Professor Ravi Batra, a Professor of Economics at the Southern Methodist University, wrote "Greenspan's Fraud" and "The New Golden Age". He is a regular guest on the Thom Hartmann show.

Thom Hartmann interviews Professor Ravi Batra, December 19, 2008

[Thom Hartmann]: And welcome back my friends. Thom Hartmann here broadcasting live from 100 feet off shore on top of 30 feet of water in Portland Oregon and Dr. Ravi Batra is with us, the professor of economics at Southern Methodist University, author of "The New Golden Age" and "Greenspan's Fraud" and his website, check out his website, ravibatra.com. Dr. Ravi Batra, welcome. By the way, congratulations on a great article, a great profile of you in the Dallas-Fort Worth newspaper.

[Ravi Batra]: Yeah, that was very good. Thanks a lot for putting in some nice words for me, Thom.

[Thom Hartmann]: Oh, it's my pleasure. It simply the truth. You're one of the smartest and most prescient economists in this country. I think of you as this generation's John Maynard Keynes. And I wish that you were on Obama's--I wish you were Secretary of the Treasury, but, you know.

[Ravi Batra]: Well you know, this is the way things go. Even after FDR was elected, for a while older ideology still kept raising its ugly head.

[Thom Hartmann]: Well, his first official act of office was to cut back on pensions to widows and orphans from World War I.

[Ravi Batra]: I know--it's just crazy. So it's a learning experience for any new president. They will try the old policies because the trouble is if they don't do that, Wall Street will hit them on the head. That's the trouble, you know. If Obama wants to start making wholesale changes and reforms, Wall Street people then jump on him and then there will be, so he has to--they have to give him time, essentially, and they will learn by experience then when things are not working and he tries something new, then Wall Street will say, “Okay, let's do something new."

[Thom Hartmann]: As they did in 1933, '34 and '35 ultimately, is how long it took.

[Ravi Batra]: Right and then things started to improve. This is a sad part of it, is that the old ideas do not die so soon, even when they have created a crisis.

[Thom Hartmann]: Yeah. Ravi, I am curious on your thoughts on Bush's announcement today that's really two things. Number One, Mister Paulson is asking for another $350 billion in TARP money so that he can throw more money at the banks, right after the Department of the Treasury refused to go along with the Freedom Of Information Act filing by one of the news agencies asking for "Where did this money go? What's going on?" Congress is trying to find out. They don't seem to have a clue. And it looks like they are probably going to be stampeded into this all over again. And also George Bush saying, "Yeah, OK, we'll loan 14 billion and change to the auto companies but by the end of next year we want to make sure that their wage and compensation package is identical to workers at a Hyundai factory in Alabama.

[Ravi Batra]: Well see, this is a problem with all these old ideas. They think that low wages are great for the economy and high pay for executives is fine and along with that you need low wages and that's the problem. The problems are wages are too low relative to productivity. And this old idea--that we have to stay competitive with the likes of workers in China, and other low-paying countries, and that's great for living standards -- that is such a nonsense and this is what brought about this entire crisis to begin with. The crisis is, wages are too low relative to productivity and now the conditions of this auto bailout are that we will have even lower wages in the auto industry and then there will be many layoffs at the same time, and I find the whole purpose of this bailout, all this money, with wide layoffs in that industry -- I don't understand what they're doing.

[Thom Hartmann]: Well, you know, Bush is on the one hand--he doesn't want to go down in history as the guy who threw 3 million people out of work the week before Christmas at the end of his presidency. That would be the alternate Hoover-ville kind of thing. On the other hand, he does want to drive down those wages, cause like you said, these guys actually believe that if wages are low on working people, and if taxes are low on rich people then that produces a good economy. This is a belief system that has been adopted in the country, frankly by pretty much everybody since Reagan came in to power.

[Ravi Batra]: That's right.

[Thom Hartmann]: And before Reagan, those of us who are old enough to remember, before Reagan came into power, most newspapers in the United States had labor pages as well as business pages. There was labor news. People knew what wages were. And whenever a union was negotiating a contract, everybody knew what was going on and it was a big subject of discussion. Now you watch the news and all you hear is what the stock market's doing. That's not the economy.

[Ravi Batra]: Well, talking about these taxes, the discussion you started about taxes, talking about them. You know, the CEO crowd hates taxes, especially income tax. Right?

[Thom Hartmann]: Um hm.

[Ravi Batra]: And these are the same people who were first in line for the taxpayer handout right now.

