Former Secretary of Labor; Democratic Challenger MA Governor
Threat to capitalism is steady undermining of trust
For three decades after WWII, the economy generated hope. But today all these assumptions ring hollow. Confidence in the economic system has declined sharply. The apparent arbitrariness and unfairness of the economy have undermined the public's faith in
its basic tenets. Cynicism abounds. To many, the economic and political systems seem rigged, the deck stacked in favor of those at the top.
The threat to capitalism is no longer communism or fascism but a steady undermining of the trust modern
societies need for growth and stability. When most people stop believing they and their children have a fair chance to make it, the tacit social contract societies rely on for voluntary cooperation begins to unravel. In its place comes subversion, small
and large--petty theft cheating, fraud, kickbacks, corruption. Economic resources gradually shift from production to protection.
We have the power to change all this, re-creating an economy that works for the many rather than the few.
Threat to capitalism is steady undermining of trust
For three decades after World War II, the economy generated hope. Hard work paid off, education was the means toward upward mobility, our children would enjoy better lives than we had.
But today all these assumptions ring hollow. Confidence in the
economic system has declined sharply. The apparent arbitrariness and unfairness of the economy have undermined the public's faith in its basic tenets. Cynicism abounds. To many, the economic and political systems seem rigged, the deck stacked in favor
of those at the top.
The threat to capitalism is no longer communism or fascism but a steady undermining of the trust modern societies need for growth and stability. When most people stop believing they have a fair chance, the tacit social contract
begins to unravel. In its place comes subversion. Economic resources gradually shift from production to protection.
We have the power to change all this, re-creating an economy that works for the many rather than the few.
Trickle-down economics is bald-faced lie to protect the rich
Reich [explained] why Democrats and Republicans need to cooperate in order to avert the looming sequester: "What Democrats ought to be proposing, and even Republicans ought to be proposing, is to say, 'Let's just repeal the sequester,'"
Reich says. "The problem right now is not the budget deficit--the budget deficit is actually shrinking--the problem right now is jobs. The problem right now is the economy and economic growth. Wages.
That's what we ought to get back to--the fundamentals."
"Trickle-down economics is just a bald-faced lie," Reich adds. "It means that you're protecting the rich, protecting the powerful.
It's what Republicans have been doing for years, and you know, you tell a lie over and over and over again ... and eventually people start to believe it."
Middle class needs more jobs to cope with Great Recession
substantially had changed. Not until these coping mechanisms became fully exhausted in the Great Recession would the underlying reality become evident. (And not until the federal government ended its stimulus would that reality be exposed as more
Starting in the late 1970s, the American middle class honed three coping mechanisms , allowing it to behave as though it was still taking home the same share of total income as it had during the Great Prosperity [of the 1960s], and to spend as if nothing
foreseeable future, even if women and men were willing and able to work longer hours, there are not nearly enough jobs or hours to go around. It will be many years before the economy comes close to making up all the jobs it lost in the Great Recession.
enduring than the Great Recession's downturn).Coping mechanisms:
Women move into paid work
Everyone works longer hours
We draw down savings and borrow to the hilt.
In 2008, the coping mechanisms are exhausted. Now and in the
Remember Keynesian lessons learned in the Great Depression
[Until the Great Depression], classical economists had viewed markets as self-correcting. They had supposed that full employment would always prevail in the end.
Keynes did not view unemployment as a moral failing. He saw it as a failure of demand.
Average workers lacked enough purchasing power to buy what they produced. Keynes's big idea was to use macroeconomic policy to maintain full employment. Policymakers should expand the money supply to permanently lower interest rates, so that consumers
and businesses could get lower-cost loans, and government should increase its own spending to make up for the shortfall in consumer demand, so that more jobs would be created. Part of Keynes's answers was also to spread the benefits of economic growth.
