The author of Boomerang: Travels in the New Third World discusses the European debt crisis, describes what he feels are the problems with the euro and explains how the U.S. is impacted by the crisis.
Author Michael LewisOriginally aired on October 17, 2011
Tavis: Michael Lewis is, of course, a perennial “New York Times” best-selling author whose previous texts include “Moneyball,” “The Blind Side” and “The Big Short.” The latest is called “Boomerang: Travels in the New Third World.” Michael Lewis, good to have you on this program.
Michael Lewis: Thanks for having me.
Tavis: Good to have you. Let me start with the news of days ago. So Merkel and Sarkozy of Germany and France respectively have now said that by the end of the month they are going to put forth a plan to do something vis-à-vis the debt crisis in Europe. Your thoughts about that?
Lewis: Well, I’m a little skeptical, because the governments have been trying to put out this fire for a long time and what they do is make these announcements to calm the financial markets down so there aren’t runs on countries and runs on banks.
But they don’t have a specific plan, and any plan they put together is going to involve essentially German people paying for the debts of people on the periphery of Europe, and the German people have made it very clear they don’t want to do that.
So you’ve got this friction that’s going on in Europe right now. It’s very interesting. The political elites, the elected leaders, say they want to further integrate Europe, to basically create a United States of Europe, but the people clearly don’t want to go there, so something’s got to give, and my guess is what gives is the German government.
Tavis: Wasn’t the euro in part supposed to prevent problems and crises like these?
Lewis: The euro was designed, I think the subtext of the euro was we’re going to yoke Germany to the rest of Europe so it can’t invade anybody anymore.
Tavis: Exactly, yeah. (Laughter)
Lewis: And so we’re going to be one big, happy family. The problem was that if you have a currency union without a fiscal union, without a central taxing and spending authority, and if the countries pursue different policies – Greece had pursued a very inflationary policy, they were not competitive – it becomes unsustainable.
Greece accumulates lots and lots of debt and at some point they can’t pay off that debt. In the United States we don’t have this problem because if Mississippi is less productive than Indiana, people leave Mississippi and go to Indiana and work; the federal government can subsidize Mississippi. We have a mechanism for dealing with this.
They don’t have that there, and when they designed the euro what they thought was there’s going to be a crisis but it’ll be 20 or 30 years from now, and then they’ll sort it out. Meanwhile, we’ll become so integrated that they’ll have an incentive to sort it out. But the fact is they haven’t really become as integrated as all that.
Tavis: You could not have known this, but I about jumped out of my seat when you just – of 50 states, you picked the two states – I’m born in Mississippi, as my friends know, and raised, grew up in Indiana.
Lewis: Were you more productive when you were Indiana? (Laughter)
Tavis: That’s debatable. Of all the states, you picked Mississippi and Indiana. I love it.
Lewis: I do my research.
Tavis: I love it. Okay. Let’s see how well I did my research. What are we, to your point now, what are we to make of what’s happening in Greece, and how bad is this situation?
Lewis: Very bad, all right? So part of the story I’m telling is how essentially whole societies were left in a dark room with a giant pile of money over the last decade, and they could do what they want with the money, but there were consequences.
What we wanted to do was have this subprime mortgage-fueled housing bubble, but the Greek government basically took the money and spent it very unproductively on more government and hiring lots of people who weren’t doing anything, and they’ve got a cultural problem that not only do they have an incredibly bloated state and an incredibly inefficient private sector, but they have a culture of not paying taxes.
You talk to a tax collector in Greece as I did, and he’ll tell you that the quickest way to get fired as a tax collector is to collect taxes. That if you get too aggressive with people – so they have essentially a society that is not functioning, and the people don’t see any reason to change. It’s a cultural problem.
So the Greek people, even though they’re the ones who borrowed the money and owe the money, the act of trying to restructure their society so they can repay their debts has got riots on the streets.
So I think what you’re going to have, you’ve gotten Europe elites that want to bring European countries closer together, but people, populations that are pulling Europe apart.
Tavis: Is austerity overrated?
Lewis: Oh, God, yes. I think the things they’re doing to Greece to get them to repay their debts, it’s counterproductive, because what happens is the IMF, together with various Euro officials, go in and say what you need to do is whack the government, drop 100,000 employees, and raise taxes over here in the private sector to try to cover these debts.
The effect of that in the short term, of course, is depressed economic activity. It’s the opposite of what Greece needs, in a funny way, and so they create a permanent recession-depression-like environment with very high unemployment and lower tax revenues.
So the things that the outside authorities are doing, essentially to appease the German people, so they say (unintelligible) the German people, “Kick in the money. You can see we’re going to make these people change.” But the Greek people don’t want to change and essentially the medicine they’re being asked to swallow is killing them.