[Thom Hartmann]: Right.

[Ravi Batra]: Isn't it amazing? They hate taxes. They hate to pay taxes. Now they are first in line to get a taxpayer handout. These are contradictions in the policies, so glaring contradictions, and then all we are doing, Mister Bernanke and this bailout business, asking for another another $350 billion, we are providing help to the banks and then complaining at the same time that banks are not, still not lending money to the people.

But there is another contradiction in this complaint itself. We all know that people have low wages and they are not able to service their mortgages, they're not even able to pay back their old loans, how can you then expect the banks to extend more loans?

[Thom Hartmann]: Yeah. And for that matter, local economies even to remain viable. As wages continue to decline, as these autoworkers, as their wages go down, yeah, there may be some additional short-term profits to the CEOs of the auto companies, and they're all thinking short-term, because they're all compensated with stock nowadays, but the local community, people are gonna be buying less local food at the food store, they are going to be renting fewer movies at the local movie store, going to the fewer movies at the local theater. They're going to buy fewer toys at the local toy store. And you know, fill in the blanks and slowly the economy of this country is going to be strangled, and has been, frankly, since we've seen wages steadily collapse, ever since Ronald Reagan came into office.

[Ravi Batra]: Well exactly, and this is what's happened soon after the stock market crash in 1929. In 1930 itself was a fairly reasonable year. Yes, unemployment had risen, the stock market was low, but things had stabilized. Then the economists recommended wage cuts.

[Thom Hartmann]: Right.

[Ravi Batra]: This is what they recommended in 1930. There should be wage cuts so that employers would find it profitable to hire these workers and they don't realize that when you have wage cuts, there's also a cut in total demand. People do not buy things enough and so employers, nobody will hire anybody if they can't sell what they're producing. So they started to cut wages in 1930, '31 and, you know, that the recession, and this is still a recession in 1930, turned into a major depression in '31 and '32. So these guys don't realize the importance of maintaining high wages relative to productivity.

See, I'm not just saying that wages should be high but productivity is extremely high and high productivity means high supply, high production. Who is going to buy all this production if wages are low? And the answer that the administration and Mister Bernanke along with Greenspan was and is make them borrow money. Lead them in to borrowing money. Now, and they kept following the policy, and when people borrowed money, they bought other goods but now people just don't have the capacity to borrow and banks also don't want to lend money because they are not being paid back on the past loans and here Congress and the economists and the administration are complaining that the banks are not lending any more money. Why should the banks lend any more money when they're not getting paid back on past loans? This is wholly insane, really.

[Thom Hartmann]: Yeah. It is and it's a downward spiral that in my opinion can only be reversed if we reverse the downward trend in wages. Your view?

[Ravi Batra]: Yeah. And actually you mentioned about the article that came out in Fort Worth financial weekly and they have mentioned my four steps. I have offered four steps, a four-point plan.

[Thom Hartmann]: Let's cover those when we come back from the break, Ravi.

[Ravi Batra]: Okay.

[Thom Hartmann]: Okay. We're talking with Dr. Ravi Batra and I hope you get a link to that article up on your website at ravibatra.com.

[Ravi Batra]: Yeah, I will do that pretty soon.

[Thom Hartmann]: Great!

[Ravi Batra]: Once my son comes, he will do that.

[Thom Hartmann]: Okay. I'm working from home today so it's going to take us a little more time to get it on our website. But we will also get it on to ThomHartmann.com within the next 24 hours.

Dr. Ravi Batra with us. Stick around, we'll be right back.

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[Thom Hartmann]: Dr. Ravi Batra with us, professor of economics at Southern Methodist University, the author of numerous books, including, "The New Golden Age" and the subtitle for the "New Golden Age", Ravi, is about political corruption and--I'm sorry--Ravi?

[Ravi Batra]: Ha, ha. OK, "The New Golden Age: the Coming Revolution against Political Corruption and Economic Chaos."

[Thom Hartmann]: There you go.

[Ravi Batra]: By the way, the paperback edition of this book is about to come out within two or three days and in that there have been a lot of questions about how to buy gold, and foreign currencies even when the price has gone up, so I have offered some suggestions in this new edition of this book, which is a paperback edition also, which is cheaper. And so suggestions about how to buy gold and foreign currencies and all my comments about the bailout and what things have happened.

[Thom Hartmann]: So it's new and updated. So your four points that you were suggesting about how to get this economy back on track.