Robert Reich, President Clinton's former Labor Secretary, said: "No important public interest is served by allowing giant banks to grow too big to fail. Wall Street banks should be split up, and soon." We have a lot of people, some conservatives,
some progressives, who are saying the same thing. If we are going to rebuild the middle class, the way to do that is, among other things, to change our disastrous trade policies, to make it clear to corporate
America that they cannot continue to sell out the workers of this country by moving to China and other low-wage countries. We also have to have a much more competitive economy,
one in which all large financial institutions do not own assets of more than half of the GDP of this country.
American capitalism won the contest with communism and has now spread almost everywhere in the world. Eastern Europe has been absorbed into a capitalist Europe and Russia is becoming a capitalist power. China, although officially still communist,
has become a hotbed of global capitalism.
Some observers rightly point out that these gains have been accompanied by widening inequalities of income and wealth. The gains have also accompanied other problems such as heightened job insecurity, and
environmental hazards such as global warming. Strictly speaking, though, these are not failings of capitalism. Capitalism's role is to enlarge the economic pie. How the slices are divided and whether they are applied to private goods like personal
computers or public goods like clean air is up to society to decide. This is the role we assign to democracy. Democracy is supposed to enable us to make such tradeoffs, or help us achieve both growth and equity or any other goals we share in common.
Differed with Clinton; less emphasis on deficit reduction
In 1997, I appointed Alexis Herman to succeed Bob Reich at the Labor Department. Bob Reich had done a good job at the Department of Labor and as a member of the economic team, but it was becoming difficult for him; he disagreed with my economic
and budget policies, believing I had put too much emphasis on deficit reduction and invested too little in education, training, and new technologies. Bob also wanted to go home to Massachusetts to his wife, Clare, and their sons.
Source: My Life, by Bill Clinton, p.738
, Jun 21, 2004
Reagan cuts intended to produce deficits & prevent programs
Hillary Clinton later told me, "In 1993, our most important job was dealing with 'Stockman Revenge'--which I think was Daniel Patrick Moynihan's term for the massive deficits that the Reagan tax cuts and defense buildup had created.
Unless we dealt with the deficits first," Mrs. Clinton concluded, "We'd never be able to do any of the other things we wanted to do." Robert Reich, who led the economic team through the transition process and then was shuttled off to the
Labor Department, called the debilitating impact of the Republican budget deficits, first imagined by Reagan budget director David Stockman, "the law of intended consequences"--in other words, the
Reagan tax cut was INTENDED to produce budget deficits that would prevent new federal programs.
Fiscal prudence over market patriotism, even post-9-11
Just before the terrorist attacks, the prudent thing for most families to do was to trim their budgets somewhat, pay down more of their debts, and put a bit more of their savings into bonds.
After the terrorist attacks, that's still prudent behavior. There's no patriotism in being a spendthrift, no heroism in exposing one's family to unwarranted financial stress.
If political leaders want a display of market patriotism, an appropriate target would be profitable companies on the verge of announcing new rounds of mass layoffs.
Companies should be asked to forbear laying off more workers, if they possibly can, for the duration of the war emergency. What better way of demonstrating we're all in this together?
Give $60,000, for college or business, to kids reaching 18
Rather than seek to preserve & protect old jobs, or go to the opposite extreme and let 'er rip, a balanced society would seek to accomplish several goals:
Cushion people against sudden economic shocks [via earnings insurance replacing unemployment
Widen the circle of prosperity: inequalities of income and wealth are wider than they have been since the early years of industrialization. A means of extending prosperity would be to make capital assets more accessible. So in addition to
better schools, we might consider providing every young person in America, upon reaching the age of 18, a financial "nest egg" of, say, $60,000, which he or she could then invest in additional education, a business venture, stocks and bonds, or some
combination of these. Such endowment would be financed by a small wealth tax on the very richest.
Give caring attention to those who need it most: children, the elderly and the disabled.
Reverse the sorting mechanism of schools and communities.
