27 March 2009

Friedman on Lateline (ABC TV)

LEIGH SALES, PRESENTER: A recent letter writer to the New York Times described America's current economic crisis as President Obama's "Hurricane Katrina moment," meaning the point in the presidency when public sentiment turns.

Several opinion polls in America show Barack Obama's approval rating has slipped by around 20 points since his election, although Gallup still gives him a solid 65 per cent rating.

The President's facing a public that's furious about the erosion of retirement savings.

And cases like AIG, where executives took big bonuses from a taxpayer bailout, which they've now paid back.

Somebody who's been writing in great detail about the American recession and its political implications is Tom Friedman, one of the New York Times' most prominent columnists.

He's also the author of numerous books. His latest is 'Hot, Flat and Crowded'.

He joined me earlier today from Washington.

Mr Friedman, many thanks for being with us.

TOM FRIEDMAN: Wonderful to be with you, Leigh. It's great to be in touch with all my friends in Australia.

LEIGH SALES: In a column this week you wrote that President Obama needs to have an overdue, fire-side chat with the nation. What did you mean by that?

TOM FRIEDMAN: Well, I guess what I meant by that, Leigh, is this: that in a funny way President Obama is both overexposed and underexposed. He's been great about meeting with the press, going on late night TV, really interacting with the public in a lot of different ways than a President has in the past.

But to me, one thing's been missing, and it's been that FDR, Franklin Delano Roosevelt fireside chat where the President simply sits down and explains to people just how much financial trouble we're in, and that all these brush fires out there - who makes how much money et cetera, what bonus - you know, they're all important issues, but ultimately we've got to heel our banking system, Leigh.

The banking system is like your heart. It pumps blood to your industrial muscles and right now we have, in banking terms, congestive heart failure. Our heart is not pumping credit into the system. And without that, you know, the system doesn't work. And I think one thing that has been missing from the beginning, is a sense of, for the average American, how big this problem is, and, you know, the image I've really been using from the beginning of this crisis is that incredible scene in the movie 'Jaws' where Roy Scheider first beholds the great white shark. And after he sees the shark he walks, you know, wide-eyed up to the captain and says, "We're going to need a bigger boat". And we are going to need a bigger boat. And right now, that sense, that this is so big, you know, Leigh, we built up a credit bubble that was THIS big. And you know what that means? The hole we're in is THIS deep. And I think the President still hasn't quite conveyed that to the American people.

LEIGH SALES: Well, your paper, The New York times has created a bit of a buzz during the past week because three very influential columnists - you, Paul Krugman and Frank Rich - each wrote columns critical of President Obama, and The Times also ran a critical editorial. Is Barack Obama beginning to lose some of his political capital, as Mr Krugman argues?

TOM FRIEDMAN: You know, I think it's premature to say that. You know, a lot of this is simply the natural to and fro over what is a really big, complicated issue. And all of us have slightly different takes on it. I think that's really healthy right now. Because, you know what, Leigh, nobody knows for sure. There's nobody standing out there saying, "It's my way or the highway, I know exactly how to get out of this problem."

I mean, you know, we've never faced a problem like this in any our lifetime - anything this big, and not since the Great Depression, and it's a very different world since then. And so I think what you are seeing is the natural to and fro. I think it's really healthy, because the public is trying to sort this out as well.

One of the problems, Leigh, is this: we basically just have three choices. One is to nationalise the sick banks, including some of the biggest brand names in the world. Maybe Citibank, hard to believe, but one is nationalise the big banks.

The second option is to create a bank of Junk, the B of J. Some call it not Fanny May but Crappy May, where this bank of junk would basically buy up all the toxic assets. And the third option is the Geitner plan, that was announced this week, where the Government would basically partner with hedge funds and private equity firms to leverage their assets to have the private market buy up these toxic assets.

Now the reason we actually ended up with option three is not only because the Government didn't want to nationalise the banks, it's but because the Congress, remember, wasn't going to give another dime, basically, for any of this. And so the option of leveraging the private market and the hedge funds was really, you know, came out of the fact that the administration really didn't have the money to do either nationalisation right now or create a bank of junk.

LEIGH SALES: Given the enormous anger we've seen in the US over the AIG bonuses, though, do you think that the American public is in the mood for the third option?

TOM FRIEDMAN: Well, it's a real problem. Honestly, Leigh, we've two choices. You can have revenge or recovery, but you can't have both. It's either revenge or recovery. And one of the points I've making since the very beginning: unfortunately, to get out of a problem this deep, to get out of a problem this deep, we're going to have to reward people who you really wouldn't want to reward. We're going to have to allow people to make money who really don't deserve to make money, but the issue of fairness, unfortunately - unfortunately fairness it isn't on the menu anymore.

