>>Kent: Good morning everybody.
It's my honor to introduce Secretary Robert
Reich to Google today.
Secretary Reich, as I'm sure all of you know,
served with three different administrations
including most notably being Secretary of
Labor in the Clinton Administration.
In taking a look at some background notes,
I saw that Time Magazine had named him one
of the top ten cabinet members of the last
century, which is pretty remarkable.
Although as my wife told me this morning maybe
not at remarkable as the fact that he actually
dated Hillary Clinton before Bill did.
[laughter]
[applause]
We are delighted that Secretary Reich after
having taught at Harvard and Brandeis has
now moved to Northern California where in
our sort of latte- sipping, Prius-driving
ways I'm hoping we're treating him better
than Governor Perry's Texas might these days.
[laughter]
And he has written a new book, after a series
of very interesting books, this latest one
which compliments some of the ways we've come
to know him as a commentator on NPR is titled
Aftershock, let me make sure I get it right,
The Next Economy in America's Future.
And obviously we at Google hope to have a
part in building that future, but I guess
we'll find out during the course of his talk
whether or not some of the knowledge economy
will work in a good way with his commitment
to building a robust and sustainable, labor-based
economy where we really focus on finding good
jobs for people across America and the world.
So with that, Secretary Reich.
[applause]
>>Robert Reich: Thank you.
[applause]
Well thank you very much Kent and it's nice
to see all of you.
As you can see the economy has worn me down.
[laughter]
I was six foot two --
[laughter]
about four years ago.
[laughter]
I'm gonna talk about maybe a half an hour
about the economy and politics, maybe longer
than that, but I'm most curious to get your
questions and try to respond to them because
I know what I think.
Let me just say that we are in far worse economic
predicament than most people had predicted
when we went into the Great Recession of 2008.
Let's talk about 2008 as the Great Recession
although it started before and it ended after.
There are many causes for our economic predicament
and there are many ways out.
This is not something that is difficult to
do, the problem is political will.
And having spent a big chunk of my life in
politics, by the way Kent, I only had one
date with Hillary --
[laughter]
Clinton.
In fact I didn't even remember that date until
she was running for office and a reporter
for the New York Times called me and he said,
"I understand from some of her friends that
you went out with her once as an undergraduate.
Can you tell me was there anything about that
date that struck you that might bear some
light on how she would do as a President?"
[laughter]
>>Kent: It was a Presidential Summit.
[laughter]
>>Robert Reich: It was a President Summit;
she was a president [chuckles] of her class
at Wellesley, I was president of my class
at Dartmouth and that was an easy way to get
a date saying, "Oh well we'll have a Presidential
Summit."
[laughter]
But let me just put it to you very, very clearly
and as clearly as I possibly can.
In 2008 the economy fell off a cliff particularly
and importantly in terms of consumers; consumers
are workers, workers are consumers obviously
and if consumers can no longer, because they
are 70 percent, their spending is 70 percent
of the economy, if consumers can no longer
borrow against their homes because of the
housing bubble bursting, because of 7.7 trillion
dollars of loss in the housing market.
If consumers can no longer borrow against
their homes and they see their major asset
which is their homes shrinking to really almost
a third less than it was worth in 2006 then
most people, and combine that with worry about
jobs because everybody's losing jobs around
them, most people are going to pull in their
spending.
That's not surprising.
And if most people are pulling in their spending
and consumers are again 70 percent of the
economy in terms of consumer spending and
GDP then we're going to have a problem on
the demand side.
And businesses are not going to hire unless
there are customers.
Businesses are right now sitting on almost
two trillion dollars of cash and a lot of
people scratch their heads and say, "Well,
why is that?
Why aren't businesses just using that to expand
and hire?"
Businesses are not going to expand and hire
if there are not customers out there.
And there's a great deal of understandable
worry that there are not going to be enough
customers out there because consumers don't
have the purchasing power.
This again is not, at least at the level I'm
talking to you about it, it's not all that
complicated and there's not very much discord
or disagreement about this fundamental reality.
The question is what to do?
There is a gap right now, if you think about
the economy as having a certain production
capacity at or near full employment and you
see where we are now, we're about, and the
data are not terrifically good but we can
make a reasonable estimate, we're about five
percent below where we otherwise could be
at or near full employment.
Well, who's gonna make up the difference?
If consumers can't and won't, can exports?
Well, exports can do it theoretically but
we're not a net exporter we're actually a
net importer.
So to get to the point where we're a net exporter,
and exporters could provide the oomph to get
the economy going, well that's gonna be if
ever years from now.
I mean the dollar would have to drop and what
do a lot of the big global exporters do if
we become a net exporter?
I mean not everybody can be a net exporter.
That's gonna take a huge change, a tidal wave
change, in the entire structure of the global
economy.