Greenspan’s caution is ludicrous during a recession
Consumers won’t flood the malls if they’re deep in debt, afraid of losing their jobs, and, on top of that, worried about the nation’s future and the safety of their loved ones. They’ll hunker down instead, batten down the hatches, cut spending that’s not
Under these circumstances, Greenspan’s caution is ludicrous. It’s also grossly unfair. As the economy falls into steeper recession, the people hurt the most will be those who are likely to lose their jobs first and have no
cushion to fall back on.
Waiting and seeing if the rebound occurs isn’t all that burdensome for [the rich. For the poor], it’s a different matter. The economy will rebound, eventually. It always has. That’s not the test.
The question is the human cost of the wait along the way. And by this test, too, it’s time to act. [We need a stimulus package right now which would] respond directly to these people caught in the worst of the recession.
Stimulus: more unemployment insurance, less payroll tax
Any stimulus right now should respond directly to these people caught in the worst of the recession.
The first priority must be to expand unemployment insurance, which has eroded so much in recent years that it now covers fewer than 40% of workers
who lose their jobs. Most eligibility rules exclude part-time workers, temps, and anyone who’s put in less than a year on the job. The federal government should immediately add $30 billion to the unemployment-insurance trust fund and [give states]
access to it if they loosen eligibility during this economic emergency to cover anyone who’s lost a job.
Next, cut Social Security payroll taxes by half, effective immediately and continuing for 12 calendar months. There’s no better or more immediate
way to get additional cash into the hands of lower-wage workers. 80% of American workers pay more in payroll taxes than they do in income taxes.
Finally, restore some funding for the people about to be dropped from the welfare rolls.
Low-unemployment recession may result from wage fluctuation
Companies can adjust to changes in demand if they don’t have to bear the costs of steady payrolls. They’d rather not fire employees when things slow down, because the cost of retraining them when times get better is high. The answer is to give employees
wages that rise or fall depending on demand. As the economy slows, all those commissions and the rest are dropping, which means customers won’t have the income they need. If this continues, we could find ourselves in a low-unemployment recession.
Source: PBS “Marketplace” Broadcast
, Jul 5, 2001
New progressivism: economic dynamism with social cushions
How do we gain the advantages of a new economic dynamism with minimum personal pain or social resistance? A new progressivism would involve several tasks:
Cushion people against sudden economic shocks. Full employment remains the most
fundamental shock absorber. If no jobs are currently available, public-service jobs should make up the shortfall.
Widen the circle of prosperity. Most of the people who have been losing out don’t have an adequate education--the first
prerequisite to success in the new economy. So the best investment in their future prosperity is to improve their store of “human capital.”
Reverse the sorting mechanism. The sorting mechanism is most pernicious when it comes to public
schools, whose quality now largely depends on the incomes of the families living in the school district. One option would be to replace local property taxes with a national education trust fund financed by a small tax on the net worth of all citizens.
Source: The American Prospect, vol.12, no.3,“New Economy”
, Feb 12, 2001
Shift from large-scale production to continuous innovation
About 3 decades ago the American economy began to shift out of stable large-scale production toward continuous innovation. The shift has been accelerating since then. Technology has been the driving force. New technologies of communication,
transportation, and information, culminating recently in the Internet and so called e-commerce, have dramatically widened customer choice and made it easier for all customers (including business customers) to shop for, and switch to, better deals.
Wider choices and easier switching have intensified competition at all levels--forcing every seller to innovate like mad, cutting costs and adding new value.
In the old industrial economy, profits came from economies of scale--long runs of more or
less identical products. Now, profits come from quickness to innovate and attract (and keep) customers. In terms of our material quality of life--what we get for our money--most of us are better off than ever before.
Gap between rich and poor is widening despite good economy
Q: By conventional measures the economy is doing pretty well, unemployment is low, inflation is low.
A: In many respects the economy is doing marvelously well. We’ve had twenty months of unemployment under 6% and we don’t have any inflation in sight.
