Congressional Finance Chair Discusses U.S. Economy
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PAUL SOLMAN, NewsHour Economics Correspondent: Over the years, he’s been called a lot of things: a loner, a genius, an oddball, the frumpiest member of Congress, the sharpest-tongued, today and throughout the years.
REP. BARNEY FRANK (D), Massachusetts: I think, if we were giving a price for the single worst idea to come forward from a group that’s been rife with them, it would be this. The idea is this: Let’s make the tax code of America better for very rich people; let’s give substantial tax relief to the richest people we can find.
PAUL SOLMAN: Since Democrats took control of Congress in January, 14-term arch-liberal Massachusetts Congressman Barney Frank has become one of the most powerful men on the Hill, chairing the House Banking Committee, now called Financial Services. We spoke to him just before the August recess about the economic issues he’s focusing on as he helps shape his party’s agenda, his proposal of a so-called grand bargain with Republicans.
Barney Frank, welcome.
REP. BARNEY FRANK: Thank you.
PAUL SOLMAN: What’s the biggest issue, economic issue in your mind that’s facing Congress right now?
REP. BARNEY FRANK: Really, the increasing inequality in our country economically. Inequality is a good thing. You don’t have a capitalist system without it. But we are in a position now in which inequality is excessive. Virtually all of the increased wealth in the country is going to a very small number of people, and what that means is it could have negative economic effects.
PAUL SOLMAN: Negative economic effects, like the failure of the recent immigration bill, because so many Americans feel recent immigrants are hurting their welfare; the failure of Congress to extend President Bush’s ability to promote trade, because voters think trade causes inequality and hurts them.
REP. BARNEY FRANK: There’s a degree of disillusionment on the part of the average American that is, a, factually based in terms of the economics. Now, I do think many people blame the wrong victim, but until you break that down, you’re not going to get advances in the various economic issues.
PAUL SOLMAN: But does Frank really think the president should be encouraged to promote trade more vigorously?
REP. BARNEY FRANK: I think it would be good if the president could promote trade, if the benefits of trade were distributed less unequally and if the negative impacts of trade were buffered.
I’m for foreign trade. I’m for foreign trade after we have done health insurance, and after we have done a change in the labor laws so people can join unions, and after we have put back into effect some government programs.
PAUL SOLMAN: But one set of skeptics with regard to this inequality argument say, “Hey, in the last year, wages were rising on average, and particularly for the bottom quintile, the bottom fifth of the population,” which is the group you’ve certainly most historically been concerned about.
REP. BARNEY FRANK: Well, no…
REP. BARNEY FRANK: First of all, “were,” your tense is correct. That’s now been moderating.
PAUL SOLMAN: You mean the rise in the average wage?
REP. BARNEY FRANK: The rise, yes. It went up a little bit. It’s started to go down, real wages. Secondly, it comes after many years of a real drop.
Bargain between the two parties
PAUL SOLMAN: So inequality has been rising long-term, stalling progress in both immigration and trade. Frank's answer is what he called a grand bargain after last fall's election, in which Democrats support free trade, immigration reform, and reduced regulation; Republicans, in exchange, more rights for workers, more trade-adjustment assistance, universal health insurance.
How's the bargain going?
REP. BARNEY FRANK: It's not going well now because the business community said, "No, we're not going to do it." I'm hoping that they're taking a second look. And, again, the defeat of the immigration bill and the death of trade promotion I hope have gotten them to understand that we are in gridlock now on things that they think are important.
First of all, they've got to drop their opposition to unions. Secondly, get a national health insurance plan. I'm for a single payer. I think the people I talk to like Medicare a lot. But the problem with health insurance is, first of all, it's a competitive disadvantage. It costs a lot more to make a car in Detroit than in Windsor, Ontario, across the border.
PAUL SOLMAN: And famously there's more health insurance cost in a car than there is steel nowadays.
REP. BARNEY FRANK: And that also depresses the wage pool. So you've got to break the linkage between employment and health care. You've got to let people join unions. You've got to stop demonizing government and recognize that there are some things that we should be doing together, because if you completely and if you consistently reduce any public commitment, more and more is left to the private sector so that services and other things, you don't get them unless you are rich.
PAUL SOLMAN: But even with inequality, doesn't a rising tide lift all boats?
REP. BARNEY FRANK: If you can't afford a boat, the rising tide will go up your nose if you're standing on tip-toe. And that's not -- the one thing I wanted to say before you said the bottom quintile, I care a lot about the bottom quintile, but I care about...
PAUL SOLMAN: That's the bottom fifth.
REP. BARNEY FRANK: ... the bottom fifth -- I care a lot about the next three-fifths, too, because there are people making $70,000 and $80,000 in this society who are badly strained by this economy. So the sad part -- this is not just the 20 percent versus the 80 percent. Again, the figures from the Bush administration officials' figure, 93 percent or 95 percent of the people haven't gotten a real raise in the last seven years.
Support for trade
PAUL SOLMAN: I and many people like myself, I'm sure, used to think of you as sort of -- as the left wing of the Democratic Party. Are you now in the position of chairman and saying that, for example, other Democrats are against trade, whereas you're more nearly for it? Do you see yourself more now as sort of in the center of where the Democratic Party is?
