It's jobs. 2012's general election is fourteen months away but the issue is clearly jobs, jobs growing from a thriving economy. We're discussing the struggling economy and the political implications with economist Robert Reich on this edition of Iowa Press.
Borg: Welcome to Iowa Press, our 41st broadcast season and thank you for your patience during our summer break. Since the Clinton administration turned over the White House keys ten years ago few in that administration have kept as high a profile as our guest today. Robert Reich served in the Clinton, as well as the Ford and Carter administrations. Today he is considered one of the nation's top economists and political observers. As Secretary of Labor in the Clinton administration Mr. Reich's decisions and presidential influence directly affected American workers. He is a teacher serving on the Harvard, Brandeis and University of California faculties, a writer, authoring thirteen books and a political columnist. But right now he is our guest today. Professor Reich, welcome back to Iowa Press. Nice to have you back.
Reich: Thank you, it's good to be back.
Borg: And across the Iowa Press table, Associated Press Senior Political Writer Mike Glover and Radio Iowa News Director Kay Henderson.
Glover: Mr. Reich, let's step back and take a look at what's going on in Washington right now. President Obama is in the midst of a lot of turmoil. Give me your critique of President Obama's performance so far in office.
Reich: I have enormous respect for the President. I have met with him a number of times. I advised him after he was elected President before he became, before the inauguration and he is one of the most intelligent people I think who have ever occupied the White House. Having said that, though, I wish he would be a little more combative. I wish he would take the republicans on a little bit more. It's very clear he's not going to get any republican votes, not for this jobs package certainly and my hope is that not only will he take it to the country but he will have a jobs package that is large enough, significant enough, bold enough to deal with the problems of unemployment that we are facing today and if republicans don't go along he will make it the centerpiece of his 2012 election.
Glover: Is that where we're at now, the start of the 2012 campaign? Should it be?
Reich: Well, it shouldn't be. In any rational world we would have a campaign that was much shorter but yes, we're already in the gravitational pull of the 2012 election. Certainly the republicans are already taking every pot shot they possibly can at the President. I think we were actually in the campaign beginning of 2010 when Mitch McConnell, the head of the republicans in the Senate, said his number one priority and the republicans' number one priority was unseating Barack Obama. I found that to be an incredible statement. I mean, given the problems that this country has how can you say your number one priority is to unseat the incumbent President?
Henderson: Let's turn back to the first stimulus that President Obama signed into law in 2009. What went wrong with that stimulus? What do you see as the failing points of that?
Reich: Well, we know that the stimulus went right in the extent that it created or saved three million jobs and that is a figure that is widely accepted as truth in terms of non-partisan economists and analysts looking at it. But it didn't create or save more jobs than that because it was too small relative to the fall off in consumer demand. Remember, consumer spending is about 70% of the total economy. We now know, something we didn't know then, we now know that in 2008 consumer demand dropped dramatically. In fact, the entire economy contracted. At the end of 2008 we saw at the fourth quarter we were contracting really almost 9% on an annualized basis. That's a huge drop. The fact of the matter is that that stimulus should have been larger and it should have been more directed at job creation. Having all those tax breaks in that stimulus did not generate directly jobs because people who are scared, who have a lot of debt overhang when they get a tax break what do they do with it? Well, they use it to pay off their debts, not to buy and create more jobs.
Henderson: Let's talk about the current recession and its causes. There are some who suggest that the deregulation which occurred during the Clinton administration when you were sharing power with Bill Clinton in the White House that was one of the causes of the housing meltdown, the financial debacle and that that deregulation was a bad idea. Do you agree?
Reich: I think deregulation of financial markets was a bad idea. I think getting rid of the Glass-Steagall Act, which separated commercial from investment banking, was the beginning of the problem. There were subsequent problems as well. Alan Greenspan, when he was at the fed, he talked about irrational exuberance but he did not enforce the laws and regulations governing Wall Street, he took a very hands off approach. That contributed to the problem as well.
Henderson: Conversely, republican presidential candidates, many of whom are spending time in Iowa, as you know, argue that the free market can take care of itself, that the market is being overregulated and that is one of the reasons why the market isn't coming out of the recession. What do you think of that argument?
