The former U.S. labor secretary and one of America’s leading experts on work shares his thoughts on the state of the U.S. economy.
Public policy professor Robert Reich
Tavis: A few days ago Fed chair Janet Yellen held her first press conference telling us how she plans to guide the nation’s fiscal future, rattling Wall Street in the process.
Joining us now for an assessment of what we can expect is former Labor secretary Robert Reich, who is now a professor of public policy at UC Berkeley. Also the author of “Aftershock” the force behind the award-winning documentary “Inequality for All.” Professor Reich, good to have you back on this program, sir.
Professor Robert Reich: Hi, Tavis.
Tavis: What did you make of Janet Yellen’s first press conference, and what did you make of the aftershocks that hit Wall Street?
Reich: Well there’s not that much that the Fed can do to stimulate the economy, and the Fed under Ben Bernanke, Janet Yellen’s predecessor, has done a great deal, just about all it can do, to bring long-term interest rates down, keep short-term interest rates down.
Well, Janet Yellen delivered the news that Wall Street was afraid of hearing, and that is that eventually, that bolstering of, that actually keeping interest rates down cannot continue infinitely, and she’s going to allow interest rates to rise.
That’s what Ben Bernanke was doing really at the end of his tenure. So she’s going to just continue those same policies. Wall Street got very nervous because of course if interest rates are allowed to rise, that means that bonds become more attractive.
That in turn means that stocks become less attractive, and that’s what Wall Street has been living off of – all of the fumes, or you might change the metaphor and say the steroids that come from artificially keeping interest rates down.
Tavis: Is the economy right now though in a position, are we, is our condition good enough at the moment to see interest rates go up in the spring?
Reich: Well that’s the very central question we’re facing right now, Tavis. Many of us, myself included, think that although the official indicators, the stock market and economic growth and all of the things we normally look at, look like they are improving, there is another economy that affects most people in this country.
If you are middle class, lower middle class, or poor, your actually take-home pay is going down, adjusted for inflation. Your jobs are not there. The actual ratio of people who are working age who are in the work force, who are actually working, is now at a 35-year low.
So in effect we have two economies: the official economy and the economy that most Americans live in, and that second economy is really not in much of a recovery.
Tavis: To your point now, Secretary Reich, the Fed, as you know, sets an unemployment threshold at about 6.5 percent as the benchmark for whether or not it considers raising these rates.
To your point now about those two Americas, those two economies, there are many of us who just don’t believe that the number is what they tell us the number is, because so many Americans have just given up looking for work.
So how arbitrary, how realistic, how reliable, put another way, is the benchmark, the threshold that the Fed has set for making this determination about raising the interest rates?
Reich: It is very unreliable if your concern is getting anywhere near full employment. Now Janet Yellen is concerned about employment. Remember the Fed has two mandates. One is price stability, avoiding inflation and avoiding recession.
The other is to get as many Americans working as possible, and Janet Yellen, to her credit, is very concerned about the second mandate. But you are absolutely right, the official unemployment data is a very crude and misleading gauge of how many people are actually working, and all of the burden’s right now on the American workforce.
Tavis: Let me go back to where you started this conversation, by admitting and by sharing with us the fact that as you see it, there’s only so much the Fed can do in these matters.
There are persons, particularly on the political right, and I’ll work my way into your wonderful work, “Inequality for All,” in just a second. But there are folk on the right and we’re starting to hear their voices more now as we start to head toward the midterm elections, and heaven help us, as we start to head toward the 2016 presidential elections.
We’re hearing more from persons on the right, I don’t need to call their names, who think that we ought to just do away with the Fed. This is not a new idea, but give me some sense of where you come down in that argument and what you make of this position that some hold that the Fed is basically a worthless institution.
Reich: Well that’s silly. You have to have some way of controlling the money supply, and by controlling the money supply you are actually in a position to help the economy along.
Now you have to have – basically there are two controlling instruments, two pedals that we use in this country. One is called fiscal policy; that’s taxing and spending.
The other is monetary policy, controlling the money supply. You’ve got to have some way of controlling the money supply. I mean, some of the people who want to do away with the Fed, they want to use gold, or they want to use silver, or in years past there have been all kinds of ideal versions of controlling the money supply. Nothing works very well.
What we know in most economies, most modern economies today, is that when an economy slows down, you want to be able to actually reduce interest rates. You want to be able to increase the money supply, and you also want to be able to spend more and reduce taxes.
Those are the ways that government can help an economy that temporarily needs a lift, and that’s exactly what the Fed has tried to do, and I think with a fair degree of success.
But as we’ve been talking about, not nearly successful enough, because we also need fiscal policy. We need more spending on infrastructure, on education. We need to not worry right now about the deficit. The deficit is way down as a proportion of the gross national product.
Tavis: To your point now about not worrying about the deficit, why then does that conversation continue to churn in Washington, and to my mind at various points in times this White House, the Obama administration, has been, quite frankly, even too sensitive to that argument. Why does that argument continue to churn when I think you’re absolutely right in your assessment?
