Robert B. Reich's Blog, page 17

The Real Reason the Economy Might CollapseSkyrocketing wealth...

The Real Reason the Economy Might Collapse

Skyrocketing wealth inequality isn’t just wrong. It’s also weakening our economy. 

70 percent of the US economy depends on consumer spending. So American consumers need to spend enough money to buy most of the goods and services Americans are capable of producing. 

This means that over the long term their incomes need to keep pace with their productivity. 

But their incomes haven’t. Over the past 40 years, most people’s wages have basically stagnated, while worker productivity has soared. 

Where did the economic gains go? Mostly to the top. The wealthy now own more of the economy than at any time since the 1920s.

Here’s the economic problem: The wealthy spend only a small percentage of their income and wealth. Their spending is not enough to fulfill the consumer demand that keeps the economy churning.

Lower-income people, on the other hand, spend almost everything they have – which is becoming very little. Most workers aren’t earning nearly enough to buy what the economy is capable of producing. 

The result is a gap between potential output and potential consumption.

To fill the gap, the economy depends on people going deeper and deeper into debt so they can buy. Even in 2018, when the economy appeared strong, 40% of Americans had negative net incomes and were borrowing money to pay for basic household needs.

The Fed has had to keep short-term interest rates lower and lower to accommodate this buying. And the government has to spend more and more to fill the remaining gap. 

None of this is sustainable. At some point, widening inequality causes the economy to collapse. 

We’ve seen this before. Years ago, Marriner Eccles, chairman of the Federal Reserve from 1934 to 1948, explained that the Great Depression occurred because the buying power of most Americans fell far short of what the economy was producing. 

He blamed the increasing concentration of wealth at the top: “A giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth. As in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”

While the wealthy of the 1920s didn’t know what to do with all their money, most Americans could maintain their standard of living only by going into debt. When that debt bubble burst, the economy tanked.

Fast forward 100 years and we see the same pattern. While the typical Americans’ wages have barely budged for decades, adjusted for inflation, most economic gains have gone to the top, just as Eccles’s so-called “giant suction pump” drew an increasing portion of the nation’s wealth into a few hands before the Great Depression.

The result has been an economy whose underlying structure is far more fragile than it may seem.

Remember the housing and financial bubbles that burst in 2008? We avoided another Great Depression then only because the government pumped enough money into the economy to maintain demand, and the Fed kept interest rates near zero. Then came the pandemic.

The Fed has had to keep interest rates near zero. And the government has had to pump even more money into the economy. While these programs have been crucial to staving off a pandemic-induced depression, they’re only temporary.

Over the long term, the real worry continues to be on the demand side. Widening inequality means not enough demand. 

America’s wealth gap is now more extreme than it’s been in over a century. Until this structural problem is remedied, the American economy will remain perilously fragile.

It will also be vulnerable to the next demagogue wielding anger, racism, and resentment as substitutes for real reform. 

Closing our staggering wealth gap is crucial to the survival of both our economy and our democracy.

Today’s jobs report reveals a striking thing: A large portion of the American Workforce is now effectively on strike.

The U.S. added just 194,000 jobs in September, down from the 366,000 added in August and far below...

The media’s rotten reporting on Biden’s social and...

The media’s rotten reporting on Biden’s social and climate bill (and it’s not just Fox News)Friends, I recently started a newsletter on power, politics, and the economy. I’m still getting the hang of it, but so far I’ve been delighted and encouraged by the responses and the community we’ve built.  For those who’ve yet to sign up, please consider joining us at https://robertreich.substack.com.

The ambitious social and climate legislation now working its way through Congress will be enacted in some form. But its agonizing journey to date reveals the rotten job done by the media that’s supposed to inform Americans about our democracy.

Last week, the New York Times described the delay in House Democrats’ approval of the infrastructure bill as caused by a “liberal revolt.” On Saturday it reported that Biden had “thrown in” with his party’s “left” rather than its “center,” thereby “leaving his agenda in doubt.”