Reich: Well, if we've learned anything after the debacle on Wall Street is that we didn't have adequate regulation of Wall Street. And if you look at what has happened in recent years, the BP oil spill, look at the mining disasters, look at the private insurance companies like WellPoint putting up insurance prices astronomically. I mean, one after another you see companies that are taking advantage of a regulatory environment that is not yet adequate to what it should be. So, to say that we need more deregulation or that too much regulation is the problem defies what our experience has been over the last two or three years.
Borg: Is it fair to characterize the Obama administration's heath care reform act as having somewhat of a drag on the economy? Speculation, and polls showing too, that employers are somewhat reticent to add to payrolls because of the uncertainty of what they are going to be liable for in health care.
Reich: Look, employers always face uncertainty. The biggest uncertainty they face right now is lack of consumers. Poll after poll, discussions I've had, other people have had, focus groups, you ask employers what is your biggest problem, why aren't you creating jobs, you're sitting on $2 trillion of cash, highest corporate profits we've seen in decades. The reason is they don't know that they have enough consumers out there to justify the increase in employment. It's not regulations, it's not health care, it's consumers. That is what employers are concerned about.
Borg: Are you saying that the health care reform act has absolutely no effect?
Reich: Not that there's no effect but it has a very marginal effect and I'm not even sure whether it's positive or negative. Small employers are actually going to face lower costs because of the health care act, large employers may face slightly higher costs. But, again, those costs relative to the huge profits that corporations are now enjoying and relative to the $2 trillion they are now sitting on are very small. If you're asking why aren't employers hiring it's because there's not enough what economists would call aggregate demand, there's simply not enough buying. Why isn't there enough buying? Because consumers are workers and as workers they're not getting enough pay, they're worried about their jobs and their mortgages are huge relative to the size and value of their homes.
Borg: And they're also scared.
Reich: Well, they are scared for all of the reasons I just mentioned, absolutely.
Glover: And you mentioned that you would like President Obama to be a bit more aggressive and to be a bit more forceful. Isn't he, in fact, dealing with a split government in Washington that forces him to compromise? He walked into a federal government where republicans control the House, democrats control the Senate. If he wants anything done he has to move towards the middle. Isn't he doing the logical thing as President?
Reich: Well, first of all, he walked into a federal government where the democrats had both houses.
Glover: Not for long.
Reich: The republicans took over, that's right, republicans took over in 2010. I think it really is a matter of the bully pulpit. Many people expected that President Obama would utilize the bully pulpit, that is the office and the ability of the President to summon and mobilize, energize, organize public opinion to a greater extent than he has, or at least to a greater extent than he successfully has. And, again, I don't want to sound unduly critical of the President, I think he has done a good job but I wish he would be a little bit more aggressive. Instead of giving republicans what they want, instead of putting a bargaining chip or at least a compromise on the table initially I think that what he needs to do, and he can still do it with the jobs bill, is say this is what I believe, this is what is good for the country, I hope the republicans will come along with me, I may have to compromise to get their votes but if they will not come along and if it's not good for the country I am going to take it to the people.
Glover: Let's talk a little bit about the mood in Washington. It strikes me that the mood is fairly poisonous. The atmosphere, the political mood seems to be very poisonous where people are out to destroy each other from the beginning. You mentioned earlier that republicans said as early as right after the 2008 election that their number one priority was to defeat this President, to make sure that Obama was a one-term President. How do you deal with that political mood?
Reich: Look, I don't have a simple solution. It's the most surly, poisonous, partisan atmosphere I have ever seen in my lifetime. When I got to Washington for the first time in the 70s and then in the 80s and then I was there in the 90s, you know, there was progressively more partisanship but never, never like we are seeing now. I think what the President has got to do is simply force the republicans hands on these issues. For example, republicans keep saying, a smaller government means more jobs. There is no economic theory that I know of that justifies that point of view. Why can't the President simply say to republicans, what is your idea about how shrinking the government is going to create more jobs when in eight of the last recessions, in fact, if you include the Great Depression it's nine of the last downturns, the government has had to expand its spending and also expand the money supply in order to get people back to work. It makes no logical sense.