There's just systematic risk, or, you know, systematic failure, or systematic survival. And I think we have to come to terms with that. Again, that gets back to my fireside chat. I don't think the President has explained that to the American people, that fairness isn't on the menu anymore. God, I wish it were. But unfortunately what I'm worried about now is the system.

LEIGH SALES: You wrote in a recent column that perhaps this crisis is telling the US that the growth model it's created over the last 50 years is unsustainable, economically and ecologically. And indeed in your new book 'Hot, Flat and Crowded' you write what's needed in the US is a revolution, a green revolution.

What did you mean by that? And is what we're seeing in the US now a precursor to it?

TOM FRIEDMAN: I think it is. I think it's a precursor to what my Australian friend and environmental teacher Paul Gielding calls "the great disruption". And what he means by that, and sort of what I mean by that is I think two things happened in 2008/2009, Leigh. I think both the market and Mother Nature hit a wall. And they both hit a wall. And what they basically - the wall they hit was that we cannot keep raising standards of living for us, for our kids, the way we've been doing for the last 50 years.

What was that system? Well, in short it worked like this: we built an America - more and more stores - to sell more and more stuff, to more and more Americans, which triggered more and more factories in China, powered by more and more coal, that earn more and more dollars, that went to buy more and more T bills, that were recirculated back to America to build more and more stores, to sell more and more stuff.

And that cycle basically had become unsustainable for a number of reasons. One is the incredible imbalance of our consumption and China's savings, that we built all this huge horde of global dollars that basically triggered more and more people inventing more and more crazy ways to get higher yield out of those dollars, and that finally exploded in the mortgage and credit default swaps. that was one problem.

But the other problem is that this system really required living off and stripping off more and more stocks, stocks of natural resources, and not living off more and more renewable flows. And in that sense Mother Nature was telling us what the market was telling us: we can't do this anymore. That if we try to pass on this way of growing standards of living to our children, we're going to blow up.

What was missing in the system? What was missing in the system, Leigh, is that both the market and Mother Nature were not honestly pricing things. The market was not pricing the real risk of some of these derivatives and credit default swaps, and when you don't price the real risks of things, OK, and the real potential cost, then these kinds of explosions happen, because people go to excess. And at the same time we were not allowing Mother Nature to price the real cost of what we were doing climatically. The cost of putting all this CO2 in the atmosphere.

So we had a kind of unreal system. We were living, as a world community, as if there were no laws of gravity, either in the financial markets or in Mother Nature's universe. We could do whatever we want and there would be no cost. And I think what happened in 2008/2009, is that the real cost became so big, and they just smacked us right across the head. And therefore coming out of this, it seems to me we need to find a different way of raising standards of living, but it's got to begin with putting the real cost on things, the real cost of these derivatives, so people won't think they're free and therefore do crazy, reckless things, and the real cost of carbon in the atmosphere, so people don't think polluting the atmosphere is free, and therefore do crazy things.

LEIGH SALES: How did this mentality that you describe come to the fore in the United States? I think in your book you write that a certain connection between hard work, achievement and accountability has been broken?

TOM FRIEDMAN: That's really what I feel. I can only speak for my own country, but we've become a - we became a subprime nation. We became a subprime nation. We thought and we told people and we acted as if you could have the American dream - a house, a yard, a car and a dog and a job - with no money down, and nothing to pay, you know, for two years. That's basically what we did. We told people, "You could have the dream that our parents had," but we could have it with nothing down and nothing to pay. So our parents, Leigh, they were the greatest generation, we we're the greediest generation, and what our kids need to be is the regeneration, where they basically regenerate America, but not on the way we did it, by stripping all the stocks, but rather by creating renewable flows. And I think that's really the challenge.

LEIGH SALES: I'm just wondering how that might change, though. Let me quote from the White House spokesman Ari Fleischer in 2001. He was asked if Americans need to take difficult decisions about their consumption levels to address the nation's energy problems, and his response was, "That's a big 'No.' the President believes it's an American way of life and that it should be the goal of policymakers to protect the American way of life. The American way of life is a blessed one". If that's a prevalent attitude in the US, how difficult is it going to be to take the sort of steps, the hard steps that you advocate?

TOM FRIEDMAN: Well, that quote really stands out as kind of the, you know, absolutely epitome of this view that really got us into this problem, which is that we can do what we want. "We can do whatever the heck we want. It's our world, it's our way of life and everyone else be damned."

I do believe that's starting to change. I can't tell you that it's going to happen overnight. And I tell you it is critical that we have a President who leads this change. You have to remember, Leigh, for eight years we had a President and a Vice President who could not get the words c-c-c-c-c-c-conservation out of their mouth, OK. I mean, as far as Dick Cheney was concerned, conservation was a four-letter word.

