Tag Archives: Robert Reich

Robert Reich’s article

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Forget a Double Dip. We’re Still in One Long Big Dipper.

By Robert Reich

August 14 — It’s nonsense to think of the economy heading downward again into a double dip when most Americans never emerged from the first dip. We’re still in one long Big Dipper.

More people are out of work today than they were last year, counting everyone too discouraged even to look for work. The number of workers filing new claims for jobless benefits rose last week to highest level since February. Not counting temporary census workers, a total of only 12,000 net new private and public jobs were created in July — when 125,000 are needed each month just to keep up with growth in the population of people who want and need to work.

Not since the government began to measure the ups and downs of the busines cycle has such a deep recession been followed by such anemic job growth. Jobs came back at a faster pace even in March 1933 after the economy started to “recover” from the depths of the Great Depression. Of course, that job growth didn’t last long. That recovery wasn’t really a recovery at all. The Great Depression continued. And that’s exactly my point. The Great Recession continues.

Even investors are beginning to see reality. Starting in February the stock market rallied because corporate profits were rising briskly. Investors didn’t mind that profits were coming from payroll cuts, foreign sales, and gimmicks like share buy-backs — none of which could be sustained over the long term. But the rally died in April when investors began to see how paper-thin these profits actually were. And now the stock market is back to where it was at the start of the year.

What to do? First, don’t listen to Wall Street and the right.

Forget the Neo-Hoover deficit hawks who day we have to cut government spending and trim upcoming deficits. We didn’t get into this mess and aren’t remaining in it because of budget deficits. In fact, the only way to reduce long-term deficits is to restore jobs and growth so government revenues rise and expenses like unemployment insurance drop.

There you go, Bob, reinforcing the myth that getting long term deficits down has value.
That makes you part of the problem, and not part of the answer.

Ignore the government haters who say we have to void or delay upcoming regulations of Wall Street and big business. We got here because Wall Street went bonkers, the housing bubble burst, and the middle class couldn’t continue to spend becuase their health-care bills were soaring and their pay was stagnating. New regulations of Wall Street and big business are necessary to avoid a repeat.

And don’t believe the supply-siders who say we have to extend the Bush tax cuts for the wealthy. Because the wealthy save rather than spend most of their incomes,

If you believe this, and understand taxing functions to regulate aggregate demand, why would you care if their taxes went up or not? Just like getting them angry?

extending their tax cut won’t do squat. And restoring their marginal tax rate to what it was under Bill Clinton won’t harm the economy. The Clinton years had the best sustained economy in American history.

The central problem is lack of demand — and that’s what has to be tackled.

Right! Which will eventually come back. The deficits are high enough for that. But there’s nothing to be gained by waiting around with maybe 20% real unemployment for private credit expansion to kick in like it did in the 90’s.

Three of the four sources of demand have stopped working. (1) Consumers can’t and won’t buy because they’re still under a huge debt load, can’t get more credit, are afraid of losing their jobs (or already have), depend on two wage earners at least one of whom is working part-time and pulling in less, or have to save. (2) Businesses won’t invest and spend on creating more jobs if they don’t see consumers willing to buy more.

Agreed on those two!

(3) Exports are stalled because the dollar is so high they cost too much, much of the rest of the world is still struggling with recession, and American firms can make things for sale abroad more cheaply abroad.

That’s a good thing- means we can have even lower taxes to sustain domestic demand and be able to buy all we can produce at full employment plus whatever the world wants to net sell to us.

That leaves only one remaining source of demand — government. We need a giant jobs program to hire people and put money in their pockets that they’ll spend and thereby create more jobs. Put ideology aside and recognize this fact. If it makes you more comfortable call it the National Defense Jobs Act. Call it the WPA. Call it Chopped Liver. Whatever, we have to get the great army of the unemployed and underemployed working again.

How about my $8/hr transition job proposal?

Also: Put more money in consumer’s wallets by eliminating payroll taxes on the first $20K of income (and make it up by applying payroll taxes to incomes over $250K.)

Why not just suspend FICA taxes entirely?

What are you afraid of?

The federal deficit?

Also: Get more hiring by giving the states and locales interest-free loans — so they can rehire all the teachers, fire fighters, police officers, and sanitation workers they’ve fired — to be repaid when their state employment rates hit 5 percent or below.

Why not simple federal revenue distributions on a per capita basis to make it fair?

What are you afraid of?

The federal deficit?

Also: Get more credit by having the Fed return to “quantitative easing” — expanding the money supply by purchasing mortgage-backed and other types of securities.