This is pure rubbish. There was no “liberal revolt” and there’s no standoff in the party between a leftwing fringe and a larger center. The vast majority of Democratic lawmakers in both the House and Senate support Biden’s agenda. The only “doubt” comes from two Democratic senators, Arizona’s Kyrsten Sinema and West Virginia’s Joe Manchin.

Passage of the infrastructure bill was held up in the House last weekend because Sinema and Manchin wouldn’t negotiate the size of the social and climate bill that was supposed to be attached to it.

The media describes Sinema and Manchin as “moderates” but they’re to the right of the rest of the party. If they’re “moderates,” does that make most Democratic lawmakers “extremists?” And why does the media continue to characterize them as “pragmatic” when, as Joan Walsh of The Nation points out, “it’s actually the progressives who have compromised; they are the pragmatists.”

You can see the same bias in how Biden’s social and climate bill is being described. The media almost never mentions what’s in it – a slew of extraordinarily popular items including childcare, pre-K, community college, paid family leave, child tax credits, and measures to slow climate change. Instead, almost the sole media focus is on how much it would cost. “Biden’s 3.5 trillion package” is the standard description.

Even this is wrong because the $3.5 trillion is spread over 10 years, making it $350 billion per year – about half of what we spend each year on national defense.

To make matters worse, the media’s focus on the bill’s cost ignores the larger costs of not passing it. 

Millions of people without childcare, for example, can’t join the labor force – costing the economy tens of billions each year. Young people who can’t afford community college end up costing the economy vast sums in terms of lost productivity and whatever public assistance they may need down the line. If we don’t slow climate change, we’ll be spending hundreds of billions more per year dealing with worsening wildfires, floods, and droughts. If we don’t begin to reverse widening inequality, half of America won’t be able to buy the goods and services the economy produces. Talk about costs.

These biases in the mainstream media aren’t the result of intentional decisions among publishers, editors and writers to favor the status quo over progressive change. They simply reflect the dominant views of the American establishment, as seen mainly through the lenses of New York and Washington. The establishment supports the status quo and puts a high burden of proof on those seeking fundamental change because it is the establishment.

Yet as a result, the mainstream media is doing a rotten job informing America about one of the most important pieces of legislation to come along in decades, at a time in our nation’s history when fundamental change is badly needed.

What do you think?  Tell me in the comments at https://robertreich.substack.com/p/the-medias-rotten-reporting-on-bidens.

This Week’s Worst Influential AmericanPlease subscribe to...

This Week’s Worst Influential American
Please subscribe to my newsletter for updates and analysis on power, politics, and the economy sent directly to your inbox.  You can find recent posts at https://robertreich.substack.com.

Call me old-fashioned, but I think people in public life need to be accountable for whatever damage they’re doing to public life. So from time to time I’m going to call out the person I consider to be the worst influential person in American public life.

Tough decision this week, given Kyrsten Sinema and Joe Manchin’s efforts to torpedo Biden’s (and America’s) one shot at reversing widening inequality and combatting climate change, but this week’s winner isn’t either of them. He’s not even a politician. He’s the most popular talking head on Fox News, with 3 million viewers — and the most dangerous demagogue since Donald Trump. His name: Tucker Carlson.

He gets the prize because he recently played a 2015 clip of then-Vice President Joe Biden discussing America’s long history of benefiting from immigration. Then Carlson looked straight at the camera and said the reason Biden was in favor of immigration was “to change the racial mix of the country.”

Carlson continued: “That’s the reason, to reduce the political power of people whose ancestors lived here, and dramatically increase the proportion of Americans newly arrived from the Third World.” And then added: “It’s horrifying. But there’s a reason Biden said it. In political terms, this policy is called the great replacement, the replacement of legacy Americans with more obedient people from far-away countries.”

Carlson has spewed this “great replacement” excrement before, but it’s particularly absurd now because the Biden administration is doing just the opposite – to my horror. It just deported thousands of Haitian refugees desperate to escape Haiti’s deathly chaos. (Oh, and the Obama administration set a record for deportations.)

