accumulating wealth and reducing poverty in 1994 and beyond (1994)

8/3/2019 Accumulating Wealth and Reducing Poverty in 1994 and Beyond (1994)

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HOST: WILLIAM F. BUCKLEY JR.GUESTS: SEN. PAT MOYNIHAN, JACK KEMP, EDWARD REGAN,JANE BRYANT QUINN AND DIAN COHENSUBJECT: "ACCUMULATING WEALTH AND REDUCING POVERTYIN 1994 AND BEYOND"FIRING LINE is produced and directed by WARREN STEIBEL.This is a transcript of the Firing Line program (#994/2323) tapedat the Jerome Levy Economics Institute of Bard College December15, 1993, and telecast later on public television stations.

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them a t one half , one th ird the wages. There i s a sp l i t . I ti s something tha t th i s country has got to come to grips with,and I hope the members of th is panel can inform us and help usas to hoW we take care of the two th i rds of the people whoseincomes , take-home pay, abi l i ty to buy goods and services , hasbeen stagnant for decades, while a very thin s l ive r a t thetop--f ive percent--have watched t he i r purchasing power doubleand t r ip le .MS. QUINN: I 'd l ike to say, I ju s t think there are somet rends-- there are some good-newstrends-- that are going in ther igh t direct ion here.MR. BUCKLEY: Well, before you give me those, which I amanxious to hear, l e t ' s j us t agree t ha t we should dis t inguishbetween whether there are more poor or whether there arepoorer . Presumably i f you are homeless and l ive o ff foodstamps, you can ' t get poorer. So what we're ta lking aboutrea l ly is : Are there more poor now and i s the impact of thedef i c i t something tha t a ff ec ts th at graph? But go r igh t ahead.MS. QUINN: In terms of where I think we're going, one i s theselow in te re s t ra tes , which I think are going to be sensationalin the future for people more a t the lowerend- -because whatyou have i s , tha t people who have a lo t of wealth and they ownthe Treasury bi l l s and they own th i s and tha t , the i r incomesare going down because they ' re not gett ing as much. And whatdoes th i s do? I t helps the debtors. I t ' s kind of a wholestream of income going from wealthier people to debtors becausenow the debtors are paying lower in te res t ra tes on everything.There 's another thing and tha t i s th is productivity tha t youta lked in an ear l i e r week--pickingup in manUfacturing, it'sgoing to be picking up in services. Over time th i s i s going tocome through in higher rea l wages and th is i s going to comethrough in more jobs. And so th is i s a posi t ive t rend going inth i s direct ion. And the th ird one, in ear l ier weeks you havebeen talking a lo t about demographics here, and t he re ' s more tot a lk about in th i s area. We have a very small generation ofpeople coming up. This so-called Generation X, the babybusters-- they ' re in t he i r early to middle 20s now--this i s thef i r s t time in our his tory tha t we have had a generation comingup tha t i s smaller than the generat ion be fore. Now they ' recoming out into t e r r ib le t imes- - i t ' s s l ow , i t ' s d i f f i c u l t forthem. But I think we are more than half--maybe two th i rds ,maybe nine tenths o f t he way-- th roughc le ar ing away th i s messtha t we had in the l a te '70s, the 1980s. We are workingthrough th i s , and these young people who are coming out ,they ' re going to have another tough two or three years , butthen they are going to come into a world where suddenly thingsare picking up fas ter . I t ' s a small generation, so theunemployment ra te can go lower than you think without i t s beinginf la t ionary, and they are going to have higher real wages,

