Robert Reich on Budget & Economy

Former Secretary of Labor; Democratic Challenger MA Governor

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. Source: The Natural, by Joe Klein, p. 49-50 , Feb 11, 2003

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 absolutely necessary.

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.

Source: The American Prospect, vol.12, no.18, “Gen. Greenspan” , Oct 22, 2001

Stimulus: more unemployment insurance, less payroll tax

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.

Source: The American Prospect, vol.12, no.18, “Gen. Greenspan” , Oct 22, 2001

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

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

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.

Source: Interview on PBS Frontline, WGBH Boston , Jul 2, 1998

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.

Source: Locked in the Cabinet, p. 29-30 , Dec 7, 1992

Most precious asset is human capital

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.

Source: Locked in the Cabinet, p. 9 , Nov 12, 1992

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