A liberal “great replacement” conspiracy? Horse manure. If there’s any conspiracy it involves right-wing hate-mongers like Carlson – who are intent on sowing more anger and division in an America still reeling from four years of Trump.

My great grandparents came to this land from Russia and eastern Europe, mainly because their lives were endangered. They and other waves of immigrants have made America into what it is today, both the good and the bad. They didn’t “replace” anyone.

The only people entitled to complain about a “great replacement” are native Americans.

Tucker knows this but he doesn’t care. He’s just an opportunistic cynic who wants to drive up his ratings by feeding white resentment. For that, he’s this week’s worst influential American.

What do you think?  Tell me in the comments at https://robertreich.substack.com/p/this-weeks-worst-influential-american/comments.

The Democrats’ One Chance to Cut Child Poverty in HalfThe Biden...

The Democrats’ One Chance to Cut Child Poverty in HalfThe Biden administration has a plan that is estimated to cut child poverty in half. And it’s already in place.

It’s called the Child Tax Credit.

Here’s how it works. Parents of children aged 6 and younger across the country are receiving direct payments of up to $300 per month per child, or $3,600 per year per child. The payments drop to $250 a month for children between the ages of 6 and 17, and phase out for families with higher incomes.

It’s an historic expansion of the original credit that’s already helping millions of working families.

The direct payments are coming because the Child Tax Credit is a refundable tax credit. Normal, non-refundable tax credits simply cut your taxes. But a refundable tax credit, like the Child Tax Credit, helps you even if you don’t earn enough for it to reduce your taxes — so it’s a direct payment to you.

Say you owe $3,000 in taxes. A non-refundable tax credit of $3,600 won’t be worth $3,600 to you. It would just reduce your taxes to zero. So you wouldn’t get the full benefit. And if you don’t owe any taxes to begin with, a non-refundable tax credit wouldn’t do you any good at all since you can’t reduce your taxes to less than zero dollars.

But a refundable tax credit would help you. You’d get the money no matter what, the full $3,600. That’s why this expansion is such a big deal: it ensures that the money gets to lower-income families.

The early results show that this policy is a game-changer. Over 3 million more households with children now report having enough to eat  after just the first two payments. More report being able to make rent, stay in their homes, and afford basic necessities. And 3 million children have been lifted out of poverty.

It’s reduced racial disparities, as well. Hunger has fallen by one-third among Latinx families and by one-quarter among Black families.

It bears repeating that if the credit is made permanent, and reaches everyone it should, it could cut child poverty in half.

Yet the Republican Party — the so-called “party of family values” — is dead set against it. That’s because the program works.

Every single Republican in Congress voted against the American Rescue Plan, which contained the initial expansion of the Child Tax Credit. You can bet they’re all going to vote against making that expansion permanent as part of the Democrats’ $3.5 trillion budget plan. It’s obvious: they do not care about helping working families.

Democrats must get this done, no matter how staunch the Republican opposition. In the richest country in the world, it is inexcusable that millions of our children are living in poverty.

For decades, almost all economic gains have gone to the top, leaving working families behind. This historic expansion of the Child Tax Credit is a crucial step towards righting this wrong.

Poverty is a policy choice. Congress must make the Child Tax Credit permanent.

The Week Ahead: Everything hangs in the balance, but the economy...

The Week Ahead: Everything hangs in the balance, but the economy is a wild card

Please subscribe to my newsletter for updates and analysis on power, politics, and the economy sent directly to your inbox.  You can find The Week Ahead and other recent posts at  https://robertreich.substack.com

I’m no soothsayer, but I can make a few confident predictions about the week ahead.

Funding for government spending is secure for now, at least through early December — at which time Congress will pass another continuing resolution. (Remember: neither party wants to be seen as being responsible for a government shutdown.)

But expect more fear-mongering this week over failure to raise the nation’s debt ceiling. Mitch McConnell and the Republicans won’t budge. What will happen? Over the next few weeks, the Treasury will stave off a default until Senate Democrats pass a debt-ceiling increase on a 50-vote (plus Vice President) reconciliation bill that won’t require any Republican votes.