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it's going to be non-inf lat ionary and i t ' s going to be growth.So I think we are r ight a t the turning point where a l l thein teres t ing s tuff s ta r t s to happen. And I think the tren ds a tth is point are up ra ther than down.MR. BUCKLEY: Do you want to argue with tha t , Senator Moynihan?MR. MOYNIHAN: Not a t a l l in terms of the size of the cohortsooming into the workforce and the demand. They're f inal ly inan advanti:l.geoussituation. But on the question of poor Orpoorer , we are gett ing into a s i tuat ion where, to use thepres ident ' s term, an "outer class" i s growing a t real lych i l l ing levels .MR. KEMP: Yes.MR. MOYNIHAN: We're on a curve which would take the out-ofwedlock bir th ra te to 50 percent inat>out lO years ' t ime. We'realready a t 30. And t .hat de f ic i t keeps .u sf rom act ing . I don ' tknow what government can do. But Bil l , l e t me-- I 've t>roughta prop. Almost a quart.er of a century ago you had me on FiringLine to ta lk about President Nixon's proposi:l.l to establ ish i:l.gUi:l.ranteed income.MR. BUCKLEY: FAP, yes.MR. MOYNIHAN: Family Assistance Plan. A guarant.eed inoome.And I subsequently wrote a book about i t . I t got through theHouse and it fai led in the Senate Finance commi ttee . I wrote abook; it's called The Poli t ics of a Guaranteed Income: TheNixon Administration and the Family Assistance plan.MR. KEMP: Is th i s you on the cover?MR. MOYNIHAN: That 's me. [laughter] On the back.MR. KEMP: Robert Redford .MR. MOYNIHAN: Well, tha t was a long time ago. [laughter] Al i t t l e while ago, I asked some poor wretch of an in tern to readth is book and t e l l me how many pages discussed the question ofwhat the proposal would cost . Now remember th i s was a debatebetween a great economist, .Arthur Burns--I mean t ru ly aluminous man- ...George Shu lt.Z,a f in e economist, dean of theBusiness School a t Chicago. All sor ts of people in between,around, such i:l.smyself and others. But mainly twp economists.And you know how many pages the question of cost takes up?Twelve. Twelve. Arthur Burns. never said, "We ci:l.n't affordi t . " He said , " I t ' s not good for people. I t ' s not good fort.he character ," and Schultzsi:l.id it. i s , and the presidentf ina l ly decided Schult.z was r ight . Because we had a federalgovernment t.hat could t.urn t.o whatever options it wanted and

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not have to have the f i r s t question asked, How are you going topay for i t? And t ha t ' s what the def i c i t has done.MR. BUCKLEY: As I remember, it was an occasion in whichPresident Nixon sa t in the Oval Office asking you how much youfigured it would cost and asking Mr. Burns how much he thoughtit would cost . You were both re luctant to spea .kf i rs t andf inal ly you said, " I ' l l t e l l you what, Arthur. You show meyours and I'll show you mine." [laughter]MR. MOYNIHAN: Well, yes, but it didn ' t in the end determinepolicy, because th e fe deral government could afford i t .MR. BUCKLEY: Yes, it wa.sn't the-- I remember your t e l l ing metha t it would be between five and seven bi l l ion dol lars , whichseems out of s ight .MR. KEMP: Could I make a point? I hope it's relevant. I wasin the Congress when Senator Moynihan, then ass is tan t secretaryof HH--or HEW?MR. BUCKLEY: Labor.MR. KEMP: You were working a t the White House, I should say.MR. MOYNIHAN: I was counsellor to t he p re si dent .MR. KEMP: Okay. I voted against a guaranteed annual incomethen and I would do so today, not because I don' t . think th i s i sone of the seminal thinkers on th is issue in America., butbecause I don' t think you ought to guarantee an income per se .MR. MOYNIHAN: Yes, f a i r argument.MR. KEMP: But put tha t aside for j us t a moment, because Idon ' t want to get into an argument with M o y n i h a n - ~ I wouldprobably lose. But Ned raised a point tha t I would l ike toint roduce once again, o r r ein tr oduce. Look, we subsidizepoverty. I t r ied to make a point one t ime--I 'm l ike Moynihan;I love to quo te myse lf . I made. the point tha t i f you subsidizesomething, you get more of i t ; i f you tax something, you getle ss of i t ; i f you want to know what 's wrong in America, we taxthe worker, the saver, the in vesto r, th e producer, the peoplewho succeed, the people who produce, the people who take tha tr i sk , and we subsidize welfare, unemployment, consumption,debt 1 idleness, Dediocrity, and bir ths out of wedlock. NowI'mnot sugge sting, as Charles Murray does, tha t you j us t ought toel iminate welfare. John F. Kennedy said one time a r is ing t idewould lift a l l boats. I t i s so important to bave a growingeconomy so tha t boats that. can f loa t can r i se . But havingworked a t HUD fo r p re sid en t Bush for four years and workingwith Dan Moynihan, lam convinced we've got to do something to