Reich: Well it continues to turn because it is easy to convince the public that a national budget is just like their own home budget, and if the national budget goes too much into deficit, things are going to be a huge problem.
The reason so many people are still struggling in this economy, so this argument goes, is that we still have too large a federal budget deficit. Now the analogy doesn’t make any sense, Tavis.
For one thing, a federal budget has a lot to do with public investment in roads and bridges and education. If you don’t make those investments, not only do you cause a lot of people not to get jobs, but you also are not allowing the economy to grow in the future, because those are investments in the future economy.
Also we know that deficit spending is not a sin. During the Second World War we went into much, much deeper deficit than we ever have since, but we grew our way out of that deficit.
The real issue is the ratio of the deficit or the debt to the total national economy. All of these austerity people and all of these deficit schools who say you’ve got to get the deficit down don’t understand that by reducing the deficit, you’re actually reducing the demand for goods and services in the economy and threatening economic growth. That’s exactly what’s been happening.
Tavis: Since I last talked to you the president of the United States in December, since you were last on this program, gave a major speech about income inequality.
We are now 50 years after LBJ’s war on poverty. Your blog posts on Huffington Post consistently are required reading for me and for my staff, for that matter. Give me some sense, your sense, that is, of how you are reading this moment that we are in, and whether or not the momentum of this moment can lead to a movement to get some real traction on the issue of poverty and income inequality.
Reich: Well I think it has. We don’t have much of a choice. We still have 15 percent of Americans who are in poverty; 22 percent, that’s more than one out of five, of our nation’s children are in poverty.
Now to those people who say well that means the war on poverty didn’t work, let me just tell you that if we did not have the social programs we do have right now, the safety net, even though it’s a tattered safety net, we would have 30 percent of our people in poverty.
So it has worked to that extent, but we cannot just try to eliminate poverty with safety nets. We’ve got to create jobs, we’ve got to have a jobs program, we’ve got to expand middle class opportunities, and we’ve got to restore upward mobility in this country.
That means education, investing in early childhood education; it means affordable college education for people. We are the only rich nation in this, in the world that has less, lower per-pupil expenditures in poor areas of this country, in poor school districts, than we have in wealthy school districts.
Tavis: I want to close our conversation tonight, and I could do this for hours with you, I want to close, though, by getting your thoughts on something that’s terribly important to me.
I mentioned a moment ago that this year we celebrate 50 years after the war on poverty. We will also, in June of this year, commemorate 50 years since the murder of those three civil rights workers in my birth state of Mississippi; namely, Philadelphia, Mississippi; namely, Schwerner, Goodman, and Chaney.
For those who don’t know all there is to know about your back story, when you were a child you were bullied a lot. I’ll let you explain why you were bullied, but one of your protectors when you were just a kid was a guy named Michael Schwerner, who again ends up being one of these there civil rights workers years later killed, murdered in Philadelphia, Mississippi.
How were you and Michael Schwerner friends, how did he protect you, and what do you make of your friend now, 50 years after his death?
Reich: Well, Tavis, this is a little hard for me to talk about, even 50 years later. I was always very short for my age, and when I was a little boy I was even shorter for my age.
I looked to a handful of older boys who were very kind, and they were my protectors from the bullies. I was bullied a lot. It happens; kids are bullied, and if they’re very short they tend to be bullied even more.
Mickey Schwerner, and I knew him as Mickey, he was older than me, and Mickey was one of the people I looked to to kind of help me along. He was a protector; he was a very kind and gentle, lovely, lovely boy.
Well, in the summer of ’64, my protector from the bullies was, along with Chaney and Goodman, two other civil rights workers trying to register voters in Mississippi, when they were brutally murdered.
They were tortured and murdered by the real bullies, by America’s real bullies. And when I heard about the murder of my protector, who had protected me from my childhood bullies, well, I think it changed my life.
It goes back to what we were talking about a little while ago, Tavis. There are so many people in this country who are vulnerable and who are powerless. They’re not just poor, they’re middle class, they’re lower middle class, they’re what we used to call working class.
Some of them really are hopeless and they’ve lost hope. They feel like they don’t have anybody to protect them. They don’t feel that there’s any way out. They’re living form paycheck to paycheck, where they don’t have a job, and even though the economy is improving, they really do feel bullied and humiliated. I suppose that’s the connection.
Tavis: I could tell that was difficult for you, and I want to thank you for taking the question. It is, it’s always amazing for me 50 years later how these things stay with us, particularly if you’re connected to it as intimately as you were.
So, Mr. Secretary, I thank you again for taking my question about the death of Schwerner, Goodman, and Chaney 50 years later this summer.
Robert Reich. His text is called “Aftershock: The Next Economy and America’s Future.” There is a DVD out, a companion to the text, which you can find on iTunes, On Demand, and Netflix. It’s called “Inequality for All.”
I think work that will years from now be looked at as classic. Again, Secretary Reich, thanks for your insights as always, sir. Good to have you back on this program.
Reich: Thank you, Tavis.
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