[Ravi Batra]: Well, the first thing we just talked about was we should raise the minimum wage about one dollar per hour every year until it hits $10 an hour. And then we should index it with inflation. That's the first thing I would do. As the minimum wage goes up, all other wages will rise. That's one thing I would do.

The second thing, instead of increasing government spending on the bailout, of Wall Street and banks and so on, they should increase government wages. They're going to increase government spending anyway. Wages of those the government employees should go up, maybe about 10% this year and slowly they should rise until we catch up with everybody's higher productivity. By the way, recently, I think last month, China announced a raise in the wages of government employees by 10% and I think we should do the same thing and they understand the importance of domestic demand.

[Thom Hartmann]: So, exactly, so you are suggesting that by raising wages of government employees, you're going to do, you're going to accomplish two things: number one, you're setting a new bench mark for the cost of labor, because government employees constitute what, between a quarter and a third of all the workers, directly or indirectly?

[Ravi Batra]: That's right, yeah.

[Thom Hartmann]: And secondly, you're going to put a lot of money in the pockets of working people who spend 100% of that money or close to it, and that's going to increase demand for products which is going to revive the economy.

[Ravi Batra]: Right, and see, and then the important point here is, and this point actually was first made by Milton Friedman, you know the one...

[Thom Hartmann]: Yeah! the bad guy.

[Ravi Batra]: He first said that people don't spend much money out of a temporary rise in income, which is what will happen when they cut the taxes. But from a permanent rise in income, people spend a lot of money. So if you raise their wages, then people will look at as a permanent rise in income so there will be a big increase in consumer demand out of increased wages. Whereas if you cut taxes, then there will be some rise in demand, but not much, so, not as much at least.

[Thom Hartmann]: And at the high end, for people who earn more than they spend and thus save it, cutting taxes doesn't increase demand at all, because they just stash that away.

[Ravi Batra]: Exactly. That's right. You're right about that. And then, and if the wages go up it really instills a lot of confidence in your outlook towards the economy. They'll say okay, the economy…

[Higgins (the cat)]: Meow! Meow!

[Ravi Batra]: … is depressed but now I'm doing better so you spend more, and that's what we need. We have too much supply--not enough demand--and they are busy trying to raise demand through these government bailouts of the banks and banks are saying, "Well fine! Give us the money but we're not going to lend any more because our past loans are not being repaid right now." So that policy, you are creating more deficit but it's not helping the economy and the funny part is the policy has failed for the past two years and still they are repeating it.

[Thom Hartmann]: Yeah. Yeah. So, point number three?

[Ravi Batra]: Yeah, OK, so those are the two points and then point number three, I would do something real about our trade deficits; that we have to really start reducing sharply because if we don't do that, every other measure is going to have limited success. This trade deficit is killing our manufacturing base and all the problems we have from the auto manufacturing, manufacturing disappearing is because of the trade deficits.

[Thom Hartmann]: So we can do that by what, going back to what tariff-based trade system?

[Ravi Batra]: Well, if we do tariffs, then they're going to have, again, Wall Street is going to jump on them and that will perhaps initially cause a stock market loss and the worldwide confidence will go down, so I don't recommend tariffs right now. Later on, maybe but not right now. So later on we can do that if things don't work out.

[Thom Hartmann]: So what can we do right now to correct the trade imbalance?

[Ravi Batra]: Well, what I suggest now is that we should fix the value of the dollar at low levels with respect to Japanese currency, China's currency, and the Euro.

[Thom Hartmann]: Won't China just track us? I mean that's what they've been doing for the last decade.

[Ravi Batra]: Ah! They will do that but then we can fix it back later. The thing is, lower, even lower. Because they have it fixed and we can...

[Thom Hartmann]: So you're saying, over the short term, monetary policy, over the long term, trade policy as your third point.

[Ravi Batra]: Well, I think with the trade deficit if we are at a horizon for at least the next six months--once the trade deficit...

[Thom Hartmann]: Ravi--can you stick around for one more segment?

[Ravi Batra]: Sure, sure.

[Thom Hartmann]: Okay! Great, and we'll pick up a few phone calls for you to and then we'll get to your fourth point. Dr. Ravi Batra with us.