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repai r boats th at c an 't f loa t . But it doesn ' t do any good totake a boat th at can 't f loa t , i . e . , th is underclass, and keeps U b s i d i ~ i n g the i r existence in poverty. The welfare system inAmerica today says i f you want to get a check from th e federalgovernment and you're poor, don' t work, don' t own anything,don ' t have any a sse ts , d on 't save, and don' t get married,par t icu lar ly for a woman who marries a man who 's working . Thegovernment wil l tax his income and raise your rents , and it i sto ta lly a t odds with everything we have l ~ a r n e d in thethousands of centur ies--or the centuries , I should say, ofJudeo-Chris t ian history.MR. BUCKLEY: Well, Ms. Cohen, how do they handle th i s problemin Canada? Do you have the same--MS. COHEN: We have exact ly the same problem.MR. BUCKLEY: Do you have the same p o l a r i ~ a t i o n ?MS. COHEN: I think that , i n a world of ins tant information andcapi ta l flows, it i s eas ier and easier for people who havealready accumulated money to move the i r money somewhere else i fthey don ' t l ike the regime in which it presently s i t s . And I'mnot sure tha t one has to worry about those people continuing toaccumUlate wealth. You know, sort of where our in te res t l i e sis in the res t of t he people --I don' t know whether it's thef ive percent or the, you know, 20 percent . But on the poorsicie, Canada has some, I th ink , ins t ruc t ions for America-because we have , a lthollgh we don' t ca l l it such, w ~ have inessence a guaranteed annual income. I mean, people in myprovince-- This is not a nat ional thing, but in Quebec peopleare paid to have children--the more children, the more pay,and-- You know, i f you have four children you get a check for$5-7,000.MR. MOYNIHAN: A family a llowance . A chi ldren 's allowance.MS. COHEN: We have a family allowance. We now have a v a l u e ~added tax so people below a certain income level get a check tohelp them pay tha t tax. Actually it doesn ' t matter what youwant to do in Canada, there is a grant or a subsidy for tha t .[ laughter] The problem i s tha t Canada also, l ike the Uniteds ta tes , has been fig htin g th e def ic i t for 10 years . Butourdef ic i tnow-- Youknow,I$a id laugh ing ly in the dressing roomt ha t I thought I was invited to make the Americans feel bet te r .We in Canada now have a combined federal and provincialdef ic i t - -and you have to combine them, because our provincesare allowed to have a def ic i t - -a combined federal/provincialdef ic i t of lO percent of GOP. And our to ta l debt in 1994 ismore than 100 percent of GOP.MR. MOYNIHAN: Oh.

