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My Talk With Bob Reich: Only Democrats Can Save Globalization from Republican-Generated Backlash
Robert Reich was U.S. secretary of labor under President Bill Clinton. His most recent book is Supercapitalism. He spoke with me about the economic crisis.
Nathan Gardels: Now FNMA (the Federal National Mortgage Association) -- one of the pillars of the post-depression American economic order -- is in trouble. What does this say about the depth of the U.S. economic crisis resulting from the housing bubble?
Robert Reich: The crisis is worse than most economists assumed, and it all goes back to the early years of this decade when real interest rates were below zero. When real interest rates are less than zero, it's crazy not to borrow, and that's what everyone did -- not only homeowners getting mortgages but every financial institution and millions of investors.
Gardels: Nobel laureate for economics Ed Phelps says the current financial crisis has given capitalism a "black eye." It turns out that the neo-liberal model that says capitalism is self-correcting is wrong. Is the U.S. headed back toward New Deal-type regulation after the long embrace of ever-freer markets?
Reich: Capitalism is not self-correcting. It has never been. Capitalism has always required regulation in order to ensure against fraud and excessive speculation, especially when money is so cheap. Alan Greenspan, the former Fed chief, allowed the current crisis to happen because he did, indeed, believe that capitalism was self-correcting.
George W. Bush and others in the Bush administration have also assumed, wrongly, that regulation is unnecessary. Time and again, we've learned that markets don't work without regulation.
At bottom, markets depend on trust. But trust doesn't happen automatically, simply because individual players in the market often can get away with behavior that breeds distrust. They don't bear the full cost of imposing fraud or excessive speculation on others. The cost is spread over all players. This is what we're now witnessing. Because of the excesses of the last few years, lenders and investors no longer trust that the people with whom they're dealing will fulfill their commitments. As a result, credit is drying up.
Gardels: No matter how much Barack Obama hews to the center in the campaign, won't he be forced by social circumstances, if president, to pursue government intervention of a kind unseen (in terms of re-regulation, if not new institutions) since the Great Depression? What kind of intervention do you deem necessary?
Reich: Obama is a pragmatist. He'll do what's necessary, and no more. We need smart regulation of financial markets, including mortgages and consumer credit, and many such regulations will need to be international because financial markets are now global.
Gardels: Obamania has not hit Asia, which tends to be more focused on interests than values, as much as it has Europe. In general, Japan, China and the rest prefer Republicans and free trade. They fear protectionism from Democrats.
Reich: They're wrong to fear protectionism. Democrats have led the way to internationalism and global trade -- starting with the Kennedy Round in the 1960s and continuing through NAFTA and China's entry into the World Trade Organization under Clinton.
Backlashes against globalism occur under Republicans, as they did under Herbert Hoover in the early 1930s and now under George W. Bush. The reason is simple. America's huge middle class doesn't do as well under Republicans. Their jobs are more threatened. As a result, they fear trade and other global commitments.
Under Democratic administrations, on the other hand, the middle class does better -- their wages rise, their jobs are more stable. As a result, they're more willing to embrace the advantages of trade and globalization. I expect the same pattern to hold under an Obama administration.
Universal health care, relief for those who can't pay their mortgages or can't afford college tuition, investments in infrastructure and in education -- all these, which Obama will champion, make Americans more willing to accept the changes that globalization inevitably brings.
Without these sources of security, Americans fear change. Right now, the largest percentage of Americans since the 1960s are against further trade-opening agreements. Why? Largely because they've done so badly under George W. Bush. The median wage, adjusted for inflation, is lower than it was when Bush came to office.
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In a backhanded way, we should actually be grateful for the rights mismanagement of globalization and the backlash it has created. the public is starting to wake up to the facts that globalization has been a raw deal for middle class and working people, we are seeing it in the growing waves of populism. And it may finally help us to break the two party duopoly because both sides are on the wrong side of this issue and are in the camp of the multinationals and elitists who reap the benefits of the destruction of our economic well being and national security.
Progressives also need to beware, because the right could easily rebound by siezing the high ground on this issue such as Huckabee attempted. Progressives also need to beware that they need the labor base that Clinton alienated.
And we should also thank the right for the mismanagement of the economy because maybe just maybe we will finally move away from the baseless pro global talking points and take a serious look at the real data of the harm it has caused us economically, product safety and quality wise, energy usage, environmentally, national security and sovereignity and so on. From their we must not end trade, but end this reckless policy of "free" trade at all costs and have smarter and fairer trade that is of benefit to working people in this country.
"Free trade is the serial killer of industry, and trojan horse of transnational government" - Pat
Will someone please explain to me why US consumers will want to pay triple or quadruple prices for items made in the US by highly paid workers over the lower price for the same items made overseas by workers making $1.00 per hour or less? How about a $60.00 pair of Rockports costing $300? How about a $30 shirt costing $150? Seems to me that we are going to have to make sacrifices for our producers to be able to compete.