What about President Biden’s ambitious social and climate “Build Back Better” package? The media is full of “Democrats in disarray” stories, but that’s simplistic. Actually, almost everything is on track.

Last Thursday, Joe Manchin declared that he’ll agree to no more than $1.5 trillion of spending for it, less than half what Biden is seeking (which itself was half what he originally promised). But this is just his opening position, signaling the start of negotiations between Manchin and the White House — which begin this week. Biden and Manchin know each other well and are experienced negotiators. I expect the final figure to be between $2.3 trillion and $2.6 trillion.

The biggest fight will be over which initiatives in the package are pared back. The most vulnerable are drug-price controls, tax increases on the wealthy, and expansion of Medicare to include dental, hearing, and vision coverage. That’s because these measures are most despised by the corporate backers of conservative Democrats. (Note that they’re also the most popular with the public.)

Other possible casualties are expanded pre-K, community college, paid family leave, child tax credits, and clean energy. They’re also popular – and important.  

But the public may never know any of these measures have been sacrificed because Democrats have several ways of keeping them in the bill while quietly paring them back: covering fewer years (4 instead of 10, for example), cutting back on who’s eligible (phasing out a benefit at $80,000 of yearly income rather than $120,000), and, on the revenue side, widening tax loopholes and carving out more exemptions.

If Manchin finally agrees to this, I believe Sinema will come around. After that, the whole package could get done quickly — possibly as soon as this week through a Senate reconciliation bill. Then it will move swiftly through the House, with progressives and conservative Democrats voting for the infrastructure bill as well. (Of course, Republicans will oppose both, but the Democrats have the votes to get them through.)  

The biggest uncertainty is the economy.

This coming Friday, the Bureau of Labor Statistics will report on jobs and wages for September. The August jobs report was a disappointment, mainly because of the negative effects of the Delta COVID variant. I expect the September report to show slow job growth, too. But keep your eye on wage growth. If wages continue to rise as fast as they have been, workers will have more money to purchase all sorts of things — thereby getting the economy back on track.

You’ll also be hearing lots of scaremongering this week about inflation and “labor shortages.” Last Friday, the Fed reported that prices climbed in August at the fastest pace in 30 years. This – along with uncertainty about jobs and the Delta variant – has already rattled the stock market. (But as I’ve said a thousand times, the stock market is not the economy! The richest 1 percent of Americans own half of all stocks, the richest 10 percent own over 80 percent.)

The major reason for inflation is supply bottlenecks, both in the US and around the world, which are pushing up prices of everything from crude oil to semiconductor chips. These bottlenecks should ease over the year. In fact, so-called “core” inflation (which excludes food and fuel) has been slowing somewhat.

But this hasn’t stopped Republicans from claiming that the spending Biden and the Democrats want to do will spur more inflation. Rubbish. It will expand the capacity of the economy to produce goods and services, thereby relieving shortages and reducing inflation over time. (When more people have childcare, for example, they’re freer to work – reducing “labor shortages.”)

Republicans also claim that the stronger safety nets in the bill will make people more reluctant to join the labor force. Additional rubbish. America has the weakest safety nets of all rich countries. Giving Americans slightly more economic security will help the economy, by allowing them to get additional skills, change jobs, and get better pay.

In many ways, Biden’s plan will improve the lives of the bottom 90 percent of Americans – people who don’t have much wealth and own almost no shares of stock. This is something the corporate backers of Republicans and conservative Democrats don’t seem to care about, but they should.

What do you think?

Remembering my date with Hillary

Last Tuesday, during a Guardian Live interview, Hillary Clinton said the United States remained in a...

The Secret to Actually Taxing the RichTaxing the rich doesn’t...

The Secret to Actually Taxing the Rich

Taxing the rich doesn’t just entail closing tax loopholes and instituting a new wealth tax. It also means ensuring they pay what they owe in the first place — and that means boosting the Internal Revenue Service’s funding.