So don't count on exports anytime soon, if
ever.
So if consumers can't do it and businesses
won't do it and exports certainly can't make
up the difference where does the demand come
from at least in the foreseeable future?
Class?
[laughter]
[audience murmurs in response]
>>Robert Reich: Well who's the spender of
last resort?
Who else can spend?
>>male #1 : The government.
>>Robert Reich: It is government.
And when you say the word government in this
environment everybody it's as if you put a
shock in the room because people have very
strong opinions about government.
Politics is not the same as government.
Politics comes from the Greek root 'poli'
meaning many and 'ticks' small blood sucking
insects.
[laughter]
No I do not really mean that because I --
[laughter]
I have great respect for everybody who is
in government and I was in government and
most people are there for the right reasons.
They can make much more money and have much
easier lives if they were not there fighting
the fights that they are fighting on either
side of the aisle.
But the point is that government is the spender
of last resort.
Keynesianism from 1946 up until the late 70s
was basically the idea that we had.
Richard Nixon purportedly said, "We're all
Keynesians now."
And that was because the fundamental problem
with the economy in those three decades was
how do you get sufficient demand?
Now after 1977-78 the Arab oil embargo, it
happened too late for most of you.
I can look at you and see most of you were
not even born.
[laughter]
But in the 30 years after the late 70s the
biggest problem was inflation.
And so Keynesianism sort of went into quiescence.
It was not how to get enough demand it was
basically how to restrain and control costs.
And so monetarists and neoclassical economists
and others kind of took the center stage.
But after the great crash of 2008 the problem
once again is adequate demand.
How do you get and insure adequate, aggregate
demand?
And that's why, when I said to you and you
said back to me, actually I asked you and
you said back to me government, that's why
government has got to be the spender of last
resort.
There is really no issue here.
Most economists, most policy analysts, most
experts understand this.
It's a political problem right now that we're
having.
But it's larger than that and I don't wanna
spend our valuable time on Keynesian economics
I want to go to a higher and more subtle level
of analysis.
Economics, by the way, is on offshoot of a
field that in the 19th century was called
political economy.
And not until Alfred Marshall, the great economist
Alfred Marshall wrote his Principles of Economics,
did it become a separate science in 1890.
But most of the 19th century it was all called
political economy because people understood
you could not talk about economics without
talking about politics.
They were inextricably connected.
And in the 18th century what did Adam Smith
call himself a political economist, an economist?
No.
He called himself, because there was not in
the 18th century even a discipline called
political economy, it was moral philosophy.
[laughter]
Adam Smith was a moral philosopher.
Because the question was what is a good society
and how do we recognize it and how do we achieve
it?
And Adam Smith himself thought his most important
work was not the wealth of nations, it was
actually The Theory of Moral Sentiments, which
I hope all of you have read.
[laughter]
Again the question fundamentally was what
are the ties that bind people together?
How do people work together to create a good
society, ideally one that operates for everyone?
[pause]
Which brings me to the more complicated issue
with regard to the current economy.
And I want you to come back with me three
decades, come back three decades.
[laughter]
We're back now in about 1981-82 and what we
see if we are paying attention to the American
workforce is that wages, which up until now
at least for 30 years after the second World
War until 1981-82, wages had grown in tandem
with American productivity; productivity went
up, wages went up.
Over the 30 years from the second World War
to 1981-82 in fact the economy doubled in
size and wages doubled.
Everybody was gaining, everybody was growing
and gaining together, the rising tide really
was lifting all boats.
And then the median wage started to flatten.
Male workers actually today if they are hourly
workers that is 80 percent of the workforce
are hourly workers, male hourly workers today
adjusted for inflation are earning today less
than they earned in 1981.
[pause]
Something fairly fundamental must have happened.
[pause]
And before we get to that, because that really
underlies a great deal of what's happening
now, we have to understand why what happened
then was kind of masked, m-a-s-k-e-d, masked
until very recently.
It was masked because American workers and
American consumers, who are the same things,
used three coping mechanisms to maintain their
purchases as if male wages had not stagnated.
Coping mechanism number one' begun in the
late '70s actually if you look carefully,
but then a huge increase in the 1980s and
then an increase in the 1990's, was wives
and mothers into paid work.
[pause]
Go back to the 1960's and a very, very small
proportion of wives and mothers particularly
of young children were in paid work.
[pause]
Something in the order of 20 percent.
Go to the 1990's is was 60 percent.
Huge, huge difference.
That was a coping mechanism.
I wish I could tell you that it was because
of the barriers to professional women suddenly
dropping because of all of the wonderful opportunities
there were for professional women.
No, the primary reason women went into paid
work in those years was to prop up family
incomes that were declining because male wages
were under so much stress.
But there was only a limit to how long and
how much that coping mechanism could work
which brings up to coping mechanism number
two and that was everybody working longer
hours.