The thing was that those rockports were 60 bucks when they were made in Maine, and 60 bucks when they are made in china. The cost "savings" is not passed on to the consumer.
These scare stories of double and triple the cost if produced domestically are just plain BS.
The portion of labor in the overall cost of a good is a 1/3 or less in most cases depending on labor content.
Lets frame the question a different way can we? First you ask - do you want to pay less for goods? - sure who doesn't. That is where it usually ends. But lets take it a step further - "are you willing to save a couple bucks if it means you , your friend, your relative may lose their job? - the answer would be no. Do you want to save a couple bucks if it means your money ends up in the hands of a repressive regime? - no. Is saving a couple bucks more important than product safety or quality? - no and so forth
This is all shortly going to become moot. Peak oil is here, globalization is dead, and according to Kunstler the world is about to become a much bigger place.
you are right - globalism assumes cheap energy. this is why stocks go down when oil goes up, and why they get scared and move the oil price down. local production and consumption is the most energy efficient if all needed materials are available locally.
I'll try again to see if one gets posted...
I asked WHY anyone would want to save globalisation if it's all about the power of the multi-national corps and about undermining the will of the ppl as expressed in desires for consumer or worker safety, etc. Isn't this about greed overwelming democracy?
Reich is full of shit with regard to Americans being more "comfortable" with globalization when Democrats are in power because Democrats do better for the middle class.
Americans largely did not support NAFTA yet it was jammed down our throats by Clinton. Americans, rightly, were afraid of the economic consequences of NAFTA. What's more, the current economy is the consequence of 30+ years of Democratic and Republican policy. Clinton's policies -- coupled w/ free-wheeling, free trade religious fervor that has permeated both Democratic and Republican-controlled Congress' since at least 1980 -- took years to produce the economic situation of today. Yes, Greenspan's monetary policies are a cause (he served under Clinton too, btw), but so too is the off-shore movement of American jobs and large sectors of American industry promoted tax policies that created incentives to move overseas.
Bush and Reagan may have accelerated the process but Democrats have been there right along. Both parties are responsible and, as a result, most Americans don't trust either party to get us out of this mess. Reich's comments about Obama's "pragmatism" confirms why I've become so disillusioned with him of late -- he is not an engine for the kind of fundamental change we need but rather is "window dressing." I don't think the Titanic could have avoided the iceberg by simply changing the crew's uniforms; I don't think America is going to avoid its iceberg simply by changing parties to a slightly less rabid bunch of free-market corporatist capitalists.
The British Empire had a great romance with free trade in the 19th century. They had to learn the hard way that it has drawbacks if you aren't the sole beneficiary of the system (that free is not win-win). China will learn this lesson too but after America has learned it and suffers the same decline the British went thru.
One simple explanation: foxes don't make good hen-house guards.
I hope Obama's lefty critics read and absorb it. The neo-lefty theology which hates all aspects of globalization the same way it unthinkingly wants to push Obama to get us out of Iraq by a rigid timetable is potentially terribly stupid and destructive. Obama's the first brilliant president I can ever remember us having. Much smarter than JFK. Clinton was bright, but not as bright as Obama. Let's have the sanity to let Obama act effectively with his measured intelligence. Let's celebrate that, instead of trying to force him into rigidities which are, frankly, a reflection of the stupidity of all true believers, rather than smart solutions to real world problems, like the global economy and dealing with the complex mess in Iraq.
i consider myself one of Obama's "lefty critics". It's amazing how much fuel the hardcore Obama supporters are putting into distancing themselves from the burgeoning (and overdue) progressive movement. Why, you would almost think it's a STRATEGY: use the "lefties" to raise your candidate upon their shoulders and secure him the nomination; then, thank them for their votes and send them off to the concentration camps. Gee, you're so welcome. Glad we could help!
Anyway, jeanrenoir, please remember that a brilliant and socially-concerned economist like Bob Reich can only benefit an Obama administration, if he's IN an Obama administration. And then, only if his word is gold within its walls.
So far, yer boy hasn't committed to any of this. Why don't you take some of your passion for the Star, and use it to nail him down on a commitment to make Robert Reich the Economic Czar of the Obama Administration? AND pledge to follow his policies to the letter?
Let us know how far you get with that.
"Gardels: Nobel laureate for economics Ed Phelps says the current financial crisis has given capitalism a "black eye." It turns out that the neo-liberal model that says capitalism is self-correcting is wrong. Is the U.S. headed back toward New Deal-type regulation after the long embrace of ever-freer markets?"
