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.
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
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
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?
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.
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.
Whats with the NEO-LEFTY comment??? Don't you understand neo-liberalism??? NEO-LIBERALISM is what the Libertarians and Republicans preach, NOT the Democrats.
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.
?
Oh, it'll self-correct alright. We just won't like the way it does.
(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'.
P.T. Barnum continues to be 100% correct !
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
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.
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
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
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.
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?
Nobody should mistakenly think that the so-called "free trade" is free trade or that it origionated with JFK.
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.