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MS. COHEN: So when I look a t what we've done,having a highdef ic i t and increasing the def ic i t doesn ' t necessari ly give yoube t t e r s o c i ~ l policy. And I guess I 've come to the conclusiontha t it i s not government p r o g r ~ m s tha t pul l people out ofpoverty. And in fact , i f you think about where these programscame from, a t the beginning of the Industr ia l Revolution,socia l programs did pul l people--they made those boats stopleaking and r i se . Those programs don ' t do tha t any more. Andso it's because our economy has changed so much. I mean, weare ave ry different group of people.MR. KEMP: Dian, i t ' s not so much tha t the economy has changed,in my view, i t is tha t tl1e after- tax--excuse me for bringingth is up a g a i n - ~ b u t the a ft er -t ax r at e of return for a welfaremother moving from welfare to work reduces her income--MS. COHEN: That 's rigl1t.MR. KEMP: - ~ s o tha t for every dol lar of income she makes a tthe minimum wage, she loses welfare benefi t s and gets taxed onher payrol l .MS. COHEN: Yes, absolutely. There i s - -MR. KEMP: So in effect , it's almost l ike the Swedish welfares ta te .MS. COHEN: I t ' s a confiscatory tax, t ha t ' s r ight .MR. KEMP: The reward for going to work is lower than thereward for being on welfare.MS. COHEN: And tha t ' s what has to be addressed in both of ourc o u n t r i e s - ~MR. KEMP: Right.MS. COHEN: - - tha t what you want to do i s , you want to say topeople who haven' t got the education, who c a n ' t ~ - r e a l l y , w h o - i f you don ' t have a job, real ly what you don' t have is , you'reout of the network of people who know where the jobs are. Andwhat you want to do i s to h elp th ose people get back in to apar t icu la r network. Now in neither of our count rie s a re wedoing tha t . We are s t i l l perpetuating the system that used towork--MR. KEMP: Yes.MS. COHEN: --and doesn ' t any.more.MS. QUINN: And th i s , by the way, doesn ' t mean job t ra ining,because I am absolutely convinced tha t job t ra ining works for

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people who are already in the system, who real ize they need toknow more and go beyond. These are the people who then comeback ami say , "Wai t a minute. I need a h igh schoo l diploma. Ineed t ra ining. I need something because I see something I wantto do." We are talking about real jobs, and whatever itt akes - - i t may take two or three or four tim es, it may take alo t of t ra in ing in get t ing up in the morning; I don ' t know whatit takes , but we're talking about in some way, putt ing peoplein a work atmosphere where they have a job and they have aresponsib i l i ty and then see i f it catches on, so they say,"Gee, I think I '11 go get my GED and go on from here."MR. KEMP: There ha$ to be a reward, though, for going to work.I mean, th is i s a society in which our cul ture should berewarding productive human act iv i ty , i . e . , marriage, family,having children, going to school, staying in school, stayingdrug free , staying in the l ibrary as opposed to going on thes t ree t , and get t ing a job. And lam suggesting, Ned, in answerto the previous ques tion tha t you ra i sed- -andqui teeloquent ly-- that we've got two economies. We've got a macroeconomy tha t works because i t ' s based upon incentives. We havea micro-economy, the inner-ci ty economy--and I don ' t know i fPat and I would to ta l ly agree, but I hope tha t lcould--havingworked with him when I was a t BUD, I am convinced now theinner-c i ty economy i s almost a Third World soc ia l i s t or EasternEuropean social economy. There is no private property, thereare no private asset$. People only own the sh i r t on thei rback. They don ' t own any home, they don ' t own any property,they don ' t have any stock, and they don ' t h a v e a n y e ~ i t y i nthe system. And it leads to social , as well as economicconsequence. And so t ransferring property--publichousingshould be tr an sf er re d to people so they get a stake in thesystem. We ought to have enterprise zones to create more jobs;we ought to e lim inate t he tax on going to work and saving i fyou're a poor woman or an unemployed f ath er tr yin g to get offwelfare. Buckley called me orthodox. I don' t think this i sorthodox. I think th i s i s radical surgery on a welfare systemtha t i s an embarrassment to western Judeo-Christian ideas.MR. REGAN: Jack, I think most of us would agree with you,but - - l do, and I think the res t of us would. The question tha tDian ra ised and I thoUght Bi l l raised was a l i t t l e broader.We're not ju s t talking about inner-ci ty. We're talking about avery large $ l i c eo f t h e American workers whose purchasing powerhas decl ined, and I think Dian is r ight , because the economyhas changed. And Pat would be r igh t - - i s r igh t - - i f hesuggests--and now we're back to Bi l l ' s quest ion-- i f he suggeststha t the size now of the def ic i t would even prevent--almostprevent--a debate on what to do about i t . Whereas you had jus t12 pages out Of 400 on theinancing, today if we were to takeDian's eloquent description of how the economy i s different and40 percen t of the people who have los t purchasing power, and