REP. BARNEY FRANK: Well, no, I've never been on the most left-wing part of the Democratic Party. But when I talk about trade, I am talking about trade after we have fixed these things. And I think 90 percent of the Democrats would be for that. Trade is a good thing as long as its benefits are shared fairly, not equally, but fairly.
PAUL SOLMAN: Why do you suppose that companies like Ford and General Motors aren't responsive to your argument, for example, with respect to single-payer health care?
REP. BARNEY FRANK: Because they're afraid of alienating their allies. You know, I'm going to dance with the one that brung me. They're conservatives, and they've got to be with conservatives. It doesn't make, I think, any sense for them to do it.
PAUL SOLMAN: Well, they're afraid that they're going to look as if they're special pleading. I mean...
REP. BARNEY FRANK: Well, they do special pleading. Please. The auto industry is afraid of being a special pleader? I mean, is the pope afraid of appearing Catholic?
PAUL SOLMAN: Of course, national health insurance will cost money, raising the old charge: tax-and-spend Democrats. But, Frank counters, when you don't spend, you get tragedies like the Minneapolis bridge; laid-off workers with a bleak future; rotten housing for the poor, the issue Frank has pushed hardest of all to correct. People want specific government programs, he says. They just don't want to pay for them. It's a lesson he learned in his youth when talking to an old Boston pol.
REP. BARNEY FRANK: And I was complaining about people who wanted the mayor of Boston to build them a swimming pool and, once he decided to build a swimming pool, began to complain about the noise and the dirt that was coming from the fact that we were building a swimming pool. And I said, "Boy, people are so inconsistent." And he leaned over and patted me on the knee and he said, "Hey, kid, ain't you heard the news? Everybody wants to go to Heaven but nobody wants to die." And I'm afraid, you know, people want the public services, but we can't have the public services without some level of taxation.
Dealing with CEOs, subprime crisis
PAUL SOLMAN: We had a few more questions specific to the man now running the Financial Services Committee.
What are you doing about executive compensation, and why?
REP. BARNEY FRANK: Well, what we have put through the House is a bill that says shareholders get to vote in an advisory capacity as to whether or not the CEO compensation is acceptable.
PAUL SOLMAN: Not up or down?
REP. BARNEY FRANK: Yes, but it's not binding. It's not binding. We get, of course, two objections. One, it is cosmetic. And, two, it is much too intrusive. And it is hard to do both. We think it is unlikely that boards of directors would ignore what the corporations say -- what the shareholders say.
PAUL SOLMAN: Next question. Why does he support regulating mortgage-lending?
REP. BARNEY FRANK: An argument for regulation. If you looked only at the loans that were originated by banks that were regulated by the bank regulators, you wouldn't have a subprime crisis.
PAUL SOLMAN: Right, the crisis has to do with...
REP. BARNEY FRANK: With unregulated originators.
PAUL SOLMAN: Loans that have passed through.
REP. BARNEY FRANK: We do want to extend a form of regulation to people who've made unregulated loans. Most of the loans that shouldn't have been made have been made by people -- they weren't made by the bank lender. Now, the bank ultimately would provide the money.
PAUL SOLMAN: But isn't it the responsibility of borrowers to know what they're doing?
REP. BARNEY FRANK: Well, there are a couple of problems. First of all, there are borrowers that may not fully understand it. I suppose there is that argument, and that is the argument, and I have some sympathy that, if someone sells you cocaine, you should be able to take it. Why should the government -- you know, why is that not the borrower's responsibility? Or if you want to buy a fire trap, why shouldn't you buy a fire trap?
One of the arguments is that what you do doesn't just affect you. It has consequences for others. Subprime loans are not randomly distributed geographically. They tend to be concentrated. So people in a particular neighborhood who have been very hardworking and responsible, they find their property being devalued, because the people around them haven't paid attention to their loans and they were falling under.
PAUL SOLMAN: Or the houses were foreclosed on, and then there's nobody there.
REP. BARNEY FRANK: Exactly, and they made unwise loans. In some cases, there's been fraud.
Looking at hedge funds
PAUL SOLMAN: Just very quickly, how serious a problem is hedge funds? And are you in favor of taxing money managers, including hedge fund managers, at an income tax rate rather than the current capital gains tax rate?
REP. BARNEY FRANK: Yes, very good question. I am in favor of taxing managers as if they were managers. Now, capital gains are for people who put their own money at risk. A manager by definition hasn't done that. And why the manager of a hedge fund shouldn't be taxed at the same rate as any other manager of other people's assets I can't understand. So I am in favor of taxing them as if they were earning income, which they are doing.
PAUL SOLMAN: And are you worried about hedge funds because they're unregulated and they're so huge?
REP. BARNEY FRANK: Yes, it is a concern. It's not yet clear what to do about it.
PAUL SOLMAN: Barney Frank, thank you very much.
REP. BARNEY FRANK: You're welcome.
JUDY WOODRUFF: A postscript. Since Paul taped that interview, President Bush outlined a new plan on Friday that would help some homeowners with subprime mortgages obtain government-backed loans. Congressman Frank said he welcomed some of the president's ideas, but he also said that Congress would press forward with its own bills to expand the federal role in housing regulation and assistance.