And you don’t have a clue on how monetary operations and reserve accounting work.
Otherwise you’d know this does nothing of macro consequence except take more interest income out of the private sector and shift a bit of interest from savers to borrowers.

If we let the deficit hawks and government haters dominate this debate, as they have, the Big Dipper will continue for years. The Great Depression lasted twelve.

If you’d get up to speed on monetary operations and stop supporting the deficit hawks, the true doves might have a fighting chance.

If any of you have Bob’s email address please forward this to him, thanks!

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new pecora open letter

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The ‘finanical crisis’ is not an economic concern per se. Particularly as the financial sector contributes no value added to the real economy and for the most part serves no public purpose.

However, when aggregate demand falls short of politcal goals, as evidenced by the unemployment rate, capacity utilization, and other measures, government has the immediate option of a fiscal adjustment of any size necessary to meet those political output and employment goals.

What caused the sudden drop in aggregate demand last July is therefore less important than what it is that continues to delay an appropriate fiscal response to immediately restore output and employment.

The answer is that an unwarrented fear of Federal deficits per se has taken the readily available option of using a fiscal adjustment to fully restore employment and output completely off the table.

As our politcal leaders, opinion leaders, and leading economists struggle to determine how the economy can be ‘saved’ with the least possible amount of Federal deficit spending, and none challenge the President’s statement that the nation has ‘run out of money,’ the unemployment rate continues to rise and millions of Americans needlessly depreciate in the unemployment lines.

It’s really quite simple. Taxation functions to reduce aggregate demand. It does not function to give the Federal governent ‘something to spend.’ In fact, if you pay your taxes at the Fed with actual cash they take your money, give you a receipt, and then throw the bills in a shredder. If you pay by check they change the number in your bank account to a lower number. The government doesn’t actually get anything to spend.

When the Federal government spends, numbers in bank accounts get changed by government to higher numbers from lower numbers. As Chairman Bernanke told Congress in May, when asked where the funds come from that he’s giving the banks, the Fed simply changes numbers in the member bank’s account at the Fed.

Federal spending is obviously not operationally constrained by revenues. There is no such thing as the Federal government ‘running out of money.’ The only constraints on nominal spending are self imposed.

So what does the statement ‘higher deficits today mean higher taxes later’ actually state? The reason taxes would be higher ‘later’ would be if aggregate demand is deemed too high at the time- unemployment too low and capicity utilization too high- and a tax hike proposed to cool down an overheating economy.

So does that statement not mean that higher deficits today will cause aggregate demand to increase, unemployment come down, and capacity utilization go up, to the point a tax increase might be called for?

And how does the Federal government pay off it’s debt? When Treasury securities mature the Fed debits the holder’s security account at the Fed and credits his reserve account at the Fed. End of story.

The risks of deficit spending are inflation, not insolvency or even higher interest rates. Yet the public debate is paralyzed by fears of Federal insolvency, and ratings agencies only add to that fear with threats of downgrades.

This misinformation IS the problem, and it isn’t rocket science. There will always be something that causes a surprise drop in aggregate demand. And, in fact I have made numerous recommendations for banking and the financial sector over the last several years that would have prevented most of the subsequent problems, and drastically scaled back the entire financial sector to limit it to areas of direct public purpose.

The greater problem, however, is the inability of our political leaders to respond appropriately when aggregate demand does fall, for any reason.

Therefore I urge you to redirect this project to instead promote an understanding of how a currency actually functions, and the operational reality of monetary operations and reserve accounting.

Determining ‘what went wrong’ will do nothing to enlighten policy makers as to their available fiscal options that can immediately restore the American economy to desired levels of employment and output. In fact, the effort will only delay a favorable outcome as energies get diverted from the more urgent issue of restoring demand.

FYI – the Roosevelt Institute is launching a major new initiative around the new Pecora Commission – we have been posting significant commentary on www.newdeal20.org (thank you for the great overview launch piece Bill), we have a partnership with Huffington and have created a Big News page around it, have investigative reporters in the works to track the commission, are considering a shadow commission, etc. As part of that, we have written an open letter to the commission that we will launch publicly the minute it gets announced – the open letter pushes for the three criteria that Bill discusses. We have several prominent economists and historians signing it (Stiglitz, Galbraith, Robert Reich, Bill, etc). The goal is to have 50-100 major econ/historians and then push it publicly once the commission members are formally announced (possibly in a day or two according to my sources). You can see the open letter here www.whatcausedthecrisis.com – if you are willing to sign the open letter, please let me know – please send me your name and affiliation so I can list you appropriately. We are also planning a media push around it so if you can speak on it or want to blog, please let me know

Thank you –

And if you can sign the letter, please let me know soon – I think this is happening in a day or two.


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