Henderson: Let's talk about the money supply and the head of the fed, Ben Bernanke. What is your analysis of his job performance? Republican presidential candidates this past week suggested he should be fired, they would not reappoint him, one has suggested he wouldn't get very fair treatment were he to go to Texas. What do you think about Ben Bernanke's job performance?
Reich: Ben Bernanke was appointed by George W. Bush and the President reappointed him. I think he has done a pretty good job but monetary policy, that is controlling interest rates, can only go so far. I mean, if you reduce interest rates as they have, the fed, under Ben Bernanke, to near zero and then done what he calls quantitative easing, which is getting long-term interest rates, we're trying to get them down as well but you don't have enough demand, aggregate demand to back you up it's a little like pushing on a wet noodle. I mean, nothing happens. What you're doing is you're enriching big businesses, you're enriching Wall Street, you're enriching people who are good credit risks, they can get money almost free but average working people still have a huge obstacle. They have credit problems leftover from the Great Recession, small businesses can not get credit. Again, you need an aggressive fiscal policy in order to match a monetary policy if the monetary policy is going to have any consequence at all.
Borg: Was it a good idea to keep interest rates low and to say they're going to be low through this X date, I think it was 2012?
Reich: I think that's a pretty good idea. But, again, I want to emphasize, without a strong and expansive fiscal policy you can't really count on monetary policy to do it alone. We're in a very dangerous climate right now. We are on the edge of a double dip recession. Most Americans have never really come out of the first major recession. 25 million people are looking for full-time jobs right now and meanwhile the global economy is slowing down. This is not just a debating point with regard to an election year coming up. This is really serious stuff and people are, Americans are really hurting.
Henderson: So, in that environment what would be your advice to this so-called super committee that is coming up with a deficit reduction plan?
Reich: I would say deficit reduction is not the primary problem right now, jobs is the primary problem and what you ought to do is backload the deficit cuts, that is the spending cuts. If you're going to have spending cuts don't do them now, that is the last thing we need is spending cuts right now when the private sector, consumers and businesses, are cutting back. What we need right now is more spending and that actually will help in the long-term because if that restores economic growth and jobs you get more revenues and that helps you with your long-term budget deficit problem.
Glover: As I look at my history it strikes me that every time a democrat manages to win the White House one of the first things that democrat runs into is criticism from the left. The left seems restive, they want to push the President to the left. They're not happy with what the President does when the President compromises. Do liberals have a problem with being in power?
Reich: Well, I can say that when we went to Washington in 1992, 1993 when I was part of the Clinton administration there were a lot of progressives and liberals and people on the left who were very dissatisfied and that was not bad, that helped push the administration a little bit into more progressive terrain than the administration would have otherwise have gone. So, I think it is important that people be organized and mobilized, on the left, on the right, independents. Nothing good happens in Washington unless there are people who are vocal and mobilized and organized to counter the overwhelming power of businesses and the money that is coming from big corporations and Wall Street drenching Washington.
Glover: Look across the aisle at the republican field as it is beginning to unfold. It strikes me that they are competing with each other to decide who can push for the biggest tax cuts, deciding who can push for the most cuts in regulation. Are they eating their own? Are they in the process of nominating a candidate who can't win a general election?
Reich: Well, it seems that way in a sense that the Tea Party doesn't represent America and a lot of what republicans are saying now is an attempt to court the Tea Party, more tax cuts particularly for the wealthy, more tax cuts for corporations. I think a tax cut for the middle class, the working class would be fine right now but they're talking about tax cuts for people that already are doing extraordinarily well, better than they have ever done in this country at a time when everybody else is suffering. That just makes no sense.
Glover: Get back to the basic question. Are they in the process of nominating a candidate who can't win a general election?
Reich: Well, I think that they are in the process of nominating somebody -- let me put it this way -- I think it's too early to know who they're going to nominate but the current group of republican contenders, Michele Bachmann and Rick Perry in particular, seem to me to be so extreme in their views. Michele Bachmann wants to put up an actual concrete barrier across the boundary with Mexico armed with people, with American troops. Perry was talking about getting rid of the IRS and getting rid of the federal income tax, getting rid of the fed. I mean, you're talking with people who are so out of the mainstream of American thought. I mean, when Rick Perry says, as he did, that Social Security is a Ponzi scheme, what is he talking about? I mean, I was a trustee of the Social Security Trust Fund. Social Security is a bedrock that Americans depend on, it's going to be completely solvent for the 26 years and you can make it solvent for the next 75 with very small changes. That kind of talk about Ponzi scheme is irresponsible, it is dangerous, it is radical in the worst for of demagoguery.