But there is a long-term challenge ahead of us, having to do with a widening gap that has accumulated over 20 years between people at the top and wage earners at the bottom. A lot of people in the middle are anxious, for two reasons. One, because of the
long-term decline in median wages, but also because the rate of job loss that is permanent is higher in the 1990’s than in the 1980’s. You have two wage earners most families rely on, or they rely on a single wage earner who is the sole parent of that
house, and therefore, if one wage is lost, that can mean the difference between making ends meet or destitution. So for a whole variety of reasons, there is genuine economic insecurity out there, even though the economy overall is doing splendidly.
A nation has only two resources: workers & infrastructure
Clinton said, "We have to break out of the old categories and think about whether we are going to invest in the future." Clinton drew extensively from Reich's book, which he was toting around, with bits of paper stuck in several pages. Reich's core point
in "The Work of Nations" was that a nation had only two resources within its borders--its workers and its "infrastructure" of roads, communications systems, and other common public assets--that stayed put. Other resources--such as money, factories,
technological know-how--all were crossing international borders easily and almost instantly. Reich argued that a nation needed to spend money on the nonmobile resources: education and job training for its workers; roads, bridges, high-speed rail, and
other forms of infrastructure. A large body of economic research showed that such investment could yield vast returns in the future, for workers and the country. Clinton was looking to bring about a government investment revolution.
Economic Security Council to coordinate from White House
Eager to keep an eye on the investment program, Reich read a copy [of Clinton's plan]. Two things were missing, he said. One was Reich's idea to create an "Economic Security Council," a vague concept for White House coordination of various economic
issues. That was not a big deal.
The other omission was crucial. The draft contained no mention of Reich's theory of human capital, the notion that a county's most important resource was its people. This theory underpinned the whole argument for
investing in education and job training; it was the link between helping people and bringing an economic revival. It meant as much to Clinton as it did to Reich. On the second page of the plan: "The only resource that's really rooted in a nation--and the
ultimate source of all its wealth--is its people."
Clinton wanted to tie the plan's title to Reich's "human capital theory." Finally they came up with a name: "Putting People First."
Clinton assigned Bob Reich to head the transition's economic policy team. He was to study and write exhaustive reports, translating their 24-year-long tutorial and debating society into policy options for the new administration.
Reich was also a sure bet for a top administration job. At one point Reich thought he might want to be the chairman of
Clinton's Council of Economic Advisers, the trio of economists formally charged with analyzing economic data and policy for the president. But
Reich was not a trained economist, and when his name was floated, professional economists rose up in protest. They finally settled on Labor Secretary.
Focus on inflation & deficit means focus on needs of wealthy
The deficit has to be cut, surely. But the deficit isn’t the core problem. The problem is that the earnings of half our workforce have been stagnant or declining for years. And there’s no simple link between the deficit going up and wages going
down. Wall Street bankers and Federal Reserve members would have us believe there is, but their motives are far from pure. They want more than anything in the world to eliminate inflation. This is what the rich (who lend their money and bear the risk of
inflation) have always wanted. Borrowers rarely mind some inflation. The bankers argue with straight faces that a lower deficit leads to more private savings, which results in more capital investment, which means higher productivity, which translates
into higher wages.
But every link in their chain is fragile. Private savings now travel [to wherever] labor costs are low or where skills are very high. Global investors may be indifferent to the choice, but our nation can’t be.
The country is growing apart. The wealthy have become richer than ever. That’s fine. But paychecks for the bottom half of the nation’s workforce have been shrinking since the late 1970s. The wealthiest nation in the history of the world, and we’ve
been splitting into the have-mores and the have-lesses.
I’ve been writing about these trends for years, trying to explain them, suggesting ways to remedy them. I’ve burdened Bill Clinton with every one of my books and articles, and urged him to run.
And he did. And he used my ideas. “Putting People First” [the Clinton campaign’s economic plan] was all about investing in the nation’s most precious asset-its human capital-so that everyone has a chance to make it.
And then he
won. He called my bluff. Now, Reich, put up or shut up. You’re so concerned about all of this? You’ve talked a good game. Now you have a chance to do something about it. So DO it. It scares the hell out of me.