James K. Galbrait, University Of Texas

JULY 15, 2011

SPEAKERS: TOM KEENE, BLOOMBERG SURVEILLANCE HOST

KEN PREWITT, BLOOMBERG SURVEILLANCE CO-HOST

JAMES K. GALBRAITH, PROFESSOR, LYNDON B. JOHNSON SCHOOL OF PUBLIC POLICY, UNIVERSITY OF TEXAS

7:34

TOM KEENE, BLOOMBERG SURVEILLANCE HOST: And now joining us from Vermont, James K. Galbraith of Texas, but always from Vermont. Good morning, sir.

JAMES K. GALBRAITH, PROFESSOR, LYNDON B. JOHNSON SCHOOL OF PUBLIC POLICY, UNIVERSITY OF TEXAS: Good morning.

KEENE: We've got to first go to this wonderful story because the last time we were supposed to have you on, there was a massive failure of the phone grid of Vermont. One day your esteemed father was supposed to speak to the president - this being John F. Kennedy - and Vermont failed. What then happened?

GALBRAITH: Well, it was simply that a beaver cut a tree across one of the local lines or possibly a thunderstorm. Anyway it was not a massive failure.

But my father went for a walk down the back road and found one and then a second and then a third repair truck working vigorously on his communications. When he got back up to the house, the phone rang and it was the White House and the president said, well, I just talked to the local manager at the Brattleboro phone company.

KEENE: I just think that is just a charming story. This is a charming time we're in with the deficit debate. Is there something different now about the theater of Washington than in decades, when you served on the joint economic committee?

GALBRAITH: Oh, yes. But I was actually just in Washington getting a little flavor of the environment. It is much more divided, much more bitter there. It is not leavened by kind of personal relationships and ability to deal across party lines that used to be there.

And I think because you really have at the core of the Republican party these days an insurrectionary movement - a movement which is really playing with threats that no serious group of members of congress would have made 30 years ago.

KEENE: John Taylor today, James Galbraith, writing for Bloomberg View a two step approach to solving the budget. And he goes back, as I think you have just alluded to, to the time of Herbert Walker Bush, of George Mitchell, of Tom Foley, trying to find budget solution. What is the Galbraith prescription for solution here?

GALBRAITH: There needs to be a clean vote on the debt ceiling, and this method for doing public policy needs to be laid to rest. It is a tremendous threat to the stability of the country, the financial markets. You don't mess with the full faith and credit of the United States government in order to achieve a political objective, and particularly not in order to achieve, for example, completely - say the reduction cutting of Social Security benefits or of Medicare, which are completely unnecessary for any economic purpose.

And that is what we are seeing here, basically a form of government by blackmail. That needs to be ended. It needs to be made very clear that is a dangerous game and an extremely poor way to make public policy.

I don't agree that the Andrews Air Force Base budget agreement with George H.W. Bush was a particularly good way to make policy, but at least it was a free standing budget agreement. That is to say that two parties got together and agreed on what they should do for its own sake.