When I was Secretary of Labor I used to go
out around America, talk to people, and everybody
was complaining not about joblessness.
Certainly by '95, '96, '97 they were talking
about the hours they were putting in.
[pause]
Overtime if they were hourly workers, billable
hours if they were professionals.
Everybody was working, in fact the data showed
the typical American worker in those years
putting in more hours than the typical hugely
industrious Japanese worker.
[pause]
But that coping mechanism number two obviously
also had a limit.
You couldn't just keep on working forever.
In fact if you had both parents working as
you did in those days long hours how did they
ever see each other, they were kind of ships
passing in the night.
I used to use a demographic term to describe
these families: dins, d-i-n-s, double income,
no sex.
[laughter]
And then you come to this past decade and
what's the third and final coping mechanism?
Remember wages are still flat.
In fact since 2001 the median wage in the
United States adjusted for inflation has actually
been going down.
So what is the third and final coping mechanism
to continue to spend as if, as if you're actually
your wages were going up?
[several voices speaking at one time]
>>Robert Reich: Debts, yes class.
[laughter]
Debt.
And it was actually relatively painless because
those housing prices were bid upward.
You could just get home equity loans or you
could turn your house into a kind of ATM and
many people did that.
Trillions of dollars pulled out of houses
during those years, but with the housing bubble
finally bursting, as all bubbles eventually
do, that third and final coping mechanism
is now exhausted.
[pause]
And so what we face today is not simply a
Keynesian demand management problem in which
government can prime the pump, it's more profound
than that.
[pause]
The American middle class has now run out
of ways to deal with a crisis or a problematic
situation, the word crisis is overused, a
problematic situation that actually goes back
30 years.
[pause]
Shortly after the President was elected he
called together some of the people who had
been advising him to find out sort of their
opinions.
What should he do now?
And what was the fundamental problem?
You know in your work defining the problem
is almost the most important stage.
In public policy, as I teach my students and
as my experience has indicated over my career,
defining the problem, getting the problem
right is 90 percent of the issue.
And the President wanted to know what's the
problem?
And he went around the table and various people
had various views and Paul Volcker was there,
he's very tall --
[laughter]
when we talk it's.
And he said, "The problem Mr. President is
that the American public, the vast middle
class, is and has been spending beyond its
means."
[pause]
That statement is a mirror of what you hear
very often.
We have been spending beyond our means.
And that is literally true if you followed
the logic that I gave you over the last 30
years we eventually did, we borrowed, we spent
beyond our means.
But there's a different definition of the
problem which I think is more accurate and
more important and that is the means of most
Americans have not kept up with what a growing,
burgeoning economy could have and should have
been able to provide them as it did in the
30 years after the second World War.
[pause]
And so that if we're going to do anything
fundamentally sustainable about the economy
we've got to do something about this underlying
issue having to do with the stagnation of
wages for most people.
[pause]
Interestingly when I, yes, yes.
>>female #1: This is the rule right?
We all know it well.
>>Robert Reich: Well let me just finish my
point and then I'll get to your questions
'cause this is really the point that I have
to make and I'm giving myself another 10 minutes.
[laughter]
You see the question I just asked you has
a lot to do with widening and equality because
remember the economy continues to get more
and more productive through most of this period
apart from the fact that, and the GDP continues
to grow, so the question is if the median
wage is stagnant and if households even with
women in paid work, even all of these coping
mechanisms still are not doing all that better,
well then where are, where's all the money
going?
And the answer is the money is going to the
top.
[pause]
In the 1970s the wealthiest one percent of
Americans were getting about 11 percent of
total national income.
[pause]
By 2007, just before the crash, the top one
percent was getting 23 1/2 percent of total
national income.
[pause]
The last time, incidentally, the top one percent
got anything close, in fact not coincidentally
exactly 23 1/2 percent of total national income
was 1928.
[pause]
Marriner Eccles, a man who I urge you to find
out more about, he was the head of the Federal
Reserve Board from 1934 to 1948, did a study
in the early 50s and tried to determine the
causes of the Great Depression.
And his conclusion was that you had such inequality
by the time of the middle and late 1920s that
the only way the vast middle class of America
could continue to spend on a scale required
to keep the economy going was by going deeper
and deeper and deeper into debt and that was
not sustainable.
[pause]
And therefore that debt bubble eventually
burst.
Meanwhile the people at the top, given that
vast fortunes income and wealth were becoming
more and more concentrated by the late 20s,
the economy was prone, was more fragile, prone
to boons and busts because the investor class
was getting, although at the margin there
were a lot of other people investing but the
basic, the big investment class they were
getting smaller and smaller and they were
all making the same kinds of investments and
there was a speculative boon going on as well.
[pause]
And you read Marriner Eccles and it is exactly
as if you were reading about ?
