimagine. bill moyers:
but you will hear it said bysome democratically-inclined columnists like jonathan chait who writes that "democratsshould throw a bone to the right by raising the medicare age." he actually wrote thatthis week. "medicare has symbolic value. and raising the age qualification would send themessage that democrats take this fiscal crisis seriously."
yves smith:
all that results in is moreold people getting sick, winding up with more costly care. it's one of these sort of pennywise and pound foolish measures. you know, again, the big problem with medicare is thatwe have a health care cost problem in this country. and the health cost problem, whetherthey're in the medicare system or whether they're out of the medicare system. i mean,we have our health care costs are twice per capita-- more than twice what most countriesare in the advanced world. and we have generally speaking worse outcomes. so if we would fixhealth care, we would fix this problem. but there's just no will to fix health care, particularlyafter obama did a big health care reform and it didn't fix the problem.
bruce bartlett:
i don't really understandwhy this raising the medicare age has become a big issue. it saves very little money inthe short run. you have to go out decades and decades before it accumulates to verymuch money. i think it saves maybe $100 billion over ten years, which is really a drop inthe bucket, if you're really trying to reduce deficits. so it's the fact that obama's willingto talk about this, i think, would give me a lot of concerns if i was someone on theleft. bill moyers:
if capitalism is so great,why is it doing so poorly in this country for ordinary people and our public values? yves smith:
when i was a kid on wall street,there was a sense of propriety. there was
a sense that there was more of a sense noblesseoblige among the elites. was a sense even on wall street that you didn't take too much.that you, that, you know, the golden philosophy of long-term greedy was actually, i think,broadly shared in the industry. that you only took a little extra when your client was makingmoney, too. and now over time we've had these values set in, where people increasingly seethemselves as kind of isolated. see their success as individual, even though you grewup in a society, you got educated, you know? people didn't, you know, spring like now that,since we're using these mythological metaphors, like athena from zeus's head. people didn'tsort of pop into the world with no social benefits. but there's this tendency to seethat to see success as your own personal success
when, yes, you may have worked hard to getthere. but there are a lot of people who worked hard who didn't end up with all the cash andprizes. bruce bartlett:
i think there's two reasons.one is an unjustly obscure economist named michael jensen wrote some very important papersin the '80s explaining, basically, that the only responsibility that a corporate executivehad was to maximize profits. that anything else, any responsibility to the workers, anyresponsibility to the communities was nothing. the way he helped the nation, the way he helpedeverybody in a sort of adam smithian view was to just relentlessly raise corporate profits.and then secondly, unfortunately, i think bill clinton had something to do with this.remember, in the 1993 budget deal, he had
a provision that capped the deduction forcorporate executive pay at a million dollars. so what happened is this created new methodsof corporate, of compensation that involved stock options. because incentive-based paywas not covered by the provision. so all of a sudden these guys who used topay themselves a couple million dollars a year, they're paying themselves gazillionsof stock options. and all of a sudden, the jensen theory of maximizing corporate profitsmeant that it went directly to their bottom line, you see? then they started, then youhave the, yves probably knows more about this than i do, these compensation committees thatthe corporate executives hire to design their compensation. and they all tell the boards,"oh, you have to pay this guy 500 times what
the average worker's being paid or he mightleave. and that we can't allow that possibility." yves smith:
oh, it's marvelous, yes. nocompany wants to have their ceo be in the top-- in the bottom 50 percent of whateverthe consultant defines the relevant universe as. so you create this perpetually ratchetingsystem, right? because the consultant will do the study that somehow finds that theirceo's in the bottom half. so his pay gets moved up, which moves theaverage up. and bumps somebody else into the bottom half. and then oh my god, his pay hasto be moved up. so independent of corporate profits increasing, just the mechanism ofthe way they do these studies, keeps everybody leapfrogging--
bruce bartlett:
of course, we've had a problemwith the corporate boards that berle and means, you know, identified back in the 1930s. theboards don't look out for the shareholders the way they're supposed to. in fact, they'resimply in the pocket of senior executives. and they just rubberstamp whatever they wantand whatever is in their own personal best interest, everybody else be damned. bill moyers:
so let me close with, wherewould each of you compromise, if you were called upon to break this deadlock? yves smith:
i'm not sure that compromiseis worthwhile. if we go over the fiscal cliff or into the fiscal slope, we're going to havethe tax increases kick in. if obama were interested
in negotiating for a better deal for the ordinaryperson, he should actually go into january. but the whole fact that he wants a deal nowsays that, says that he is as conservative as bruce says he is. bill moyers:
you mean we should go over? yves smith:
we should go over. bill moyers:
and see what happens? yves smith:
we should go over just becausethen we've already had tax increases put in. republicans don't have the leverage of, youknow, "oh, these--" you know, of doing a deal without the tax increases already having takenplace. you're in a very different negotiating
position. going past january 1 would actuallybe a very good outcome for ordinary americans. bruce bartlett:
i'd go even further. i'dsay let the fiscal cliff take effect permanently. now everybody's afraid to do that. they thinkthe economy's too fragile. but if you look at what the congressional budget office hasestimated. they say, "yes, we'd lose some growth for about half a year. but the mediumand long term growth would actually be higher, because it would actually do exactly whateverybody says they want to do, which is cut a lot out of the long-term deficits. and itwould do so fairly by raising revenues a lot and cutting spending." what, how else arewe going to cut the defense budget if we don't allow the sequester to take effect? both partiesare pretty much into that. so i say let's
just let the whole thing happen. if i wasa member of the senate, i'd filibuster anything to get rid of it. bill moyers:
bruce bartlett, yves smith,i'll see you on the cliff. thank you very much. yves smith:
thank you.
