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Intro: "Who's an economy for? Voters in France and Greece have made it clear it's not for the bond traders."

Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)

A Question of Timing

By Robert Reich, Robert Reich's Blog

09 May 12


ho's an economy for? Voters in France and Greece have made it clear it's not for the bond traders.

Referring to his own electoral woes, Prime Minister David Cameron wrote Monday in an article in the conservative Daily Telegraph: “When people think about the economy they don't see it through the dry numbers of the deficit figures, trade balances or inflation forecasts - but instead the things that make the difference between a life that's worth living and a daily grind that drags them down.”

Cameron, whose own economic policies have worsened the daily grind dragging down most Brits, may be sobered by what happened over the weekend in France and Greece - as well as his own poll numbers. Britain's conservatives have been taking a beating.

In truth, the choice isn't simply between budget-cutting austerity, on the one hand, and growth and jobs on the other.

It's really a question of timing. And it's the same issue on this side of the pond. If government slices spending too early, when unemployment is high and growth is slowing, it makes the debt situation far worse.

That's because public spending is a critical component of total demand. If demand is already lagging, spending cuts further slow the economy - and thereby increase the size of the public debt relative to the size of the overall economy.

You end up with the worst of both worlds - a growing ratio of debt to the gross domestic product, coupled with high unemployment and a public that's furious about losing safety nets when they're most needed.

The proper sequence is for government to keep spending until jobs and growth are restored, and only then to take out the budget axe.

If Hollande's new government pushes Angela Merkel in this direction, he'll end up saving the euro and, ironically, the jobs of many conservative leaders throughout Europe - including Merkel and Cameron.

But he also has an important audience in the United States, where Republicans are trying to sell a toxic blend of trickle-down supply-side economics (tax cuts on the rich and on corporations) and austerity for everyone else (government spending cuts). That's exactly the opposite of what's needed now.

Yes, America has a long-term budget deficit that's scary. So does Europe. But the first priority in America and in Europe must be growth and jobs. That means rejecting austerity economics for now, while at the same time demanding that corporations and the rich pay their fair share of the cost of keeping everyone else afloat.

President Obama and the Democrats should set a clear trigger - say, 6 percent unemployment and two quarters of growth greater than 3 percent - before whacking the budget deficit.

And they should set that trigger now, during the election, so the public can give them a mandate on Election Day to delay the “sequestration” cuts (now scheduled to begin next year) until that trigger is met.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including "Locked in the Cabinet," "Reason," "Supercapitalism," "Aftershock," and his latest e-book, "Beyond Outrage." His 'Marketplace' commentaries can be found on publicradio.com and iTunes.



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+43 # Trish42 2012-05-09 09:37
Bravo, bravo!! This is the kind of message that Independents will understand! If we can get the majority of Americans to understand this relationship between revenue and spending in a recession, we will win the economic argument. Then we can focus on the social issues. Let's just hope that the majority of Americans are still rationale enough to see how crazy the fundamentalist positions on religion and reproduction really are---not to speak of their very un-Christian perspective on immigration....
+29 # JCM 2012-05-09 09:49
What we should do for this country is to raise the taxes on the very wealthiest. Trillions of dollars have been collecting by the very wealthiest since the 1980's. Tax rates were lowered that benefited mostly the very wealthy. After thirty years of this our country can no longer sustain the greatness it once was. After WW2 we had very high tax rates targeted at the very wealthy in order to pay off the war time debt crisis. We are in a crisis now and need to look at history and find the most beneficial rates for our nation. We don’t have a spending problem, spending is at an all time low relative to GNP, we have a revenue problem.
Do you want the wealthy to get wealthier or do you want better infrastructure? Do you want the wealthy to get wealthier or do you want the kind of research and development that helped make our country great? Do you want the wealthy to get wealthier or do you want the policeman, the firemen and the teachers to be hired and paid fairly. These are some of the choices you must make for this election. If you want the wealthiest to get wealthier then vote Republican. If you want a healthy society that can maintain all things that make our country great then vote Democrat.
-34 # edge 2012-05-09 10:37
Yep, those "shovel ready" jobs really jump started the economy!
+17 # JCM 2012-05-09 12:23
There's one thing you're not realizing. The economy is growing slowly due in large part from the Republican opposition to do anything about it. Many infrastructure and stimulus bills were introduce only to be turned down time and again by the Republicans.
-5 # edge 2012-05-10 08:44
Why should the Government make the decision of what industries get paid!
Oh, because they are Obamas favorites, then let him support them.

ROADS / bridges, where the hell did the transportation taxes go?
Corrupt politicians, that's where it went and you want them to be able to spend more of your money and mine.

Get off this ridiculous GOP vs DEM rivalry and think for yourself!

You want more spending then let the individual taxpayers write major expenditures off of their own taxes, and let the taxpayer decide what they want their money to go for!

Why "cash for clunkers"?
What about my 15 year old washer and dryer, I didn't have a junk auto so I get crap?