[pause]
the 1990's and 2000's in America.
[pause]
So let me end by just talking about the question
I left on the table which is what happened
in the late 70s and early 80s that might have
led to this fundamental change in the structure
and earnings of the labor market here in the
United States?
What does that teach us once we understand
that?
And does it have anything to do with what
happened in the first decades of the 20th
century?
What happened --
[pause]
in the 1970s and 1980s and continuing on has
a lot to do with your field.
It has a lot to do with technology because
by the 1970s certain technologies were coming
on stream:
[pause]
cargo ships, containers,
[pause]
satellite communication technologies, automated
technologies.
You see some of these technologies allowed
for the first time --
[pause]
American companies and foreign companies to
sell in the United States at relatively low
cost transportation and communication technologies.
Other technologies led to automation eventually
computers, eventually the Internet really
displaced an awful lot of people from jobs
that had been relatively high paid and relatively
unionized; they were service jobs.
[pause]
It doesn't matter what you were talking about
if you were in routine work, if you were an
American worker in routine work, day to day
did the same thing over and over again, and
don't get me wrong I'm not recommending we
go back to those days because those were boring
jobs many of them.
But if you were doing the same thing over
and over again you were either replaced by
foreign workers who could do it more cheaply
or by automated machinery that could do it
more cheaply --
[pause]
leaving two categories of job--
[pause]
left.
The largest category by far were personal
service jobs that could not be done by automated
machinery because the essence of the job was
attention and service: retail, restaurant,
hotel, hospital, teaching, a lot of jobs that
are basically still there in fact most of
our wage and payroll and job growth in the
last 30 years has been in the personal service
sector of the economy.
The problem is these jobs don't pay very much.
Supply and demand; the supply is very large,
demand is not all that large, productivity
is limited in terms of productivity enhancements
and the educational background is not very
necessarily high --
[pause]
except for teachers.
I am a teacher --
[laughter]
very hard to be a teacher.
But then the other job category much fewer,
many, many fewer people and you all fit into
this other category, these are people with
enough education and the right kind of education
and the right connections to really take advantage
of globalization and technological change.
[pause]
Their productivity, their importance in the
economy kept on increasing.
[pause]
We went from an economy based on high volume,
standardized, stable, mass production, economies
were scaled --
[pause]
to an economy based on innovation in which
the major barrier to entry was continuous
innovation.
Making these people, the innovators, well
educated, well connected, able to identify
and solve problems the most valuable people
around, i.e., Google.
[laughter]
[pause]
So this story that I'm telling you is not
about blame --
[pause]
this is about progress.
[pause]
The problem is that the fruits of our productivity
increases and they have been dramatic partly
because of you guys.
The fruits of those productivity increases,
instead of being shared as they were in the
first three decades after the second World
War, are now not being shared.
Almost all the gains from economic growth
have gone to the top and that is not sustainable
economically.
It may not be sustainable politically and
it may not be sustainable morally, but it's
not sustainable economically either.
[pause]
What we see now across the country is a degree
of insecurity, economic insecurity that I've
not seen in my lifetime.
And economic insecurity translates, remember
politics, economics, politics, economics,
moral philosophy, economic insecurity translates
into fertile ground for demagogues who want
to channel those angers and frustrations at
easy targets.
[pause]
Immigrants --
[pause]
the poor, the rich --
[pause]
government, foreigners --
[pause]
the French --
[laughter]
[pause]
So the stakes here are really very, very high.
And when I was invited to come down and talk
with you I jumped at the chance because you
are problem solvers, you have generated huge
productivity increases in terms of information
technology and I beseech you, I urge you,
to take on what I consider to be, along with
environmental change, climate change, the
other big issue in our society and in other
societies not just happening here for the
same reason it's happening all over the world,
and that is widening inequality and it's social,
political, and economic consequences.
[pause]
And report back to me.
[laughter]
Thank you.
[applause]
Now ,
[applause]
now we have a half hour for your questions
and hopefully my comments.
Yes.
>>male #2: So one of your measures was median
wages, I assume you're only talking about
American median wages and you said that they
went stagnant; you added more women, you worked
longer, we acquired debt.
But I can think of at least two other ways
that we can, actually let me phrase it this
way: I don't know if wages is the right metric.
I think a better metric would be post-taxes
purchasing power.
So even though I'm making the same amount
of money on wages, I may still have a better
standard of living because some of my costs
have gone down.
So if we shift the argument to that metric
--
>>Robert Reich: Yeah, let's call it disposable
income after taxes.
>>male #2: Right.
I also wanna throw in there though the efficiency
of the dollar that I get to spend as well
because productivity may allow me to buy more
for that dollar as well.
>>Robert Reich: Yep.
>>male #2: So does your argument of stagnation
change under that other metric?