Henderson: Let's talk about Social Security. What are the minor tweaks that you would make to the system to make it solvent beyond the 26 years?
Reich: I would increase the proportion of income subject to the Social Security payroll tax. Right now it is about $106,000. I would move it up to about $115,000 or $120,000. That would do it. Then we're not in any problems for 75 years.
Henderson: What about means testing?
Reich: Means testing we could do a little bit more. Means testing right now is already in the Social Security system to some extent. You don't want to do so much that the Social Security becomes a program for lower income people and higher income people say well we don't really have a stake in it.
Henderson: Given the fact that Americans live longer than they did when Social Security was established does it make sense to move the retirement age further up?
Reich: Well, it doesn't make much sense to me because the human body doesn't change that much. That is, people when they get to be 65 to 70, I can speak personally, your body just doesn't function as well. If you are in a trade that is very hard on your body it's just not fair to ask people to wait until they are 70 to collect Social Security.
Glover: Let's go back to the republican field. You talked about some of the contenders in there. Give us your predictions. Who do you think is going to emerge from the republican field?
Reich: Well, that's a tough one.
Glover: Give it a shot.
Reich: I think that if the -- let's put it this way -- if the economy stays bad and if unemployment stays 9% or worse and you've got so many Americans who are so disillusioned and angry they are going to inevitably, I think, gravitate towards somebody who is a fighter, who is also angry, who expresses that anger almost regardless of what the policies are. So, I think a Bachmann or Perry becomes actually more attractive because they are so furious and their radical propositions, it's easy to scapegoat the federal government. On the other hand, the candidate who is going to appeal most to independents and I think is the most reasonable is probably either Jon Huntsman or Mitt Romney and I consider both of them, if you pardon the expression, the adults who are running in the republican party.
Glover: And is there any chance the economy is going to be significantly different in November of 2012 than it is right now? I mean, every prediction I've seen is at least a year of this recession ...
Reich: Let me just lay it out -- if we have job growth on average per month such as we've had over the last ten years we're not going to get back to 6% unemployment until the year 2024. So, we have got to do something. We're now in a jobs emergency and this is why I am hoping that not only will the President's jobs package be big enough but that he will take it to the country and sell it to the country because this is not just politics, this is really human suffering we're talking about.
Henderson: And for the benefit of our viewers, we're taping this program before the President unveils the details of that plan so we can't ask you to critique it specifically. But you mentioned the middle class earlier. Mitt Romney this week issued a 59-point economic plan in which he said he would bolster the middle class by targeting certain specific ideas toward them, for instance, letting them be forgiven for capital gains taxes and any taxes on interest. In your view, what is the best way to bolster the American middle class which has sort of been buffeted by the past two recessions?
Reich: I would exempt the first $20,000 of income from Social Security taxes for at least two years, if not permanently. Raise the ceiling to make up that difference, the ceiling on proportion of income subjected to Social Security. I would expand the earned income tax credit, which is a wage supplement, all the way up to about $40,000 or $45,000. I would have a WPA, a civilian conservation corp as we had in the Great Depression to put all the long-term unemployed to work. It's better that they work and get back in the habits of work than simply look for work. I would have a major infrastructure program. Most of our infrastructure, if you look at highways, ports, bridges, all of the other things that we rely on, suffer from deferred maintenance to a very significant degree and that's why a lot of bridges are deemed unsafe. I would put about $500 billion a year into infrastructure spending over the next few years, maybe two to three years and major loan program to the states. 49 of the 50 states can not run deficits and that means when revenues decline because people don't have jobs they have to lay off critical public workers, teachers, firefighters, police officers. I'd make loans by the federal government to the states so they didn't have to do that.
