On GPS this weekend, historian Niall Ferguson squared off against economist Jeff Sachs on occupy Wall Street. Here's a transcript of what they had to say (you can also watch the lively debate in the video above):
Fareed Zakaria: Jeff, you were at Occupy Wall Street. You've in a sense lent it support. Why do you do that? What do you think is going on there?
Jeffrey Sachs: Well, I think they have a basically correct message that when they say "we are the 99 percent," that they're reflecting the fact that the top one percent not only ran away with the prize economically in the last 30 years, but also took the power, manipulated it, twisted it, broke the law. Brought the world economy to its knees actually, and it's time to correct things. And I think that that's what Occupy Wall Street is really about. The fact that every marquee firm on Wall Street broke the law in a major way, it's now paying a series of fines. Some people are going to jail. People are disgusted about this.
Fareed Zakaria: But isn't what has caused the one percent or five percent of the top to do well, these very broad forces of technology, the information revolution which have empowered global knowledge workers, which have empowered capital rather than labor? So if it's all these much bigger structural forces, is it going to be remedied by some kind of political solution like a Buffett tax?
Jeffrey Sachs: I don't think it is all that. I think that markets caused a widening of inequalities in just about every high-income country. But some governments did something constructive about it, where starting in 1981 the U.S. government amplified this in quite reckless ways.
Because when Ronald Reagan came to office, rather than saying we have globalization, we have competition, we now have to do something about our skills, our technology and so forth, he said that government is not the solution to our problems. Government is the problem. It was a fateful call. And this is the path that we've been on for 30 years of dismantling that part of our social institution which – institutions which could actually help with job training, help with education, help with science and technology in a more effective way.
But more than that, Wall Street didn't just gain from globalization, it has been completely reckless. They gamed the system. They packed toxic assets. They sold them to unwitting investors. They let the hedge funds bet against them. And the SEC is finally calling them to account.
But the public is disgusted because after that happened, lo and behold, the next thing is that they begged for bailouts; they got the bailouts. The moment they got the bailouts, they said, "Leave us alone", "deregulate", "free markets". So they're completely hypocritical in this behavior.
We want everything of ours until we need help, then we want your help, once we get your help, then we want everything again. And it's that kind of impunity that has brought people out around this country deeply angry.
Niall Ferguson: Well, first of all, I think it's important to avoid criminalizing one percent of the population which you just did, Jeff. I mean, there's no question that major financial institutions have been fined and rightly so. But to turn that into an indictment of three million people seems to me -
Seems to me actually rather reckless. And having watched what you said at Occupy Wall Street, I have to say I thought you overstepped the mark and ceased to be an academic and became a demagogue at that point.
Jeffrey Sachs: Whoa, Niall. You're the one who said that this -
Niall Ferguson: No, let me – no, let me finish, Jeff.
Jeffrey Sachs: The last time bankers came close to ruling America -
Niall Ferguson: Hang on, hang on. I let you have – I let you have your say.
Jeffrey Sachs: No, don't call me names like this.
Niall Ferguson: This is a demagoguic argument especially for somebody who knows that the principal driver of inequality has actually been globalization, not malpractice by Wall Street.
The second part of your argument is that banks misbehaved in Europe, too. I mean, those countries that did not go down the Reagan route have got banks that are insolvent, banks that were guilty of incompetence and malpractice.
So you argued that this was something specific to the United States. And the faults of – and the faults of Ronald Reagan.
Jeffrey Sachs: Of course it was.
FERGUSON: Just a second. The banks in Europe are in just as big a mess but they didn't go down the Reagan route. So it's not only bad economics, but it seems to me it's bad history and certainly bad politics.
Jeffrey Sachs: Let's talk what I said and what is important here. And what I've said is that in a society that is so unequal as ours and where the very top has abused the system repeatedly in the banks, the CEOs of this country taking home take-home pay hundreds of times their workers' pay, unlike any other part of the world, the hedge funds and the banks got unbelievable terms of the deal to get capital gains taxes, carried interest down to 15 percent tax rates. So outrageous compared to what the rest of America bears.
Niall Ferguson: You can't believe that this is the reason why the bottom quintile of the population is in poverty and has very limited social mobility. That's nothing to do with what happens on Wall Street, as you well know. The real problem that we have in this country, it seems to me, is declining social mobility, and not enough is said about that.