So we're going from that to a President, you know, who has made green jobs, green growth and a low carbon economy a real priority. And he's using his bully pulpit of the presidency everyday to make that. My great fear is that he's going to get swallowed by the great white shark of this economic crisis and won't be able to pursue this agenda. But at least we have a President who's talking in a very different way. And that really does matter.

LEIGH SALES: You're famously an advocate for globalisation, and in a recent interview you said that "... the flattening of the world is a metaphor for the rise of middle class citizens from China to India, Brazil to Russia, to Eastern Europe, who are beginning to consume like Americans. That's a blessing in so many ways, it's a blessing for global stability and global growth." But how is it a blessing if other nations start to consume like American, given that the American pattern of consumption has contributed to its recession and the global crisis?

TOM FRIEDMAN: Sure. Well, the point I was making, actually, that's sort of half of my thought. The full thought is that there are too many Americans in the world today. Then I say, of course I'm being facetious, it's a blessing there's so many more people, whether in Australia, in Russia, Brazil, Argentina, China and India, can live in American size house, drive American size cars on American size highways. I want people to enjoy rising standards of living just as my generation did and my country did.

The problem is: unless we the original Americans redefine, and this is the point I make in the book, redefine in more sustainable terms what it means to be an American and lead the world in inventing the clean, green technologies that will allow so many people to live like us. Unless we do that, there are too many Americans in the world, there are carbon copies, and this world - the good Lord did not design this planet for this many Americans, this many people consuming like us. So I believe it's our obligation both to set a different example and to invent the technologies so other people can enjoy this, otherwise, Leigh, we're going to burn up, choke up, heat up, smoke up and eat up this planet with this many Americans so much faster than even Al Gore predicts.

In the book I use a - an image that a British environmentalist came up with. He calls it the Americom, and he says an Americom is any 300 million people living like Americans. So when I was born in 1953 there were two-and-a-half Americoms in the world. There was America, Western Europe and sort of Japan and parts of east Asia, including Australia. Today, Leigh, there are nine Americoms. There's one in America, one in Western Europe, now there's one in Eastern Europe and Russia, one in Japan, East Asia, one in India - giving birth to another - one in China, giving birth to another, and one in Latin America. So just in the last 30 years we've gone from a world of two-and-a-half Americoms, units of 300 million people living like Americans, to a world of nine Americoms. And the energy and natural resource implications of will be staggering unless we, the original Americoms, at least take the lead in redefining what it means to be an Americom.

LEIGH SALES: With all the study that you've done on these issues, with all the people that you meet, with all the governments that you cover - are you an optimist or pessimist about the future?

TOM FRIEDMAN: Well, you know, I tell you, Leigh, I was in Israel. And I always end my talks this way. A couple of years ago when I was having dinner with the editor of the Arutz newspaper, which is Israel's leading newspaper, and they blessedly run my column twice a week in Hebrew. And I said to the editor, "Why do you run my column?" He said, "Well, Tom, you're the only optimist we have left. And I laughed and we were going to sit down at the table and here was an Israeli general who pulled me aside and said, "Tom, I know why you're an optimist." "Why?" He says, "It's because you're short." "Short?"He said, "Yeah, you can only see that part of the glass that's half full."

So, the truth is I am an eternal optimist. I believe in that old adage that pessimists are usually right, optimists are usually wrong, but all the great change in history was done by optimists.

One of the things that really excites me is I travel around my country, right now, to big schools and small schools, big towns and small towns. And I've been doing my book talks and after I do a book signing. I go back to the hotel and you know what I do? I empty my pocket of business cards. Business cards from energy innovators around this country. It's great, rock stars get room keys; I get business cards. But I tell you, they're very exciting because they're from people that come up to me, they say, "I've got a solar project, I've got a wind project, I've got a cellulosic project, I've got a duck, it paddles a wheel, blows up a balloon, issues methane, turns a turbine." I hear the craziest stuff. But it tells me this country is really alive. It is really alive still with innovation and entrepreneurs, and if we can just have a government in Washington that captures and enhances that energy at the speed, scope and scale we need - then I'm an optimist.

LEIGH SALES: Mr Friedman, thanks so much for sharing your thoughts with us, we really do appreciate your time.

TOM FRIEDMAN: My pleasure, thanks for having me.

Video...scroll to the right...


Earlier audio......

US author and columnist Thomas Freidman has won three Pulitzer prizes, his last book, The World Is Flat, was an international bestseller. In his new book he argues green politics has to be re-branded in the US, so that it is no longer the sole domain of liberals, but is something every red, white, and blue NASCAR Dad and Soccer Mom sees as patriotic and essential.


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