>>Robert Reich: Well the two things you put
on the table: one, disposable income after
taxes.
What we've seen is that the tax system if
you include payroll taxes which have become
more regressive and also state sales taxes
which are quite regressive and also state
property taxes which on balance are pretty
regressive and tolls and all the service fees
that we now see being imposed, which are very
regressive, but we have an income tax that
is pretty progressive.
If you add it all together the whole system
is almost a wash.
Now I say that advisedly because the Bush
tax cuts really did make the income tax system
more regressive.
And as you know if we have a 15 percent capital
gains tax and a lot of people at the top are
gaming their income so that more and more
of it appears as capital gains, so obviously
Warren Buffett says truthfully he's paying
17 percent tax.
And you've got the top 400, the wealthiest
400 Americans last year according to the IRS
paying 17 percent tax because they gamed the
system.
So if you include all of that the system is
quite regressive.
Back to your question.
Is there a way of making after-tax income
more progressive making up for the stagnation
of median wages?
Yes, tax reform I think is going to be a huge
battle and a very important battle but all
we hear is you can't raise taxes on the rich
and you have to in fact lower taxes on the
rich which is exactly what we don't wanna
do for obvious reasons [chuckles] and it's
kind of absurd anyway given what has happened
to the labor force.
The second point you asked had to do with
how expensive goods are.
If goods really become less and less expensive
then the dollar goes further.
The answer is that our measures of inflation,
and when I say inflation adjusted income,
should but don't really do terribly well,
but should take into account the average costs
for people.
It's complicated, messy business.
A computer today, a laptop or a tablet obviously
is going to have much more power than anything
sold three or four or five years ago and how
do you measure that?
They're two different products but how does
the Bureau of Economics, Commerce Department,
and others measure that?
The most important point there to know is
that medical costs have risen dramatically
for most people.
If you count in co-payments, deductibles,
and the fact that companies are saying to
them, "You bear more and more of the cost
of your health care."
Housing costs have soared for most people,
that's not gonna be the case much longer because
housing prices are going down.
But if you wanted to get into the housing
market or even a renter today still in areas
like this area, in the Bay Area, it's still
paying a huge amount.
Food and fuel we never know, they are wild
cards but they're long term trend of fuel
has been up, the long term trend of food has
been down.
[pause]
Other questions?
[pause]
>>male #3: So you talk a lot about you know
obviously now there's greater concentration
--
>>Robert Reich: You have, I can hear you but
I think you have to flick --
[pause]
[sound of tapping on microphone]
[laughter]
>>male #3: Sorry --
>>Robert Reich: You just destroyed--
[laughter]
that microphone.
Yeah.
[laughter]
>>male #3: You talked a lot, wow this is loud.
I guess now seeing how wealth is really concentrated
at the top and I think the statistic has been
that amongst mature, modern economies the
U.S. has the greatest disparity of wealth
almost akin to emerging economies, so I guess
what are the mechanisms that will allow for
the transfer of wealth between the wealthiest
to achieve a better distribution?
>>Robert Reich: Well this country doesn't
like direct redistribution, we never have.
As I suggested we could have a more progressive
tax system combined with something I did not
mention and that is a bigger earned income
tax credit.
The EITC is now essentially the biggest anti-poverty
program we have in this country.
And that would be the closest we could possibly
get if we ever got there to a quote redistribution
although don't use that word.
[laughter]
Over the longer term there are many things
we could do starting with the word education,
early childhood education for example we know
has a huge return in terms of the ability
of people to have more fulfilled and fulfilling
lives and also contribute to more value and
get higher wages.
And what concerns me right now is that we
seem to be going in the opposite direction
even there.
State budgets are whacking public higher education
and public K-12 education all over this country
and actually reducing early childhood education
or even childcare.
It's as if we have kind of an invasion of
the body snatchers problem in which for some
reason collectively we are doing exactly opposite
of what needs to be done.
[pause]
How's that for an upbeat message?
[laughter]
Yes.
>>male #4: So the changes the 70s, 80s, 90s
changes were all structural changes and they
had the effect of making it easier for everything
to flow to and from the rest of the world
creating a more level playing field and so
we're still trying to reach equilibrium there
and you see it showing up in China and other
third world countries as increased exports
and standard of living.
You didn't say what was the structural change
leading up to 1928 and I'm guessing --
>>Robert Reich: Well yeah --
>>male #4: it was people running away from
the farms.
>>Robert Reich: Yeah.
Let me get to that.
You have two questions on the table and I
wanna make sure there's enough time for everybody's
question.
Your first question I take it is are we moving
to a kind of equilibrium state worldwide in
which we're leveling the playing field and
does that, I'm reading into your question,
does that necessarily mean that a lot of Americans
are going to have to settle for a lowered
living standard in the future?
>>male #4: Not actually that but if that's
the case what can be done?