Whats with the NEO-LEFTY comment??? Don't you understand neo-liberalism??? NEO-LIBERALISM is what the Libertarians and Republicans preach, NOT the Democrats.
If Robert Reich was offered a post of Sec, of Labor again, this would go a l-o-o-ng way of calming the fears of many progressive Democrats about Obama's conservatism and utter lack of experience.
I like Reich for many reasons,but he is wrong on globalization and this should be a grave concern to labor.
On Reich (again!): granted, globalization has caused misery. But that's exactly what Reich is saying... done correctly, it shouldn't.
Me, I don't know if I believe this. But what measure of the man I have taken makes me trust Bob Reich (tfn). He's decent, speaks clearly, and ostensibly cares about truly lifting all boats.
You must appreciate that you live in a society where capitalism has been elevated to a Sacrament, and other purely economic schemes such as socialism and communism have been tarred as treason. It's so culturally embedded now, that you'll never change it (even though the reasons common people supposedly hate "commies" etc. are totally bogus and unfounded).
So capitalism is here to stay (as long as we don't implode). We might as well have it orchestrated by an economist who is not only smart, but socially committed. We could do worse than to take him at his word on such things as globalism, and give him the benefit of the doubt.
"utter lack of experience"
?
"Alan Greenspan, the former Fed chief, allowed the current crisis to happen because he did, indeed, believe that capitalism was self-correcting."
Oh, it'll self-correct alright. We just won't like the way it does.
Exactly......., and the commonwealth will be expected to reestablish stasis, prevent chaos, and provide charitable distributions whilst the arrogant "free marketers" squirrel away their lucre.....
Greenspan --Some words he wrote in 1966
(commenting on the Great Depression):
"The excess credit the Fed pumped into the economy spilled over into the stock market -- triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too little too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed."
Now, if he understood that then, you think he forgot it when it was his turn to play the FedHead game? I say he was just following orders.
As for the rest, calling it 'free trade' does not make it so. Except in Orwellian 'newspeak'.
The Free Trade bunch are the same mindless minions that supported deregulation ten years ago; All the Zombees where chanting DEREGULATION GOOD, MONOPOLY BAD. Then the Rosy Scenario crowd watched in amazement as they turned the energy sector into a pile of shit with rate payers having to cough up two and three times the former monopoly rates. The deregulated power industry has just started to fall apart in my state with a majority of the service providers going bankrupt in a period of skyrocketing wholesale energy costs and rate payers are taking a bath with doubling and tripling electricity costs in just a matter of months.
P.T. Barnum continues to be 100% correct !
And those so called "benefits" of globalization would be???
So far the only "benefits" of globalization have been:
Stagnant wages
Increased oil prices
Job losses
technological and innovative edge erosion
decreased national security
decreased sovereignity and increase foreign entanglements
increased illegal immigration
Plant closures
Unsafe products
Poor quality products
Increased deficits
environmental degradation
increased disparity of wealth
Boy just what we need - more "benefits" of globalization!!!
Get with the program Reich
Of COURSE those have been the "results" of globalization; under a Republican-leaning governing style, all those things would have occured even (earlier) had the US remained isolationist.
The fact that these negative qualities occured in the global market actually bought us some time, gave us some leeway--more rope with which to hang ourselves, per se. So globalization basically mitigated some of the problems you list and exacerbated others, in line with the severely and fatally flawed Republican economic model.
We spread the money more widely and pulled it in from more places, but we screwed up the trade and economic regulation when we put the money, influence, and power at the top and catered to those possessing them instead of protecting the interests of the majority and of the nation itself.
We didn't go with international trade models that benefitted us--such as increasing the cost of imports and the fees for locating and staffing companies outside the US, and giving bonuses to America-located and American-employing businesses diverse and deep enough to sustain us without non-local products if necessary.
Instead, we were stuck with profits going to the top, outsourcing becoming cheaper, big business interests controlling our government, and every potential ill of mishandling globalization. Like every political/economic model, globalization itself is neither good nor bad, a windfall nor something counterproductive. The way we use it determines what it does for or against us, and we took the paths that were most self-destructive.
There is nothing on my list that hasn't been exacerbated or accelerated as a direct result of globalization - please name a real "benefit" as I had originally asked or one of those results that was mitigated by "free" trade - and please spare me the tired old talking points of rising tides, cheaper goods and so on
And please stop framing this as an isolationist or protectionist argument - this a carrying to the extreme and is incorrect. No one is suggesting not trading.
We do seem to agree that we do need fairer and smarter trade, not free trade at all costs
Oops - forgot intellectual property theft
Heard a 5 second sound bite on the radio this morn from some economist from the Bush administration saying that according to the numbers this morning, many Americans are starting to dip into their 401k and other retirement funds in order to meet today's obligations. He followed this up by saying that the numbers also show that many Americans apparently still have some assets they haven't tapped into so he concluded that there is no need to worry about a recession or depression just yet since many Americans still haven't hit ROCK BOTTOM. Nice to know they won't be changing any policy until we're completely broke.