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what should government d o - ~ t r a i n i n g or not or apprenticeprograms--that debate would now a l l be on, as you correctlysuggested, a l l be around the size of the def i c i t and we can ' tdo i t . So how do we get around tha t problem?MS. QUINN: But do you know, there are some p riv ate s ec to rthings coming in here. Again, it doesn ' t a l l have to bea ~ t o m a t i c a l l y a government program, and everything i s n ' tpolicy.. I f you j us t look a t the mortgage world, for example.The people who run mortgage companies are looking out and theyare s a y i n g - ~ b a c k to my demographic point about th is smallgenerat ion coming u p ~ - t h e Y ' r e saying, "Hey, th ese kids weren ' tborn. They 're n ot going to grow up and have mortgages becausethey weren ' t there. I see a shrinking mortgage pool ahead ofme. How am I going to improve my mortgage business? Answer:I 've got to. do something about th i s 35 percent of Americans whodo not own homes, b e c a ~ s e t h a t ' s the only way I am going togrow in the future." And s o a lo t of these CEOs a t mortgagecompanies are s ta rt in g to say, "We're not looking properly a tt he non- tr ad it ional buyer. We're not looking properly a t theperson who l ives inside a low-income a r ~ a , a t i m m i g r a n tborrowers. They can ' t get into the secondary mortgage sys tembecause we have these crazy rules. We need to reconsidertha t . " And th i s i s n ' t policy, and nobody cut t he i r tax andnobody i s doing anything--MR. KEMP: Sure it is . The r egul atio ns fo r borrowing today--MS. QUINN: Yes, but nobody cut t he i r tax. But nobody cutthe i r tax, Jack--MR. KEMP: wait a minute. All policy is not taxed, Jane.MS. QUINN: But furthermore, they are coming to th is from t he i rown private sector need, and I jus t want to- - This is notgoing to solve eve ry th ing, but I jus t want to ra ise the issuehere tha t there are a lo t o f p riv ate sector things tha t aregoing on t ha t are going to bring some capi ta l into. thesecommunities which wil l h e l p ~ -MR. KEMP: I agree.MS. QUINN: --bring some businesses and some jobs.MR. KEMP: Jus t to make the point one more time: Policy doesmatter . The Basel Accords require tha t a l l private lending inAmerica requires eight percent risk-based capi ta l standards.I f you buy a government bond, the bank can loan money--I meanyou can buy a government bond and there is no standard for thepurchase of tha t government bond. But i f a bank loans money tothe private developer or a private person who wants to borrowfor a mortgage or whatever, there ' s got to be eight percent

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Well--

That was the policY.But they ' re going to- -

MS. QUINN:MR. KEMP:MS. QUINN:MR. KEMP:

risk-based capi ta l standards according to the Basel Accords.So banks are, in ef fec t , buying government debt. They are notlending to the p riv ate s ec to r as much as they could.They're going-- And they ' re going to - -