Wake up and take this stupid power of picking winners and losers away from Washington!
+4 # brux 2012-05-09 21:29
you have a point, but the counter-point to that is that:

1. the shovel-ready projects were too few and too narrowly based to drive the whole economy for long.

2. most of what people (like you) are complaining about when they complain about the stimulus is that it went to the wrong people … which is a complicated subject, but the bottom line is that this country has become politically corrupt, so stimulus or austerity money will be flowing to the rich and powerful whether or not it goes to build economic, infrastastuctur e or investments in human capital.
-4 # edge 2012-05-10 08:46
Quoting brux:
you have a point, but the counter-point to that is that:

1. the shovel-ready projects were too few and too narrowly based to drive the whole economy for long.


OK, so the same people that picked the wrong projects, and how much we should spend were idiots...we agree!

So why double down on these same stupid people and let them waste more of OUR money!
0 # brux 2012-05-11 11:15
I don't think that Reich or Krugman or anyone who get it are those same people or are suggestions that we double-down on the same wrong things - before it was all political, as everything is everywhere, that is the problem. we've forgotten or do not care about being fair anymore - it's all about people in high places getting their tribute.
+15 # bluepilgrim 2012-05-09 10:03
Reich seems to miss this critical issue. We can't spend our way out of this if the money ends up in Walmart, to China. We also need to create jobs here, producing real wealth.



"On the Working Class

In the 1930s, unemployed working people could anticipate that their jobs would come back. If you're a worker in manufacturing today - the current level of unemployment there is approximately like the Depression - and current tendencies persist, those jobs aren't going to come back.

The change took place in the 1970s. There are a lot of reasons for it. One of the underlying factors, discussed mainly by economic historian Robert Brenner, was the falling rate of profit in manufacturing. There were other factors. It led to major changes in the economy - a reversal of several hundred years of progress towards industrializati on and development that turned into a process of de-industrializati on and de-development. Of course, manufacturing production continued overseas very profitably, but it's no good for the work force.

Along with that came a significant shift of the economy from productive enterprise - producing things people need or could use - to financial manipulation. The financializatio n of the economy really took off at that time."
+21 # PGreen 2012-05-09 10:48
Reich, like Klugman, is fundamentally a reformer, and not a radical. He does advocate some good things, and I by and large support him (as I do here), but he often falls short of advocating for the long term extreme changes that may be necessary.
As Chomsky has said, even incremental positive changes can be helpful, though ultimately more is called for.
+1 # brux 2012-05-09 21:34
you should read aftershock, reich's last book … he talks about a whole plan of how to bring the u.s. economy back.

the problem is that we have let the top .001% get away with their crap for so long that they will not easily be convinced to pay more in taxes, and they will hold a grudge for a long time about it.

i really hate to say or think this but I'm wondering if we have not wedged ourselves into a position that has no way out and we have destroyed the arsenal of democracy, and now through bribes and infiltration other powers seek to control the us military.

there is something to be said for how saudi arabia and the sunnis have benefited from the us intervention in the middle east … was that the plan from the beginning?
+21 # btfeldman 2012-05-09 10:09
I think for too many people, it doesn't sink in that the terms "public spending" or "gov't. spending" often mean spending on PRIVATE companies to do work. It is important that supporters of gov't. spending use terms such as "public spending on private sector jobs" just to mitigate the erroneously negative connotations that currently abound.
+6 # JCM 2012-05-09 12:55
That's right, when our government spends money its spending money that goes, mostly, to Americans. One extra thought on government spending; for government contracts I wish there could be a stipulation on how much of the profits can go to the owner’s vs. the employed. If the government spends money on a project but most of that money goes to a very few then we will continue to spin our wheels. I'm not sure if this is practical fix but it is, I think, a good direction..
+14 # Bodiotoo 2012-05-09 10:29
Now lets take back out government and make it work for the 99%
+12 # SueVan 2012-05-09 10:37
Too bad nobody except Reich seems capable of explaining the economy this way. I would add that a continually growing economy is not a good thing...the planet cannot sustain that. Other ways of looking at GDP that include destruction of natural resources have to be developed.
+1 # brux 2012-05-09 21:36
robert reich's book "aftershock" goes into this vision what more detail. it is a compelling narrative and i think it simply needs to be heard by more people, and whatever is going to play out in the american economy just needs to do what it is going to do before people get really serious about changning things.
+6 # Peace Anonymous 2012-05-09 11:08
Regardless of what Cameron may say about the UK Tony Blair was a Labour Prime Minister who promptly got in line behind George W. It is difficult to know who your friends are these days. But Obama was elected on a program of change and if the people push hard enough he might deliver. We all know what we will get with Romney. But in the end it is your democracy, based on your values. And, ultimately it is your responsibility. Nobody is going to do this for you.
-18 # letsfixit 2012-05-09 11:28
This is such a huge fallacy. Spend money for what? Consumption and jobs for china and Korea?