POLITICS
03/29/2010 05:12 am ET Updated May 25, 2011

Trumka Warns Obama: Spending Freeze Could Mean Lost Decade

One of the country's top union leaders warned on Tuesday that President Obama's proposal for a three-year cap on discretionary, non-military spending could ensure a prolonged U.S. recession similar to Japan's "lost decade" in the 1990s.

Richard Trumka, president of the union conglomerate AFL-CIO, raised deep concerns about the president's pledge for a spending freeze during a sit-down interview with the Huffington Post

"We question why they're doing it at a time when we need to be investing more into the economy," Trumka said. "Why are we taking the position that we're going to freeze what we could do? I mean, the president himself, at the last State of the Union message, said that we need to invest in our future. And if that stops him from investing in our future I think it is not a good thing. We question why to do it now."

"I don't want anything to get in the way of creating a jobs bill of the size necessary to solve the problem," Trumka added. "I don't want to get into the Japan syndrome -- a little bit, stop, a little bit, stop, a little bit, stop... and we end up ten years later saying 'Where'd that decade go to?'"

Speaking before Obama officially unveils the spending freeze proposal, Trumka's assessment represents one of the sharpest criticisms yet of the idea. On Tuesday, Sen. Sherrod Brown (D-Ohio) told Talking Points Memo that he didn't "think much of" the notion of pursuing these fiscal disciplinary measures at a time of major unemployment. Trumka's counterpart, SEIU president Andy Stern, expressed concern with the proposal during a brief chat with the Huffington Post on Tuesday. But he refrained from offering too harsh a judgment, noting that the caps would not be implemented for a year -- during which time, he hoped, the administration would spend heavily to stimulate job growth.

Trumka, likewise, pushed the president to act quickly on the jobs front if he was going to unilaterally constrain the government from spending additional money on anything other than defense. As for a course of action, the AFL-CIO chief argued that the White House should pay for stimulus programs (and lower the deficit) by taxing the wealthy and high-end earners in the financial sector.

"They created the mess," Trumka said. "They ought to help pay for the jobs they helped destroy. They ought to help pay for the creation of jobs that they destroyed with their excesses, with their greed."

Hours after the interview, the Oregon Legislature did just that, passing two measures that increased taxes on businesses and the rich as a means of raising revenue. Trumka wasn't available for comment on the development but an aide confirmed that such legislative initiatives were what he had in mind.

In the interview, Trumka touched on a number of other pressing topics. He was non-committal about whether he would support Fed Chairman Ben Bernanke for a second term, though he did little to hide his concern over economic policy at the Fed.

"I think some of it was that the Federal Reserve was asleep at the switch for a period of time," Trumka said. "After the crisis became evident, I think they responded pretty effectively with monetary policy. And I think the question [the Senate] ought to be asking [Bernanke] is the following: You have two jobs: One's to fight inflation and the other is to create employment. What do you intend to do to create full employment and help us create jobs? And if his answer is "fighting inflation will create jobs," he wouldn't get my support."

On the topic of financial regulatory reform, Trumka said that the creation of an independent consumer protection agency is absolutely critical. But unlike TARP watchdog Elizabeth Warren, he said it would not be worth killing the entire package if the CFPA is made ineffective.

"There are other components that are really important as well, and that's re-regulating this shadow economy, re-regulating derivatives, private equity funds, hedge funds... those created a significant amount of problems by creating systemic risk beyond the purview of those regulators," he said. "But an independent consumer protection agency is an absolutely essential ingredient if you really want to bring the economy back to where it needs to be, and I see a balance."

Finally, on the lessons he took from the election of Scott Brown to the Senate seat in Massachusetts, Trumka insisted that it was inaction, not overreach, that Democrats had to fear.

"Here's an important figure," he said. "Brown only got 50,000 votes more than McCain got in that state. Only 50,000 more. But Coakley got 850,000 votes less than what Obama got. That goes to the enthusiasm gap."