So something has got to give, and the way the European officials are handling it now is by making bold pronouncements about having some solution without actually having the populations on board.
Tavis: We on this program last week did an entire week about poverty in America. My friend Dr. Cornel West, and I this summer hopped on a bus, went to 11 states, 18 cities, documented all of this travel, talking to people of all races, colors and creeds about poverty in this country and what it’s doing to everyday people.
I raise that, since we discussed it last week, to ask you tonight what these austerity measures are going to do to the poor already in Greece and in Europe, the perennially poor, and what’s it going to do in terms of creating new poor in that part of the world?
Lewis: It’s going to be a growth industry, creating poor people. We’re going through this very – Ben Bernanke, the chairman of the Federal Reserve, Mervin King, the head of the Bank of England, have both said we’ve just experienced possibly the worst financial crisis in the history of man, and after financial crises there are inevitably these periods of slow, no growth, recession, depression-like environments.
Added to this we have ideology at the government levels that is preventing the government from doing the most it can do to alleviate the problem. We really need actually expansionary government policies to create demand. We’re not doing that, not sufficiently, and as a result, unemployment’s way up and it’s going to stay way up, and when unemployment’s way up, poverty goes up.
So I think what you see happening is poverty being normalized in some way. You see people who thought of themselves as playing by the rules and doing all the right things all of a sudden poor.
This isn’t a replication of what happened in the Depression, but it rhymes with the Depression, and so that’s going to create in turn, I think, political change.
Tavis: I don’t live in Greece, I don’t live in Germany, I don’t live in France; I live in the U.S.A. What does any of this have to do with me?
Lewis: Well, in the short run, the stock market’s going way up and way down every day because the U.S. market is afraid that if Greece defaults on its debt, which sounds like it’s far away and has nothing to do with you, but then they don’t pay back people – banks, mainly – money that they owe, and those banks then possibly fail, and the banks are mainly French and German banks; still seem far away.
But our banks have all kinds of interaction with their banks, so our banks start to either fail or have runs on them and get attacked in the stock market. So all of a sudden what we have is a reprisal of the financial crisis of 2008, where the financial system gets paralyzed.
So I think what you’re watching is act two of the same financial crisis. Act one was all these bad debts accumulate in the system, but they accumulated in the banks. Governments everywhere sort of assumed the debts or backstopped them, and now the question is of the governments now, are governments now not credible?
When that happens, it creates a very fragile economic environment. So your ability to do what you do for a living is premised on a certain level of economic activity. It’s going to decline. It’s going to get harder and harder for people to do what they do here, I think.
Tavis: Before you became a writer and best-selling author and before your books were optioned as movies, you worked on Wall Street.
Tavis: Your thoughts about these protests that are growing, it seems, every day in this country and around the world, this whole Occupy Wall Street movement.
Lewis: I think it could be a really big deal, and I’ll tell you why. The movement hasn’t really articulated exactly what it wants, but generally you can see what it wants, and it has justice on its side.
Essentially we’ve gone through this period where people who were paid the most, the elites of the society, in the financial world, behaved in ways that were very destructive to the larger society. The result was this financial crisis. They were bailed out by the government; by taxpayer dollars they were saved.
If nature had just taken its course and the government hadn’t stepped in, all these big Wall Street firms would have been out of business. So the taxpayer does that, and then in response, restored to strength and health, the big financial institutions do their best to prevent any kind of reform of themselves. They insert their money into the political process.
It’s outrageous. Essentially, it’s two systems. It’s like a system of government protection for elites, and everybody else has to live with capitalism. That just seems so grotesquely unfair, and I think that outrage about the unfairness is at the root of this movement, and the thing that creates momentum is the movement is the pain that’s been caused, especially among the young.
People my age won’t get off the sofa, but people who are 20 years old in college and are looking at unemployment are angry, and they create the energy for change. I wish them luck.
Tavis: Yeah. Got about 30 seconds here, but as was the case with those young people during the Vietnam protests, they were demonized by many in the larger society; certainly the elites. Now we see this new narrative being created where these protestors are now starting to be demonized. They’re anti-capitalist, if they’re poor they have themselves to blame, it’s class warfare. What do you make of the narrative now that they are somehow out of sorts?
Lewis: Well, that’s inevitable, right? Because it is seditious, and you can see that the Occupy Wall Street movement could create change, and the people who would be changed don’t want it.
So there’s going to be some – it’s a sign of how viral the movement might be that there are people trying to craft a narrative that defeats it.
Tavis: Just scratched the surface on this new book, “Boomerang: Travels in the New Third World,” by perennial “New York Times” best-selling author Michael Lewis. Michael, good to have you back on this program.
Lewis: Thank you.
Tavis: Take care of yourself.
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