Well, give the President credit for being candid.
Here’s the relevant section on the economy, which contains some interesting stuff:
SCULLY: Yet, it all takes money. You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?
OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we’ve made on health care so far. This is a consequence of the crisis that we’ve seen and in fact our failure to make some good decisions on health care over the last several decades.
So we’ve got a short-term problem, which is we had to spend a lot of money to salvage our financial system, we had to deal with the auto companies, a huge recession which drains tax revenue at the same time it’s putting more pressure on governments to provide unemployment insurance or make sure that food stamps are available for people who have been laid off.
So we have a short-term problem and we also have a long-term problem. The short-term problem is dwarfed by the long-term problem. And the long-term problem is Medicaid and Medicare. If we don’t reduce long-term health care inflation substantially, we can’t get control of the deficit.
So, one option is just to do nothing. We say, well, it’s too expensive for us to make some short-term investments in health care. We can’t afford it. We’ve got this big deficit. Let’s just keep the health care system that we’ve got now.
Along that trajectory, we will see health care cost as an overall share of our federal spending grow and grow and grow and grow until essentially it consumes everything. That’s the wrong option.
I think the right option is to say, where are the game changers, the investments that we can make now that are going to reduce costs, even if they don’t reduce them this year or next year, but 10 years from now or 20 years from now, we are going to see substantially lower costs.
And if – one of the very promising areas that we saw was these insurance companies, drug companies, hospitals, all these stakeholders coming together, committing to me that they would reduce costs by 1.5 per cent per year.
If we do that, it seems like small number, we end up saving $2 trillion. $2 trillion, which not only can help deal with our deficit and our long-term debt, but a lot of those savings can go back into the pockets of American consumers in the form of lower premiums. That’s what we are driving for.
SCULLY: You mentioned the auto industry. What will GM look like a year from now?
OBAMA: Well, my hope is, is that we will see both GM and Chrysler having emerged from this restructuring process leaner, meaner, more competitive with a set of product lines that appeal to consumers, good cars that are fuel efficient and that look at the markets of tomorrow.
Keep in mind what’s happened in the auto industry. Right now, we’re seeing – we’re projecting that maybe this year the auto industry as a whole sells 10 million cars in the United States. Well, replacement numbers for the auto industry, you know, that the number of cars to replace cars on the road is closer to 14, 15, 16 million. And what that means is when the economy recovers and consumers say, you know the old clunker has finally given out. I need to get a new car.
You are looking at a substantial market that is going to be available for U.S. automakers if they’ve made some good decisions now, and if they are building the kinds of fuel efficient, high performance cars that American consumers are hungry for.
I think GM and Chrysler can do that. I think they have been weighed down by a legacy of some bad management decisions, health care costs and the whole host of other things that they are now in the process of cleaning up.
We’re confident that they can emerge and take advantage of that new market and actually be very profitable and thrive, but it means going through some pain now, and the thing I worry about most is that so much of that pain is borne by workers and communities that have historically been the backbone of the auto industry and so we’re going to have to work intensely with those communities.
If some of those auto jobs don’t come back, then what we’ve going to have to do is make sure that those workers are effectively retrained. We’ve got to make sure that those communities are supported that we are promoting green energy and green jobs as an alternative manufacturing base for many of these communities and that’s going to be one of the single-minded focuses of this administration.
SCULLY: When you see GM though as “Government Motors,” you’re reaction?
OBAMA: Well, you know – look we are trying to help an auto industry that is going through a combination of bad decision making over many years and an unprecedented crisis or at least a crisis we haven’t seen since the 1930’s. And you know the economy is going to bounce back and we want to get out of the business of helping auto companies as quickly as we can. I have got more enough to do without that. In the same way that I want to get out of the business of helping banks, but we have to make some strategic decisions about strategic industries.
Our financial system is the life blood of our economy and if banks collapse then businesses across America collapse. We had to make some decisions that insured that the financial system was strong.
In the same way, our auto industry is the foundation for economies all across the Midwest, and ultimately, for the country as a whole and had we allowed GM or Chrysler simply to liquidate that would have been a huge anti-stimulus on the economy as a whole, and could have dragged us even deeper into recession or even depression. Ultimately, I think that GM is going to be a strong company and we are going to be pulling out as soon as the economy recovers and they’ve completed their restructuring.
SCULLY: States like California in desperate financial situation, will you be forced to bail out the states?
OBAMA: No. I think that what you’re seeing in states is that anytime you got a severe recession like this, as I said before, their demands on services are higher. So, they are sending more money out. At the same time, they’re bringing less tax revenue in. And that’s a painful adjustment, what we’re going end up seeing is lot of states making very difficult choices there.
They are cutting programs some of them unfortunately essential and that’s why in our recovery package we provided dollars to make sure that teachers, police officers weren’t laid-off, but there is still some contraction that’s taking place at the state government level.
At the same time you know states have to balance their budgets and so they have got to make some very difficult choices. In California, because of the unique way that California’s government operates, you not only have a legislature and the government, but also have referendum that help determine some of these decisions.
You know that’s probably a little bumpier working out some of those issues.
Probably, the biggest place where the states are needing some help right now is, just rolling over their debt issuing bonds. They are still being affected by some of the freezing in the credit markets and the uncertainty and anxiety in the credit markets. And so, we are talking to state treasurers across the country, including California, to figure out are there some creative ways that we can just help them get through some of these difficult times.
We still think he’s no grasping the California situation just right. The problem isn’t that they’re having a recession — although it’s true that they are. The problem is that they have a public sector that’s built on bubble-era revenues (first .com, second real estate). Even a recovery won’t provide the kind of revenue the state needs to balance the budget.
As for the large comments about spending, he’s totally right and it shouldn’t be controversial. It’s not Obama’s fault that the country is broke.
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