MS. QUINN: - - f i r s t , because banks are in great shape. They'rein the bes t shape they've been in a long t ime.MR. KEMP: Thanks to buying government T-bil ls .MS. QUINN: There's a lo t of l iq u id it y t he re --MR. KEMP: Sure.MS. QUINN: --and they are being driven. Like these mortgagepeople I 've been t ~ l k i n g to--they are being driven by the i rperceived need to enlarge the i r business, and they see thereare a lo t of good loans to be made there . They j u s t haven ' tfigured out how to make them yet. This i s a p riv ate s ec to ri ns igh t , and these kinds of things are valuable i f you think,as I do, tha t we are a t a turning point and looking ahead.There are a lo t of people who are thinking different ly aboutwhat 's out there and gettin g c ap ita l in there.MR. BUCKLEY: Senator, yOU've got something on your mind, doyou?MR. MOYNIHAN: Yes. Remember our general theme in th i s ser ieshas been the def ic i t , and I thought Ms. Cohen made veryimportant statements about Canada. The def ic i t , rega rd les s ofthe economic impact you can say it has or doesn ' t have, has apol i t i ca l impact tha t causes leve ls of anxiety. You werementioning t ra ining. There i s no tax "break" in the codebe t te r than employer-aided educa tiona l assi stance--when anemployer says: I think you've got something. What do you say?You have a BA. Would you l ike to do a year of accounting post graduate, do a tech a t night. We'll pay the tu i t ion . Andyou're working a l l day and then they ' re going to r ais e.y ou rp ~ y , you ' l l pay more taxes, you ' l l be more productive. I t ' swonderful, clear , sum-sum gain. You have to f ight every yearto keep it there because of the def ic i t . And I would wonder i fMs. Cohen woUld want to speak to us. Our neighbors are-- Youj us t had an elect ion in which the oldest pol i t ica l party inCanada, the party of independence, really--1867--theProgressive Conservat ive--

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MS. COHEN:

MS. COHEN: They were wiped out.MR. MOYNIHAN: They disappeared. They disappeared. A partyt ha t has been in every parliament since they began it wasreduced to two seats . And .you have a separa t i s t party inQuebec, where you come from, I guess; you have a party in theWest tha t seems to say: Let them go, by a l l means. Cut themoff and sa i l off to Iceland and we' l l join Califo rn ia , o r Idon ' t know what the plans of th is party are. And your def ic i t sbegan to have an u n s t e ~ d y i n g effect on pol i t ics .MS. COHEN: Yes, absolutely.MR. MOYNIHAN: I mean, can you imagine a House ofRepresentatives with two Democrats?MR. KEMP: I am shocked. [laughter] I am shocked. I think itwould be great . I t ' s Nirvana. Nirvana. [ laughter]MR. MOYNIHAN: I shouldn ' t have said tha t . Let's> see, what didI mean? I meant RepUblican. [ laughter]

Well, in fac t - -MR. KEMP:booming. Taxes would be coming down, the econOmY would beHelp us.MS. COHEN: But as we a l l know, I mean, t rying to get out fromunder debt--as it seemstQme was the origin of th i s country-brought us the French Revolution. I mean, what we're. lookinga t i s - - in my coun tr y- -I t hink , we're looking a t a s i tuat ionwhere the various people across the country are saying, "Can wein th is area of the world s t i l l produce jo int gains in which wecan a l l share?"MR. KEMP: Right.MS. COHEN: And it is not clear. tha t there is an answer yet .Let me move you so r t of in the direct ion of, you know,. goingback to th e def ic i t a l i t t l e b it and ta lk a l i t t l e b i t aboutthe new world tha t I see- ...because we tend in our age group, itseems to me, not to ta lk a lo t about the information economy,the fact tha t I know that--again, somebody in the dressing roomsaid , "No, no, we don I t use computers or word processors and soon." But the fact i s tha t the elect ronic highway which i sbeing ta lked about--and the superhighway in America ...-MR. BUCKLEY: We have a hal f minute.MS. COHEN: Oh, okay. This is an area of tremendousopportunity--

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MR. KEMP: Excellent., excel lent .MS. COHEN: Not jus t for entrepreneurs., but for the people tha tyou are concerned about, who want: I need th is much t rain ingand I j us t want tha t much and I don ' t want more," and I want iton my time. This i s going to be a super opportun ity for tha t .MR. KEMP: I t ' s also a productivity increase.MS. COHEN: Yes.MR. BUCKLEY: Thank you very much, ladies and gentlemen. Seeyou pretty soon again.

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