The richest 1 percent of Americans evade $163 billion every year in taxes. How do they get away with it? Because the IRS doesn’t have the tools and resources available to audit these wealthy tax cheats.

Over the past 10 years, the IRS budget has been reduced by roughly 20 percent. And as of last year, the IRS had 9,510 auditors — down a third from 2010. The last time the IRS had fewer than 10,000 revenue agents was 1953, when the economy was a seventh of its current size.

The result? Millionaires in 2018 were about 80 percent less likely to be audited than they were in 2011, and now the poorest taxpayers are audited at about the same rate as the top 1 percent. 

When asked by Congress why this is, the IRS said that auditing poor taxpayers is a lot easier because it’s done by relatively low-level employees. These audits are “the most efficient use of available IRS examination resources.”

Beefing up IRS enforcement is a critical part of cracking down on wealthy tax cheats and ensuring the super-rich pay their fair share. 

Every $1 invested in the IRS budget produces $4 in revenue.   

Imagine what programs we could fund, how many people we could help, if the IRS was able to recoup that $163 billion that the top 1 percent shorts the government every year. Fully funding the IRS should be a no-brainer.

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The Week of Two High-Stakes Games of Chicken

This week, two high-stakes games of chicken. The first is between Senate Democrats and Senate...

When I was at law school with Clarence ThomasSign up at...

When I was at law school with Clarence Thomas

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Just one year after Ruth Bader Ginsburg died, Republican nominees on the Supreme Court are on the way to overturning Roe v. Wade. But they’re going out of their way to speak out publicly against the partisanship they’re actively engaged in.

Last week, Clarence Thomas told a crowd of more than 800 students and faculty at Notre Dame that the Court shouldn’t be viewed in partisan terms, and that justices don’t base their rulings on “personal preferences.” But if not personal preferences, where exactly do they discover the law? Thomas never said. When asked whether the attorneys presenting oral arguments ever compel him to change his mind, Thomas said, “almost never.”

The previous week, the court’s newest member, Justice Amy Coney Barrett, told a crowd in Kentucky that Supreme Court justices are not a “bunch of partisan hacks.”

Methinks they doth protest too much.

If there’s any doubt about the partisan hackery of the Supreme Court’s six Republican appointees, it will be on full display in the Court’s next session when they overturn Roe in the case they’ve already teed up to do the dirty deed: Dobbs vs. Jackson Women’s Health Organization, about Mississippi’s law that bans almost all abortions after the 15th week. It’s scheduled to be argued December 1.

Flashback: I was in law school in 1973 when the Supreme Court decided Roe, protecting a pregnant person’s right to privacy under the 14th amendment to the Constitution. Also in my class at the time was Clarence Thomas, along with Hillary Rodham (later Hillary Clinton) and Bill Clinton.

The professors used what you probably know as the “Socratic method” – asking hard questions about the cases they were discussing and waiting for students to raise their hands in response, and then criticizing the responses. It was a hair-raising but effective way to learn the law.

One of the principles guiding those discussions is called stare decisis — Latin for “to stand by things decided.” It’s the doctrine of judicial precedent. If a court has already ruled on an issue (say, on reproductive rights), future courts should decide similar cases the same way. 

Supreme Courts can change their minds and rule differently than they did before, but they need good reasons to do so, and it helps if their opinion is unanimous or nearly so. Otherwise, their rulings appear (and are) arbitrary — even, shall we say? — partisan.

In those classroom discussions almost fifty years ago, Hillary’s hand was always first in the air. When she was called upon, she gave perfect answers – whole paragraphs, precisely phrased. She distinguished one case from another, using precedents and stare decisis to guide her thinking. I was awed.

My hand was in the air about half the time, and when called on, my answers were meh.

Clarence’s hand was never in the air. I don’t recall him saying anything, ever.

Bill was never in class.

Only one of us now sits on the Supreme Court. By all accounts, he and four of his colleagues — all appointed by Republican presidents, three by a president who instigated a coup against the United States — are getting ready to violate stare decisis, judicial precedent. 

I don’t expect them to give a clear and convincing argument for why. Do you?