|From last night's MSNBC show
Joining us now is Simon Johnson. He`s the former chief economist
for the International Monetary Fund. He`s now a professor of
economics at MIT, as well as a contributing business editor at
"The Huffington Post." In other words, he`s way, way
over-qualified for a discussion that started with a really bad
long cheese metaphor.
Professor Johnson, thank you very much for joining us tonight.
SIMON JOHNSON, MIT ECONOMICS PROFESSOR: Nice to be with you.
MADDOW: Am I right that from what we know about this deal that
none of it is offset, this is just $900 billion added to the debt?
JOHNSON: Absolutely. As far as we know, it goes straight into the
debt. It expands the deficit. It`s completely irresponsible.
MADDOW: Give us a perspective on how big adding $900 billion to
the debt is. Nine billion dollar is obviously a big number. All
the debt and deficit number seem sort of equally big from a human
distance. How big a deal is this in terms of adding to our debt
JOHNSON: It`s a very big deal. Look, contrary to almost every
other country in the world, we are continuing to run a big
deficit. We`re ignoring the pressure from financial markets around
the world. We are continuing with these very irresponsible
policies put in place by President Bush, and this is asking for
trouble. We are going to get trouble because of these tax cuts.
MADDOW: The White House says, yes, this does add $900 billion to
the debt, but it will have some stimulative effect on the economy.
The president making the case today that the best thing anybody
can do for every sector of the economy is that the economy grows
Do you see this as good bang for the buck in terms of economic
JOHNSON: No, it`s not good bang for the buck. You do get some
stimulus, but it`s a small amount of stimulus. There are much
better ways to stimulate the economy, if that`s your goal, in
return for the increased deficit and the increased debt, which is
the cost I`m afraid of those policies.
MADDOW: If you could be economic dictator for a day, if you had
$900 billion to devote to trying to make the economy better,
trying to bring down unemployment in particular, what would you
spend that $900 billion on?
JOHNSON: Well, I would pay teachers. We got states and local
governments laying off employees, particularly teachers. That
really hurts us immediately and over the long run across the
country. That`s devastating.
I would expand community colleges. That`s where the unemployed go
to get retrained, go to get the new skills they need in the modern
economy, skills they don`t have.
And, of course, I would properly extend unemployment benefits.
Unemployment benefits, by the way, are going to remain at this
99-week limit. So, in Nevada, for example, there`s 96,000 people
who are about to run out of benefit, the agreement today does
nothing for those people. They`re still out of benefit.
MADDOW: What about the GOP argument that they really, really,
really want tax cuts for the richest people in the country because
rich people are the job creators? What about that sort of
trickle-down, supply side argument?
JOHNSON: Look, I have nothing against rich people. Some of them
are a great entrepreneurs, I`m sure. But there`s no evidence that
this kind of tax cut is going to generate jobs of that kind. In
fact, the people who study carefully the spending habits of those
very same wealthy Americans are saying very clearly the evidence
is this will not generate new jobs.
Businesses are constrained by the lack of demand right now more
than anything else. These taxes or the income tax and the estate
tax, and so on, are not at all what is holding back employment and
why we have record unemployment.
MADDOW: In terms of the -- in terms, of the U.S. situation with
tax rates right now, when you hear people who are arguing for tax
cuts, they talk about the country as if we have unreasonably high
taxes compared to other major economies in the world. When you
talk about people who are willing to see tax rates go back up.
People talk about them as if they`re contextualizing them as
What is your view in terms of the overall size of the U.S. tax
burden right now? Do we have high taxes?
JOHNSON: No, we have low taxes as a percent of GDP compared to
almost any other country at our income level. We have a pretty
inefficient tax system. We should reform it. That`s without question.
If you reform the tax system, you will get more revenue and less
distortion. So, that`s good. Unless, of course, you don`t want the
extra revenue, unless you don`t want to pay for two foreign wars,
11 aircraft carrier groups, and a lot of other commitments that
the government got itself into over the past decade.
MADDOW: Professor Johnson, one last question for you. We`re going
to speak with Senator Sherrod Brown of Ohio in just a moment. And
one of the things I wanted to discuss with him is how much wiggle
room there is in this framework.
The White House is describing this as a framework, which implies
that the deal is not totally nailed down, although the basics of
the agreement they expect to remain in place. You described a
radically different approach to spending $900 billion on trying to
improve the economy spending on teachers and community colleges.
Is there something that within this basic framework could be done
to significantly improve it? To make it more stimulative? To make
it worth more in terms of what we`re spending here? Or is the
overall framework just too toxic to do any good?
JOHNSON: I`m afraid this framework will not substantially help
stimulate the economy. It will not significantly bring down
unemployment. If that is your goal, and it`s a very legitimate
goal, and if you`re willing to incur some extra deficit to bring
down unemployment, which I think is entirely reasonably, you
should spend those dollars wisely. You should not blow it all on
yet another irresponsible and from this purpose, ineffective tax
cut that increases the deficit, increases the debt and makes us
more vulnerable to a financial market attack, the kind now being
seen in Europe.
MADDOW: Simon Johnson, professor of economics at MIT, contributing
business editor at "Huffington Post" -- thank you very much for
your time tonight. It`s very good to have you here.