Jan Term Speaker Robert Reich Calls for "Systemic Changes" to Bridge Income Gap in the U.S.
Final Jan Term Speaker Talks About "Jobs Emergency" Before Huge Crowd at Soda Center
On a night when much of the country was tuned in to the State of the Union to hear how President Obama plans to address the U.S. economic crisis, a capacity crowd of about 600 people came to Saint Mary's College to hear Robert Reich explain how he'd fix America's "jobs emergency."
"There's a kind of anger out there that I have not witnessed before, and it's related to what's happening in the economy," said Reich, secretary of labor in the Clinton administration, a feisty regular on economic talk shows and the author of 13 books, including the recent "Aftershock: The Next Economy and America's Future."
Reich argued that the Great Recession and today's crippling unemployment are the inevitable result of a steady decline in real wages and purchasing power over the past 30 years that have whittled away at the middle class in America and have begun to crush the American Dream.
The statistics he cited tell the story: The average American male earns less in real dollars today than he did 30 years ago, even though the U.S. economy is more than twice as large as it was then. Families need two incomes or more to survive (leading to the phenomenon he jokingly referred to as DINS -- double income, no sex). And Americans have sunk deeper into debt to try to bridge the gap, using their homes as ATMs to the tune of $2.3 trillion from 2002 to 2007.
"If I were president, I'd do nothing but talk about this jobs emergency," he said.
More Rich, Fewer Middle Class
Even more than the erosion of wages, Reich blamed our economic woes on the enormous imbalance in the distribution of income in the United States. In the late 1970s, he noted, the richest 1 percent of Americans commanded 9 percent of the total income. Today, they control 23.5 percent of total U.S. income.
It's almost unprecedented, he said. Almost. The last time the percentage climbed that high was in 1928 - just before the Depression.
"When you have such a lopsided distribution of income, you need systemic changes," he argued - change on the magnitude of the New Deal, which brought us the minimum wage and Social Security, among other reforms. That's the kind of talk that has won him vociferous critics on the right and ardent fans on the left. But Reich doesn't shrink from exposure or controversy. In fact, he clearly relishes the freedom to speak openly now that he's no longer a member of the government.
"I remember the very last day as secretary of labor," he said. "It was as if I got rid of this big megaphone and got a little megaphone in return. But I could say anything I wanted to into it."
Throughout his talk, Reich injected notes of humor. Poking fun at his diminutive stature, he began the speech by saying, "As you can see, the recession really wore me down. I was 5 foot 11 when it started."
Later, he told a story about the first meeting of Obama's economic advisors, who were each asked to name the fundamental problem that led to the recession. Paul Volcker, known as "Tall Paul" because of his height, stood up and said, "The problem is we lived beyond our means." Then Laura Tyson, head of the Clinton's Council of Economic Advisers, chimed in, "The real problem is our means didn't keep up with what a rapidly growing economy should provide."
"She was right and he was wrong," Reich said. Then, with a stand-up comedian's timing, he added: "I told him that to his face but he couldn't hear me."
Call for Sweeping Tax Changes
Although Reich was an early adviser to the Obama administration, he doesn't hesitate to break with the president on certain issues. In fact, he used the phrase "If I were president ..." no fewer than three times during his speech.
He praised Obama's response to the financial meltdown, saying the administration had learned the lessons of the Depression, like the need to flood the financial sector with liquidity, jump-start the economy with stimulus funds and push down interest rates. But he faulted the administration for stopping short of the sweeping changes needed to put Americans back on the path to economic well-being.
In "Aftershock," Reich lays out his proposals for redressing the income imbalance in the U.S., and he referred to some of them in the speech at Saint Mary's.
To raise revenues, he wants the government to raise marginal tax rates for the wealthiest Americans to 55 percent for the top 1 percent (above $410,000), 50 percent for the top 2 percent (above $260,000) and 40 percent for the top 5 percent (above $160,000). And he advocates for a carbon tax to capture some of the true costs of America's use of fossil fuels, including the cost of wars in the Middle East.
In return, he would redistribute those revenues by handing out wage subsidies for struggling Americans, principally through an expanded earned income tax credit, so that those who earn less than $20,000, for instance, would get a $15,000 credit.
The aim of all his proposals, he said, is to restore America's dwindling middle class.
"We have a majority on a downward escalator," he said, and it's preventing an economic recovery. "The long-term issue for the American economy is not jobs, it's wages."
Beware of 'Race to the Bottom'
Reich has long argued that to survive, the American labor market has to adapt to the seismic shift from industrial output to service economy to a technocratic society that has unfolded over the past several decades. In a similar vein, he also believes that it has to adapt to a world where trade and production know no borders.
However, in response to a question from the audience, he warned against "the race to the bottom" - cutting wages and taxes in order to compete with developing countries like India and the Philippines where American jobs have migrated. Instead, he suggested that the United States follow Germany's model and focus on producing value-added goods and services that will command higher prices and support higher wages.
"Once we're in the business of creating more jobs by getting poorer, there's no end to it," he said. "We've got to create more jobs that are good jobs."
Ethics and Pragmatism
Reich said he drew inspiration for his ideas, in part, from moral philosophers like Adam Smith. He called the need to address income disparity in the United States "fundamentally an ethical argument," he said. But he said it is a practical expedient, too. Without an increase in purchasing power, he asked, "where will the consumers come from" to lift us out of recession?
In one of his more controversial stances, he also warned that "if the wage imbalance is not redressed, American politics will get angrier and uglier," a prediction he made long before the killings the previous week in Tucson.
"It's important that we embrace these ideas of social justice," he told the audience, "not just because they're good but because they're sustainable. They're the social glue that keeps us together."
Photo by Gabrielle Diaz '11