>>Robert Reich: Okay.
And I think the answer, the answer there is
that it is not a zero sum game.
China's improvements or productivity gains
or however else we wanna measure their competitiveness
does not come at our expense.
In fact what we have learned, and I hope we
learn this very profoundly and explicitly,
is there is no limit to the needs of human
kind that need to be met and there is no limit
or finite limit that we've identified to the
ingenuity of the human mind in meeting those
needs.
China will grow and we could if we had, and
hopefully we do have the ingenuity, to generate
all sorts of answers to human problems including
problems that China has.
So there is not an equilibrium it is a non,
we never reach equilibrium, we've never reached
equilibrium there's a constant process of
dynamic change.
The question is how many of our fellow countrymen
and women are going to be brought along on
the tides, the positive tides of that change
or are we going to split even more than we
have split now?
How do we get back to where we were in terms
of everybody enjoying the fruits of economic
growth and productivity enhancing technologies?
The second part of your question was, I've
already forgotten.
[laughter]
>>male #4: What happened in the 20s --
>>Robert Reich: Oh, yeah.
>>male #4: both here and in China?
>>Robert Reich: What happened between 1900
and 1928 that led to the huge disparities
and it was partly a move from farms to factories.
Remember one of the things propelling the
move from farms to factories in this country
as well as in China and around the world at
different time areas is the increasing productivity
of agriculture.
That was a good thing it was not a bad thing,
but it did mean that there were not that many
jobs for people on farms that paid all that
much.
They were attracted to better jobs in urban
areas but they didn't pay relative to, and
here's the answer.
We had huge consolidation around economies
of scale between 1900 and 1928.
And those huge consolidations in the giant
mega businesses and mega industries generated
a lot of wealth at the top for those entrepreneurs
and those heads of large corporations and
their owners, but also a lot of squalor.
Social costs of urban poverty between 1890
and 1920 were enormous.
[pause]
And so again we saw even the middle class
without unions, without social supports, without
safety nets starting to fall and depend more
and more and more on debt until that debt
bubble burst.
Henry Ford was one of the few and I'm not
in any way extolling the virtues of Henry
Ford, in many ways he was not [chuckles] terribly
virtuous.
But in one respect he understood something
that we do understand today and that is when
he in 1914 at his Model T Ford plant offered
his employees five dollars a day which in
those days was three times, almost three times
the typical factory worker's salary.
The Wall Street Journal excoriated him as
being non-American and a socialist.
But Henry Ford knew something that other CEOs
and other entrepreneurs did not know and that
is that his factory workers if they earned
enough would turn around and buy Model T Fords.
>>male #4: Uh-huh.
[laughter]
>>Robert Reich: And he was right.
Workers are consumers, consumers are workers
getting back to the fundamental economic problem
of widening and equality.
Other questions?
[pause]
Can we have a female please?
[laughter]
I don't mean literally I just mean --
[laughter]
a question by a lady.
[laughter]
>>male #5: Can you tell us where we can hire
some?
[laughter]
>>female #2: There was a question over there.
>>female #3: I have a question --
>>Robert Reich: Yeah.
[pause]
>>female #3: specifically about the role that
you think the finance industries had and I
think as an outsider it seems like that there's
not being a lot done as to like the role that
finance played in creating this predicament
specifically like Goldman Sachs, big financial
firms and how that conundrum people in this
room could maybe work towards improving.
>>Robert Reich: Yeah.
Well you know there are two kinds of entrepreneurs
and innovation that we've seen in this country
take off over the last 40 years.
One are the technological or product entrepreneurs
of which Google is one of the best examples,
and then there are the financial entrepreneurs.
And unfortunately, and I say unfortunately
advisedly and I'll come back to why I say
unfortunately, the financial entrepreneurs
have really dominated in terms of entrepreneurship
and innovation in this country partly 'cause
that's where you can make a huge amount of
money relatively easily because all you have
to do is be in a place and in a spot where
you can nick off a little bit of, a little
percentage of a huge amount of money that
is passing by you.
It's like owning the casino.
[laughter]
And that is what has happened.
A financial deregulation has proven a complete
disaster.
We knew it and learned it in the 1930's that's
why we passed the Glass-Steagall Act separating
commercial from investment banking and that's
why we actually did have a Federal Deposit
Insurance Corporation, we made sure that you
could not over leverage the financial system
because we knew that was dangerous.
And yet beginning with the Clinton Administration,
this happened in late years of the Clinton
Administration, there was deregulation, we
got rid of Glass-Steagall, we continued to
get rid of banking regulations, and what do
you expect, what do you expect?
One of the real underlying problems which
I have not got into is the political power
that comes with having all of this money at
the top.