Other than the ultra-rich, why would anyone want to save globalization? Genuine free trade, maybe, but fair trade has never been a part of globalization.
Exactly why would any want to save globalization
we may actually have a friend in high energy costs, it is an automatic tariff on the shoddy imported products shipped here.
Instead of globalization, for energy usage and the environment's sake we really need to be talking about localization
I think you are correct. Soon the cost of transportation will offset the difference in labour costs to the point where the closer and smaller your vendor, the better off you will be.
"Democrats have led the way to internationalism and global trade -- starting with the Kennedy Round in the 1960s and continuing through NAFTA and China's entry into the World Trade Organization under Clinton."
Well - at least you admit you CREATED this idiotic situation.
Globalization is UN-American.
There is no such thing as "FREE TRADE".
Thank you for showing the main reason I would NEVER vote for Clinton or any other DLC candidate.
Hey man, like it's the regulation dude. Trade is good, non-regulated trade(Republicans) is bad. For the last 5000 years, peoples from all the worlds continents have traded with each other to their mutual benefit. A good read for this is "Wealth of Nations" by Adam Smith.
Free Trade: "Free trade is a market model in which the trade of goods and services between or within countries flows unhindered by government-imposed restrictions. Such government interventions generally increase costs of goods and services to both consumers and producers".
Comparitive advantage theoretically reduces cost.
"trade of goods without taxes (including tariffs) or other trade barriers (e.g., quotas on imports or subsidies for producers)
trade in services without taxes or other trade barriers
The absence of trade-distorting policies (such as taxes, subsidies, regulations or laws) that give some firms, households or factors of production an advantage over others
Free access to markets
Free access to market information
Inability of firms to distort markets through government-imposed monopoly or oligopoly power
The free movement of labor between and within countries
The free movement of capital between and within countries".
See?
Well, yes I have read Adam Smith, and much of what he wrote is common sense, up to a point. The world economy is a far different beast than in his time, it is far easier for monied interests to move money internationally and to use that money to bend the political institutions to their will. So I'd suggest not taking his writings as Holy Writ. And I'll say point blank that unfettered greed is by no means good. The current economic train wreck is pretty fair evidence of that. At the time Wealth of Nations was written the upper classes assumed that they were the sole sources of economic wit and wisdom, massive corporations were not dreamed of at that point and the possibility of economic game playing on the scale we have seen was not really foreseen. Personally Milton Keynes, being considerably more modern, is a better source for how to handle modern economies. Unless of course you desire to return to the economic conditions of the middle to late 1700s. Which the way things are going, many in the US may well have that in their future.
According to my econ teacher....."Industry without regulations is like a country without laws". Would we expect Americans to police themselves? Why do we allow it for industry? There are greedy people out there who would manipulate the markets for their personal gain as we have seen.
Just for clairification, the so-called "Kennedy Round" occurred on LBJ's watch, not Kennedy's.
Nobody should mistakenly think that the so-called "free trade" is free trade or that it origionated with JFK.
Apparently you read the article, but skipped certain words....
You will never vote for Democrats, period. You don't need to use anu excuse.
Thanks for your insight BADEN !
Just because Clinton and his DLC buddies want to sell out to the corporate elite, there's no reason why we have to follow them off the cliff. Where in Globalism is national sovernty preserved ? I'll pass on a global government with un-elected world leaders deciding the fate of my country, state, and city while looking to make a personal profit !
The media and the Republicans try to portray everything as though there are two side to every issue.
But there are not two sides when it comes to solutions for our current economic decline.
We need government subsidization of 1) Healthcare 2) Education 3) Energy policy 4) Infrastructure.
And we need to cut the military budget in half, fraught as it is with waste, corruption and proneness to wars.
If your interest is in the welfare of the majority, there are just NOT two sides on any of these issues.
Drilling for oil, crackdowns on illegal immigrants - these are not solutions to real problems. They are political appeals to voters with "low information threshholds", who are precisely the ones that make up that gullible portion of the electorate that always gets bamboozled into voting against their own interests.
You could probably afford to cut the military budget by way more than that! Realize that right now the US Navy has 12 aircraft carriers. All but one of them are nuclear powered (and it's going to be replaced by the USS George Herbert Walker Bush soon!). Each one of them sails as the center of a "Carrier Battle Group" or CVBG. Each CVBG has more firepower than has been released in ALL OF THE WARS IN HUMAN HISTORY!!!!! That's assuming, of course, that they are NOT carrying nuclear weapons!
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