Robert Reich Goes 'Hulk' on trickle down
IF YOU WANT TO see soft-spoken, diminutive economist Robert Reich turn into the Incredible Hulk of economics, say the words "trickle down."
"Trickle-down economics has been proven to be a cruel hoax," said Reich, the ex-labor secretary whose concerns about the endangered middle class are set forth in the new documentary "Inequality for All."
"It's a hoax because it doesn't work, and it's cruel because it hurts a huge number of people. What we know, and what anyone with half a brain has been able to see, particularly since the Wall Street meltdown, is that it's not the people at the top who create jobs. It's the middle class and everyone who aspires to be middle class. It's their purchasing power that creates jobs. Businesses that have customers create jobs. Businesses that do not have customers don't create jobs."
Half a brain?
By sheer coincidence, I happen to have half a brain, so I asked Reich if there is not some way - perhaps some tax incentive - to get stagnant corporate cash moving again, perhaps in the direction of of R&D or capital expenditure that might yield real-economy jobs.
Reich favors channeling federal R&D money to companies that employ Americans. But he's suspicious that any changes to the tax code would end up being warped by a Congress captured by unregulated campaign money (one of his chief areas of proposed reform), contributing further to the income/outcome gap.
"If more and more of the nation's wealth continues to be concentrated at the very top, it's simply not going to create jobs. I favor more direct investment in the middle class," said Reich, who wants to raise the minimum wage, spend more money on early childhood education and public schools, and bring down the cost of college. He also wants to strengthen unions and tax rich people.
The trickle-down argument hasn't changed in 30 years, he said, but there have been radical changes in the behavior of private capital. Deregulation has created big banks who waste time and capital in a derivatives "casino" that encourages zero-sum wagering on commodities, debt, currencies - anything under the sun.
The "Inequality" movie doesn't mention that laws creating the big banks and freewheeling derivatives were a product of the Clinton administration, which is much praised in the movie.
"I wasn't there," said Reich, who departed when his ideas were defeated. "Those were terrible laws."
Laws, he said, that benefit few people outside of Wall Street.
"We need to get big money out of politics. If we don't, we're going to see the income disparity get even worse. And it's already as bad as it was just prior to the Great Depression, in 1928, when the top 1 percent controlled 23 percent of the total national income, and there was a lot of speculation in real estate and commodities, and the middle class was borrowing like mad trying to keep up."
It's not easy to keep up when exclusive hedge funds trade the money of privileged clients on private exchanges, where it will move faster than other money and has access to market-moving information faster than other money. In the modern system, he said, unfairness isn't a flaw, it's a feature.
"Capitalism has to work for everybody, or the rules will have to change," he said. "There are forces at work in modern capitalism that give inherent advantages to people who control the wealth and the political power. The rest of America is coming to believe the game is rigged. They're working harder and harder and getting less and less. And it doesn't make any sense - not for anybody. The rich would be better off: A small share of a growing economy will be larger than a big share of a lousy economy."