And the financial community has basically
been one of the major contributors to both
Democrats and Republicans and so even when
we get so-called financial reform we get financial
reform with loopholes so large that anybody
on Wall Street can drive their --
[pause]
[laughter]
their Porsches through it.
[laughter]
So it's a, that is a continuing big problem.
[pause]
Yes, who else?
Yes.
>>male #6: Do you think that large transfer
payments like in Sweden and Denmark with progressive
taxation and then a labor market that's service
and innovation at separate parts would be
enough to improve equality or do you think
we would need more changes to the labor market?
>>Robert Reich: As I said before I think transfer
payments are very difficult to pull off, particularly
in the United States.
There's a lot of easily churned up resentment,
you get a particular point of view advanced
which does have merit but not nearly the [chuckles]
amount of merit it claims it has and that
is, for want of a better term, the Laffer
curve.
Obviously people need to have incentives,
inequality to some extent is a natural and
inevitable byproduct of a dynamic economy
in which you want to give people appropriate
incentives to invest and to invent and work
hard.
But the question is how much incentive they
need.
Between 1946 and 1979, 1980 the economy was
growing faster with a higher marginal tax
by far --
[pause]
than we've had ever since when the economy
since then has grown slower and the marginal
taxes have been half on the top incomes what
they were.
And marginal taxes in the first 30 years after
World War II were always above 70 percent
on highest incomes.
[pause]
And even after you got rid of deductions and
credits still the highest income people in
the United States were paying a marginal income
tax that was way above 50 percent.
Now we're battling, we're going to battle
over whether we keep it at 35 percent or go
to 39 percent which was what it was under
Bill Clinton, the highest marginal income
tax.
Now I don't know about you but all the economic
data show that economic growth since taxes
have been reduced on the top has not generated
huge spur in economic growth and indeed after
the Bush tax cuts of 2001, 2003 what we've
seen is median wages dropping and far fewer
jobs being created in the United States.
Over George W. Bush's two terms 8 million
jobs.
Over Bill Clinton's two terms 22 million new
jobs.
And I was Labor Secretary and I deserve credit
for every --
[laughter]
one of those.
[laughter]
Thank you.
[laughter]
Thank you.
[laughter]
Thank you.
[applause]
Other questions?
Yes.
>>male #7: So in terms of fixing structural
problems.
>>Robert Reich: Oh we have to get a mic to
you.
>>male #7: Yeah in terms of fixing the structural
problems you brought up rather than just establishing
redistribution, would you say that education
is the key to expanding the top as opposed
to having the amount of people stagnating
in the middle?
>>Robert Reich: Yeah education is about 70
percent of it.
But let me just emphasize it can't possibly
be only education.
That is I've been in communities where you've
got young people going to school whose stomachs
are empty and who have tooth decay problems
and have been up all night because of noise.
They're not learning and it's not the school's
fault that they're not learning it's because
they are in an environment and they don't
have the proper health care, they don't have
the proper environment to learn.
So we've got to conceive of this as a package
of problems in terms of the, creating genuine
equal opportunity in this country which we
used to talk about a lot and we sort of lost
sight of.
[pause]
>>male #7: So would you say the solution is
through direct support to those people like
social outreach or it is to getting them enough
redistribution payments to allow them to have
a standard of living that lets them lift themselves
up?
>>Robert Reich: Well I would do several things.
I would strengthen as I said early childhood
education, I would make the public schools
much better, now to some extent that means
teachers have got to be paid for performance,
but I'll tell you something that means we
also have to increase teacher pay.
The law of supply and demand is not eliminated
at the school house door.
If we want talented people to go into teaching
we've got to pay them enough to compete with
other places where talented people are needed
in society.
Thirdly, access to public higher education.
I teach at the University of California Berkeley.
I teach at the best, I believe, institution
of public higher education in the world but
it is systematically being attacked and maybe
dismantled because of what is happening in
this State.
[pause]
Does an organization like Apple or Facebook
or Google or the major entertainment industries
or the major venture capital centers of the
State of California do they have any responsibility
with regard to education, early childhood
up through access to public higher education
in this State which used to be preeminent
in public education?
Well it's a rhetorical question.
[laughter]
[pause]
>>male #8: There we go.
Now I know you've written a bit about manufacturing
and how the manufacturing base in this country
has shrunk quite a bit because of the, well
technology.
I think you talked about going to a factory
in Indiana where there were very few workers
because everyone was working on computers.
Now if we accept that in the short run we're
not going to have a large proportion or a
majority of Americans going to college and
getting the better education that you're talking
about, what can we do for these people, what
kind of jobs can we create for them that would
have been in the manufacturing base before?
>>Robert Reich: The question you're raising
again it's complicated and given the time
constraints I'm gonna try to just highlight
the most important issues.