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[Thom Hartmann]: Ha, ha! yes, the Days of Bush-mas. Ha ha. They’re rapidly leaving and what a relief it is. Dr. Ravi Batra with us, Ravibatra.com his website and Ravi, you went through your first three points. You said raise the minimum wage by a dollar an hour, or a dollar an hour a year until it reaches $10 and then index it to inflation, number one. Number two, raise government wages. China just did this by 10% last year and it increased demand. Number three, fix the trade deficit, initially through monetary policy and over long-term by trade policy. My words not yours, and, all of these. But I think I'm getting your essence and your fourth point, and correct me on any of the three if I got them wrong. And let's pick up a couple of phone calls here, and then I've got another guest coming at the 45:00 break.

[Ravi Batra]: Okay, the fourth point is that we should, instead of bailing out the auto industry, buy the stock and sell the stock to the workers. And at the same time the government can assume a part of those legacy costs. So that to the level of the costs that the foreign transplants have, like Toyota and Honda and so on, so in terms of legacy costs, our domestic auto industry has the same cost structure as the foreign transplants and then at the same time they control the ownership of the company and then they will be very motivated to do this, so this will cost a lot less and we'll have a plan for success. Whereas the current system in which the failed management has made such a huge mess and now they're being rewarded with a lot of money and the workers have to either be laid off, or pay back their bonuses, or wages, is not going to be a good, good plan, this current plan.

[Thom Hartmann]: I would add to that, and tell me if you think this is, wise or not, to immediately institute something close to a single-payer national health care program so that we are not only, domestically, state-by-state competitive, in other words, so not only is the Toyota plant in Tennessee or whatever the company is in Tennessee, competitive with GM in Detroit in terms of the biggest part of the legacy costs being health care, because the pensions by and large were paid into by the workers over the years, so (a) it does that within the country but it also equalizes us with countries like Canada which has a national healthcare program so we’re competitive internationally.

[Ravi Batra]: Yeah. This is a very good idea and I think in my book I have mentioned it, that we need to have a national healthcare plan, not of the kind that Hillary Clinton was offering; one where we have a single-payer like the government is in charge of, like the Canadian plan, that's essentially what it is.

[Thom Hartmann]: With care for all, Medicare for all. Care for all. Okay, let's pick up a few phone calls here. Mike in Fort Worth, Texas, has a question for you, Ravi. Mike, you're on the air.

[Mike]: Hi, how are you all doing today? Listen, I have a huge, huge concern about our economy and the way it's going. Essentially the Republican Party took a bath in the last election. What real incentive do they have to make the economy do good over the next couple years?

[Thom Hartmann]: Good question. If the Republicans can make things worse, they can make the Democrats...

[Ravi Batra]: What should they do to improve the economy?

[Thom Hartmann]: No, his point is that the Republicans are now out of power so if they can sabotage the Democrats and prevent them from having any success in improving the economy, they make the Democrats look bad and they might get back into power.

[Ravi Batra]: Well they should remember what happened to the Republicans in the 1930s.

[Thom Hartmann]: When they did exactly what I just described. What Mike just described.

[Ravi Batra]: For 20 years they were out of power. [Ha! Ha!] That should be incentive enough to cooperate.

[Thom Hartmann]: Hopefully, hopefully. Beth in Minneapolis, you're on with Dr. Ravi Batra.

[Beth]: Thank you, Thom. Dr. Batra--first of all I want to say that I've written to Obama's campaign at the change.gov website several times mentioning you, your website, your books, and I write to other people in Congress and media about you and I hope sooner or later, you know, if enough of us do that, it will get more traction and we will hear more from you in wider media. But I wonder, do you happen to know, sir, if the Democrats are aware of what you are suggesting? If they are aware that wages need to be higher? And who would you recommend that we contact to send links to your article?

[Thom Hartmann]: Thank you, thank you Beth. I mean this is my biggest rant, Ravi, is that I would say somewhere between a third and two-thirds of all the Democrats in the House of Representatives and the Senate are still believing the Reaganomics mantra, that, "Oh, well, in a recession you can't raise taxes. In a recession you can't raise wages. You've got to--you know, corporate profits are going into the tank and things will just get worse", etc.

[Ravi Batra]: Well, this is, that's the trouble. They only look at the wages in isolation. They should look at wages versus productivity, because productivity has gone up increasingly, has gone up sharply.

[Thom Hartmann]: Right, and productivity is supply in the supply / demand equation.

[Ravi Batra]: But supply has gone up and there is no, they are not increasing demand. And they're trying to raise demand by increasing lending and people don't have the capacity to borrow any more. And banks don't want to lend so that's going to fail.

[Thom Hartmann]: Yeah, so how do we wake up the Democrats to this? Any suggestions? Ravi?

