STEVE INSKEEP, host:
Next, let's hear one more voice on the Standard & Poor's downgrade of U.S. debt and the broader economy. Democratic Representative Barney Frank of Massachusetts is one of his party's leaders in financial issues.
Congressman, welcome back to the program.
Representative BARNEY FRANK (Democrat, Massachusetts): Thank you.
INSKEEP: Whatever you think of the S&P downgrade, is it at least correct to say the United States does have a serious long term problem with deficits and debt?
Rep. FRANK: We have a long-term problem. It does not threaten default. So my response to Standard & Poor's is that, once again, they have made an error. But the error is a fact that we have to deal with.
Standard & Poor's, frankly along with Moody's - although Moody's was more responsible this time - has an extraordinary record. They have consistently overrated private debt. They have told people - and they were one of the reasons we got into a terrible crisis - that it was safe to buy junk, to buy subprime bonds. The people who read, for instance, Michael Lewis's "The Big Short" will see how shockingly inadequate they were.
At the same time, they've had a history, less well known, of undervaluing the debt of governments. They have these ratings, and if you look at any given rating - double A, double B, whatever - at any given level, municipalities are much, much, much less likely to default than corporate...
INSKEEP: Congressman, let me just pick up here on the question of given that the rating is what it is, and that the debt situation is what it is, you said there is a long-term problem. Do you see a way that Democrats and Republicans can agree on long-term deficit reduction, as this special committee is supposed to do in the coming months?
Rep. FRANK: Yes. There is some issues where we'll have debates. I will continue to believe that if you're making more than $250,000 a year in taxable income, that for the government to get another $30 out of every additional thousand will have no negative impact on you or the economy and can help us reduce the deficit without savage cuts in the environment and highways.
But there is another area that I would hope we would get some agreement on. It's something I've been working on. And that's telling the rest of the world that they can no longer count on America to be their military budget, their policemen. I would begin by withdrawing from Iraq and Afghanistan at a cost of $125 billion a year.
INSKEEP: You mean withdrawing more quickly and more dramatically than is already happening.
Rep. FRANK: Well, withdrawing from Iraq, definitely the president is unfortunately talking about staying in Iraq at a cost of billions of dollars a year, beyond the end of this year, which would put him there longer than George Bush. And I'm hoping he could be persuaded not to do that. But in Afghanistan, while there is a withdrawal - there is a drawdown going on, there is no firm withdrawal date, and they're talking about staying there for several more years.
In addition to saving the 125 billion, if we were out by a few months, in both of those, as soon as you can do it in a responsible way - given the physical need to withdraw safely - it's time for us to tell NATO that they no longer need American protection. That began in the '40s to protect poor nations devastated by World War II from a communist threat. Everything has changed except the tens of billions of American money that goes there.
INSKEEP: Congressman, Leon Panetta, the Defense secretary, among others, have said that the defense cuts have already gone steeply enough. He would resist that along with, I am sure, a great many Republicans.
Rep. FRANK: I understand, although many Republicans now are starting to move in this direction. Obviously, I and the Tea Party disagree on a number of issues, but a significant number of them are willing to break with an establishment view that it somehow is America's responsibility to guard the whole world. I know Panetta says that. I was disappointed because - I guess you become secretary of defense, and that's your institutional responsibility.
There is no justification for America protecting Western Europe against nonexistent threats. There is no justification for us building anti-missile defense systems in Poland and the Czech Republic to protect them against nonexistent attacks from Iran.
INSKEEP: Congressman, if I can, we've just got a few seconds. You have mentioned defense spending. You've mentioned tax increases. Those are two areas of disagreement. The biggest part of the federal budget is entitlements...
Rep. FRANK: No, wrong. I'm sorry. The defense budget is bigger than Medicare, and Social Security is, in fact, self-financing, still is.
INSKEEP: Let's stipulate for this conversation: a very, very, very, very, very big part of the budget is entitlements. Democrats are seen as resisting cuts. Is your side - in a couple of seconds - going to appoint people to this special committee who are ready to make a deal?
Rep. FRANK: I am not going to tell an 80-year-old woman living on $19,000 a year that she gets no cost-of-living, or that a man who has been doing physical labor all his life and is now at a 67-year-old retirement - which is where Social Security will be soon - that he has to work four or five more years.
But I disagree with you that in terms of draining on the budget, Social Security is largely as self-financed...
INSKEEP: Okay.
Rep. FRANK: ...and the military budget is larger than Medicare. So demonizing entitlements and saying that - in fact, here's the deal...
INSKEEP: Congressman, I really have to cut you off there. But I do...
Rep. FRANK: Well, I wish you wouldn't ask me complicated questions with five seconds to go.
INSKEEP: We'll come back and bring you back for more. Always a pleasure to talk with you.
Congressman Barney Frank, on NPR News. Transcript provided by NPR, Copyright NPR.