I think we do have to go from a system of
K-12 universal hopefully high quality, we're
not nearly there yet, education to K-14, where
11th and 12th grade and maybe, and then the
following two years which could be called
junior college or community college or whatever
are like the German example focused on high
tech skills and learning to learn skills.
So that a far larger proportion of our population
really is able to engage in a variety of tasks,
precision manufacturing would be one.
People say to me sometimes, "What you say
makes sense but that golden age, that so called
golden age from 30 years after the second
World War to 1980 we'll never get that back
again because in those years we didn't really
have to compete very hard with Japan and China
and Europe."
And I say back, "You have it wrong.
If you want an example right now of a country
that is doing pretty well it's Germany."
And how is Germany doing well even though
it is integrating all of the East German very,
very difficult social and economic, financial
problem, Germany is doing well because it
has a first class educational system not just
for the elite but for a large portion of its
middle class and its so called working class.
It also has very powerful trade unions that
have prevented the top one percent from grabbing,
that's a pejorative term, erase that, scribe
that, from getting the 20 or 23 percent of
the total national income.
In Germany the top one percent gets, receives
11 percent of total national income.
So there is a much more equitable distribution
of gains from economic growth.
Germany is a major exporter of manufactured
items.
Well how can that be when manufacturing is
centered in China?
Because Germany's focused on precision manufacturing,
the highest end of manufacturing and system
integration that goes along with that high
end precision manufacturing.
Yes.
I don't wanna keep you longer, we'll just
go five more minutes, alright?
Yes.
>>male #9: You started out your talk by saying
the government is the spender of last resort
but of course the debt hysteria seems to be
ruling out fiscal stimulus but the modern
monetary theorists have come up with an alternative
plan which is to not issue treasuries for
the government to just spend like [bad audio]
a good idea or --
>>Robert Reich: The Weimar Republic is their
model?
>>male #9: No --
[laughter]
obviously not.
No [laughs] the people who disagree with the
modern monetary theorists say that we'll go
the way of the Weimar Republic if they do
this.
The people who agree with them say that because
we are in a balance sheet recession with the
output gap that this can be safely done.
What is your opinion on --
>>Robert Reich: I,
>>male #9 this question.
>Robert Reich: I wanna, this gives me a good
opportunity to summarize and we don't have
much time so let me just do a quick three
minute summary.
In my view when you have this great a gap
between the productive capacity of the economy
at or near full employment, and define full
employment in the same way we defined it in
the late 90s, we got down to four percent
unemployment.
There's such a gap between that and where
we are today in terms of production and aggregate
demand that you don't wanna risk inflation.
If you expand monetary policy at the same
time you will have an expansive fiscal policy.
And indeed both of them can help you grow
the economy and the most important thing you
want right now in terms of dealing with the
long term debt is growth because what really
drives the debt is not so much debt per se
it's the ratio of the debt to the GDP.
When I was a small boy my father used to say
to me, "Bobby, your children and your grandchildren
will be paying down the debt of Franklin D.
Roosevelt throughout their lifetimes."
So I was only six years old I didn't know
what the debt was but I had nightmares --
[laughter]
about this.
[laughter]
Well it turned out that my children never
mentioned FDR's debt and my --
[laughter]
and my grandchild, the last thing she has,
will ever be on her mind, not because we reduced
the amount of public spending that much.
Remember went from the second World War to
a Cold War, we had a Korean War, we rebuilt
Japan, we rebuilt Europe, we had a highway
building program.
No, it was because we grew so dramatically.
And unless we restore growth and the easiest
way of restoring growth is through an expansive
fiscal and monetary policy, we're going to
make that long term debt even worse.
But --
[pause]
here's the big b-u-t, the big but is that
fiscal and monetary policy will only carry
us so far.
That is you can only prime the pump if there's
enough water in the well to begin with.
And if the middle class, as I've been suggesting
today, if the vast middle class of America
including what we used to call the working
class, if the vast middle class is not sharing
in the gains from productivity growth, if
they have exhausted their means of continuing
to spend, and by the way, don't mix up consumption
and consumerism.
When I say spend it could be spending on --
[pause]
art and music and a cleaner environment and
better health, it doesn't mean necessarily
stuff.
But unless they have the wherewithal to have
a higher standard of living in the future
and share the productivity gains there is
just not going to be enough aggregate demand
in the system even if we have adequate fiscal
and monetary policy.
So putting to one side all of the moral and
ethical and political and systemic problems
that come from widening and equality even
if you put all that aside, and my argument
to the richest members of society is you will
do better --
[pause]
with a smaller share of a rapidly growing
economy in which people feel comfortable,
they're not angry, they won't resort and support
demagogues then you will having a larger share
of an economy that's almost dead in the water
and a politics that's getting steadily angrier
and meaner.
[pause]
>>female #4: Whoo-hoo.
>>Robert Reich: Thank you for your time.
[laughter]
[applause]