[Ravi Batra]: Yeah. Actually, by the way, I think because of your recommendation, I did talk to Senator, is it Bernie, Sanders?

[Thom Hartmann]: Yeah.

[Ravi Batra]: I talked to that office.

[Thom Hartmann]: Oh, that's great!

[Ravi Batra]: Yeah, I did talk to the office and I sent them my articles and they have heard of my positions now.

[Thom Hartmann]: That's great.

[Ravi Batra]: So maybe once they have tried their own ideas, they will talk to me about that.

[Thom Hartmann]: Bernie is a great guy and he is on every Friday for an hour on this show.

[Ravi Batra]: Oh, OK.

[Thom Hartmann]: And we were just talking to him, so that is great you have connected with him!

[Ravi Batra]: Then next time we'll discuss it, the article that I sent to him and his team.

[Thom Hartmann]: Yeah. So, and we need to get more Democrats. But, you know, really what you are saying is just not Batra-ism. I mean, John Maynard Keynes was saying these same things. Franklin Roosevelt came around to this. Virtually all the Democrats in the 1930s, 40s, 50s, and 60s understood this. John Kennedy certainly understood this. It's like we have had this collective amnesia since Ronald Reagan was elected president. Our labor pages no longer exist in our newspapers. We are just--we have become clueless about how the economy really works.

[Ravi Batra]: That's the whole point. This is essentially Greenspan's economics. Just look at productivity and don't worry about wages. High productivity means high living standards. That is simply nonsense. By the way, I think free trade is highly responsible for our current recession and the free trade could convert it into a depression, because what free trade does is--it raises productivity and that's what the economists like to talk about -- but at the same time it depresses wages so it has double problems for our economy.

Raising supply, cutting demand--to try to fill that demand by, through loans, that's not working anymore.

[Thom Hartmann]: Exactly. Rudy in San Antonio, Texas. You're on with Dr. Ravi Batra.

[Rudy]: Hey, thanks Thom! Dr. Batra, I have a question. I agree that what has happened to wages in this country is appalling and I really like your four points. But my question is that we as a society have become addicted to low-cost consumer goods and what happens, how do we wean the country off of that? If we raise wages and adjust our trade policies such that the cost of products will then go up, as wages go up, but, you know we are addicted to these low-cost consumer products.

[Ravi Batra]: Well, see, we are addicted to low-cost consumer products because our wages are low. In these policies, what will happen is wages will raise faster than prices.

[Thom Hartmann]: Because labor is only 10% of the cost of the car. So if I am making 10% more money, the cost of everything is going to go up, but it's not going to go up by 10%. It's going to go up by one percent.

[Ravi Batra]: Yeah. That's right. Wages will rise faster than prices, and look at America's history. We had very high tariffs throughout the 20th century, or the 19th century. And we became the world's industrial power. We have the highest living standard. So tariffs don't kill an economy. Low wages kill in an economy.

[Thom Hartmann]: Amen! Mike in Momence, Illinois. Hey Mike, we just have a minute here left.

[Mike]: Hey, thanks for taking my call. I'm kind of in a time warp. Your show is not on yet, so I had to call in early.

[Thom Hartmann]: Okay.

[Mike]: My issue is I haven't heard anything about a class action lawsuit against the banks and mortgage companies because they received hundreds of billions of tax payer funds with the implied mandate that they were going to something to stop the foreclosure slide, which nothing has happened, even in spite of the laws and bills that have been passed--

[Thom Hartmann]: You're right, and I'm sorry to interrupt you Mike, but we only have 20 seconds left. I'd like to get a response from Ravi on it. Good point. Excellent point!

[Ravi Batra]: Well. I guess somebody should do that but really I don't have any comment, any thought about this. I haven't thought about that.

[Thom Hartmann]: But it does need to be exposed?

[Ravi Batra]: Yeah. It does.

[Thom Hartmann]: It's insane policy to simply say we're going to come in with a helicopter and drop cash on the top of the skyscrapers and expect that somehow it's going to filter down to the people working on the street. I mean it's just nuts. Dr. Ravi Batra. Ravi, RaviBatra.com is his website. His new book, "The New Golden Age," is out in paperback. Check it out. Dr. Batra, thank you so much for being with us.

[Ravi Batra]: Thanks a lot.

[Thom Hartmann]: Good talking with you. Stick around. We'll be right back. It's the Thom Hartmann radio program and coming up next is Sarah Rosen Wartell.

Transcribed by Caleb Burns.