Reich: There are many things that can be done but frankly, I do not understand when republicans say we need to cut taxes for corporations, we need to cut taxes for the rich, that is the last thing that I would ever think about doing because they don't need, they don't need the help, everybody else does. And Mitt Romney talks about I'd get rid of regulations or I'd cut regulations, as we were talking about before, if regulations don't make sense from a cost-benefit standpoint obviously get rid of them but we have lived through the past four or five years of an era of deregulation that has proven to be a disaster.
Borg: But you do advocate, just to summarize if I heard you correctly, you would reduce taxes or even eliminate some of the taxes on the marginal income people, you said the lower-middle class perhaps but you would raise taxes on the rich?
Reich: Yeah, I would definitely ...
Borg: Am I correct ...
Reich: Yes, yes. I think that, again, most people who are low income or even medium income pay a lot in sales taxes at the state level, they pay hugely in payroll taxes. In fact, 85% of Americans pay more in payroll taxes than they pay in income taxes. And this notion of reducing capital gains taxes for people who are earning under $200,000, which is what Mitt Romney is talking about, how many middle class people do you know who rely on capital gains taxes? Maybe when they are retired they rely on capital gains. But how many people who are earning $50,000 a year, that's basically around middle class, rely on capital gains?
Borg: This has been a pretty dismal conversation here today, not to critique what you're saying ...
Reich: I'll try and be upbeat.
Borg: But I am asking you now, what are the bright spots? What are the bright spots, the possible foundations, cornerstones on which this economy can be rebuilt?
Reich: We continue to be a very innovative economy, not financially innovative. I would reduce the incentives for financial innovation and push more incentives toward basic research and development. I would, for example, our public universities are among the best in the world but they are in danger of being second rate because there have been so many cuts by states. The federal government could maintain those great public universities. In terms of intellectual capital, in terms of our ability to be inventive, America still is number one. But we've got to hold onto that advantage in the future.
Glover: We've heard a lot of interesting ideas from you as a college professor from California. You've been in the federal government. At what point do you have the responsibility to take those ideas back into the public sector and try to make them a way to influence public policy?
Reich: Well, the most I can do, quite frankly, is to put the ideas out there and to push as hard as I can. I'm not going to -- I ran for Governor of Massachusetts in 2002, almost became the democratic challenger to Mitt Romney. One of my great regrets in life is that I didn't have a chance to debate Mitt Romney. I could have put an end to his career right then. But I'm not, temperamentally I'm not suited to be a candidate but I can, I think I have some responsibility as many people do to put ideas out there, to advocate for what I think is right and to help people organize and mobilize around those.
Glover: So, what is your role? What is your role in all this? Are you just a catalyst for a sponsoring debate? Do you plan to travel the country and try to make this case? Will you be involved in the 2012 presidential election?
Reich: Well, I certainly am going around the country making the strongest case I can make for what I believe needs to be done. That is a moral obligation I have, it is an obligation I have as a former Secretary of Labor and I will and continue to be available to candidates but also to anybody who calls. I mean, if a republican were to call me, if Mitt Romney were to call me not only would I take his call, I would give him the best advice I possibly can.
Glover: Will you campaign for Barack Obama's re-election?
Reich: Of course I will.
Borg: I want to go back to that question I asked you and have you zero in on agriculture. In Iowa we have comparatively among the states a low unemployment rate here, I think about 6%. Is agriculture one of the building blocks for this nation or is it inconsequential?
Reich: No, it's consequential obviously and the Farm Belt has been really not as hard hit as the rest of the country in part because sadly the rest of the world has had terrible, terrible crop failures, kind of weather weirdness that have caused droughts ...
Borg: But can we leverage it?
Reich: There are certainly ways of leveraging an agriculture economy but here is what I worry about for farm states quite frankly, like Iowa. So much of the agricultural economy is now based on ethanol subsidies and those subsidies are going to be cut, inevitably going to be cut and that is part of the deficit deal. So, what do you do then? What is your fall back? You have to diversify the economy.
Borg: Thank you very much for being our guest today.
Reich: Thank you.
Borg: On the next edition of Iowa Press we're talking with one of the republican presidential candidates campaigning for the Iowa caucus support, Michigan Congressman Thad McCotter will be discussing how he is expecting his priorities to catch support. That will be at the usual Iowa Press airtimes, 7:30 Friday night and 11:30 Sunday morning. I'm Dean Borg. Thanks for joining us today.