Jeffrey Sachs: Well, I write a great deal about it. And the big difference of social mobility -
Niall Ferguson: Right. And what is the principal of -
Jeffrey Sachs: The big difference of social mobility in this country is the lack of public financing for early childhood development, for daycare, for preschool, for early cognitive development, for nutrition programs, for decent schools, unlike all of the rest of the high-income world. We do not help the poor. And that's why our social mobility has come to the lowest level of any of the high-income countries.
And we are 10 or 15 percentage points lower in government revenues to help for that. And I'm asking in the book for just a few percentage points and some decency at the top that they start paying their taxes at a decent rate so that we can actually pay for preschool and pay for childcare. And that's what low social mobility is about, Niall.
Niall Ferguson: But when you look at the quality of public education in this country, you can't simply attribute its low quality to a lack of funding. And I think there's a legitimate argument that the biggest obstacle to social mobility in this country right now is not the fat cats of Wall Street, whom I do not rush to defend, but the teachers unions, who make it almost impossible to improve public school in cities like New York where we are today.
Fareed Zakaria: But would you comment on Jeff's basic point which is, you know, yes, it's not true that the gap has been produced entirely because of government policy, but that you could use government policy and government resources to help in various ways. Education may be one part of it, child nutrition would be another part of it. You know, and that that becomes impossible because you're taxing at 14 percent and spending at 23 percent?
Niall Ferguson: So a major problem here is that the projects of transforming the United States into something more like a European country does imply significant increase in taxation as well as in expenditure. And there are two obstacles to this. One, it's very clear that this would not be timely given the situation that the economy finds itself in. And two, most Americans don't believe that that is going to deliver the kind of improvement that they would like to see in education.
Look how the federal government fares and the programs that it does spend a lot of money on. Health care, social security, I mean, it's already insolvent with its provision through Medicare. This is one of the hugest unfunded liabilities in the world. And the answer that Jeff has to the U.S. problem is let's create an even bigger federal spending program on public education. I mean, it's just not credible, Jeff.
Jeffrey Sachs: Niall, you're confusing so many issues. My point is that if we are going to be decent and competitive, we have to invest in it. That's paying the price of civilization. That costs money. The fact that the United States collects in total revenues at all levels of government right now about 27 percent of national income compared with 35 percent and above in other countries is the gap of decency right now where -
Fareed Zakaria: But it's also the gap you're saying of competitiveness. Now, the path to competitiveness for you is a larger government that spends more, correct?
SACHS: If it invests properly, of course.
Niall Ferguson: You can understand why people might be skeptical about that.
Jeffrey Sachs: I'm talking about investment in education. I'm talking about investment in job skills. I'm talking about investment in science and technology. Talking about investment in 21st century infrastructure. And we've been for 30 years demonizing government. We've been demonizing taxation. We have neglected to understand that a proper economy runs on two pillars, a market and government. And until we come back to that basic level of understanding that we need a mixed economy, not just a market economy, we'll continue to fail.
Niall Ferguson: Well, I'm sure the Chinese are listening to this debate with glee thinking, well, there are still academics in the west who think that the route to salvation is to expand the role of the state because that's certainly not what is happening in China. It is not what is happening in India. It is not what is happening in Brazil. The most dynamic economies in the world today are the ones which are promoting market reforms and reining in the rule of the state, which in those countries grew hypertrophically in the 20th century and that is a big problem in Jeff Sachs' argument.
Jeffrey Sachs: Thank you for the lecture. But the catching up phenomenon is quite different from the problems that the United States or other high income societies face right now, and for us -
Niall Ferguson: The problem is the falling behind phenomenon.
Jeffrey Sachs: - and for us to be able to have high prosperity at the living standards we want, we need training, we need education, we need infrastructure, we need governments that can pay for that.
Niall Ferguson: But you forgot and we need higher progressive taxation on the private sector, because that's the most important part –
Jeffrey Sachs: And we need the rich to pay their way, absolutely. Because they've run away with the prize. And they've run away with the prize –
Niall Ferguson: There's a simplification.
Fareed Zakaria: Unfortunately -
Jeffrey Sachs: That's part of the solution, stop calling it just one thing, Niall.
Fareed Zakaria: All right. I don't think – I think this is one of the rare cases where I was superfluous as a moderator. Jeff Sachs, Niall Ferguson, thank you very much.