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Reich writes: "There are two big categories of customer: One is comprised of individual consumers. The other is government ... Here's the problem: Both categories of customer are buying less."

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


Why Many in Washington Don’t Have Half A Brain

By Robert Reich, Robert Reich's Blog

23 February 13

 

an we just put aside ideology for one minute and agree that businesses hire more workers if they have more customers, and fire workers if they have fewer customers?

There are two big categories of customer: One is comprised of individual consumers. The other is government.

We tend to think of the government as a direct employer - of teachers, fire fighters, civil servants.

But government is also a major customer of the private sector. It buys school supplies, pharmaceuticals, military equipment, computers. It hires private companies to build roads and bridges, dredge ports, manage data.

One out of every five Americans works for a company whose customer is the government.

Here's the problem: Both categories of customer are buying less.

Individual consumers are buying less because they have less take-home pay. Their wages are dropping (the median wage is 8 percent below what it was in 2000, adjusted for inflation). And their taxes have gone up. The expiration of the Social Security payroll tax cut will shrink the typical paycheck by more than $1,000 this year.

Less take-home pay is causing 45.7 percent of consumers to pull in their belts, according to a survey released Thursday by the National Retail Federation. A quarter of consumers are putting off big-ticket purchases. A third are cutting back on eating out. A fifth are spending less on groceries.

This is why January's retail sales rose at their smallest rate in three months.

What about the other big customer - government? It used to be that when consumers spent less, government stepped into the breach and spent more in order to keep people employed. That's what we were supposed to have learned from the Great Depression.

No longer. Government is cutting back, too. Deficit hawks and government-haters are insisting on it.

Last year, President Obama agreed to $1.5 trillion of spending cuts, which have already begun.

Unless Republicans and Democrats reach a budget agreement before next Friday, another $85 billion of spending cuts go into effect this year. They'll begin almost immediately.

With consumers and government both spending less, businesses won't hire more workers; they'll fire more workers. That's likely to happen in coming months.

Anyone with half a brain should be able to understand all this. But apparently many in Washington don't have half a brain.



Robert B. Reich, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage." He is also a founding editor of the American Prospect magazine and chairman of Common Cause.


 

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+98 # ghw 2013-02-23 16:28
I suppose that austerity is going to work in the U.S. as it has failed to do so miserably in europe because we are #1!
 
 
+6 # charsjcca 2013-02-24 07:49
Quoting ghw:
I suppose that austerity is going to work in the U.S. as it has failed to do so miserably in europe because we are #1!



The primary concern I have is that getting a new credit card with a higher limit and rolling our old debt into the new card will not solve our ultimate problem.

Let me put it another way. Suppose those at the top decided to take a reduction and we instituted a living wage along with a juvenile wage. We put people to work who will spend their pay locally and on consumer products. We stop the reckless energy consumption-NAS CAR and the Superbowl-and began to manage our resources in a different manner. We need a sustainable economic model. We need to teach the next generation that consumerism and personal greed are not the same thing. As I often say to others, "I attend church where the focus is on fellowship, not stained glass windows and choir robes." But I do understand that we all have the right to make our own choices. If you are about civil rights and human rights that is your journey. My passion is with human responsibility. That is abundance to me.
 
 
+15 # Vern Radul 2013-02-24 08:33
Austerity appears to be creating more millionaires & billionaires than the US economy has ever before.

By transferring as much wealth as possible upwards from the vast majority of people.

Which is of course, the purpose of the two-party scam and austerity programs.

But at least booze and pills are still manufactured in America so people can drown their misery as they go bankrupt making other people obscenely wealthy.

Not only that, the economic "recovery" will thankfully continue. Why, if you've been wanting to launch a new business Obama soon will have the business climate improved to the point where you'll be able to hire an American workforce for your new venture for no more than the cost of labor in China! Thanks to the TPP - the first trade agreement entirely negotiated by Obama.

www.huffingtonpost.com/2012/02/02/auction-2012-trade-nafta-asia-trans-pacific-partnership_n_1248185.html

Obama must be doing something "right" - no wonder he grins like that all the time.

And when you're dead broke and have no way to pay bills or eat and no hope of any other employment the military will always hire you to make other people obscenely wealthy by dying in their imperial resource grabbing wars.

Which is of course, another purpose of the two-party scam and austerity programs.
 
 
+70 # brux 2013-02-23 20:46
We might as well forget the fight against Russia, China, terrorism or radical Islam ... we better start fighting ourselves because we are doing the best at destroying ourselves ...

... so, where can I get on a boat and sail to the "new" new world, this place is old and broken and about to be very miserable in the foreseeable future.
 
 
+16 # brenda 2013-02-23 21:17
The 'new' new world is in the Cayman Islands. At least that's where the rich have stowed their money for now, as they slowly turn the USA into a slum and grab up Cayman Island real estate to live there. What will they leave behind, here in the USA? Nothing. But when Fidel plans to annex the Cayman Islands, they will always have the USA to come to their rescue and fight their battles.
 
 
+5 # Cassandra2012 2013-02-24 14:07
And for the Bush criminal family Paraguay --where the old Nazis went, too.
 
 
+47 # Rain17 2013-02-23 20:53
This is what I suspect is going to happen. 1 March will pass and the cuts will take effect. Much like 1996, when the Republicans were in the same position, the government may shut down for a week or so. Federal employees, pawns stuck in the middle, will probably endure furloughs for one or two pay periods. When the actual consequences start to manifest the GOP will not look good.

At the same time I fully expect the Chamber of Commerce, defense contractors, and other pro-business interests to bear down hard on the GOP. If they haven't do so already they will threaten to cut off funding to Republicans who don't stop the sequester or throw their precious funds toward primary challengers. As it is, given how horribly the Super PACS fared in 2012, some of the billionaires have stated that they've stopped raising money.

The financial power brokers will not allow the economy to fall into another recession. This is not out of any noble desire, but to protect their bottom lines. They don't want the economy to falter because it will undermine their profits.
 
 
+24 # Maxwell 2013-02-23 21:10
Quoting Rain17:
The financial power brokers will not allow the economy to fall into another recession. This is not out of any noble desire, but to protect their bottom lines. They don't want the economy to falter because it will undermine their profits.

I agree with you to a point. What you say is true about companies that make most of their money in the US. But most of the big power brokers are multi-nationals . As far as they're concerned, the US, its economy, and its people can all go to hell. These multi-nationals will continue to be US-based to take advantage of the generous tax laws passed by the Congress they've bought and paid for, but they'll continue to rake in profits from overseas. The well-being of the average US citizen has no effect on their quarterly bottom lines, so the financial well-being of the average US citizen is of no consequence to them.
 
 
+4 # Todd Williams 2013-02-25 09:23
I somewhat disagree with your scenario. I don't believe the multi national corporations want the "US, its economy" to "go to hell." As much as we are facing economic problems, we are still a sought-after market by multinationals. As bad as it is here, we are still an economic juggernaught (SP?).
 
 
+22 # wantrealdemocracy 2013-02-23 21:22
I think the 1% will allow the economy to fall into a deeper depression. I think they want the population to be lowered. Workers are not needed. Automation is cheaper and more efficient. Many will die under the austerity. Those of us that survive will bow our heads to the bosses and try to survive under the new system of neo feudalism. There is still some of the common wealth for the 1% to steal from us. The bastards have a mental illness and want EVERYTHING. "More, more, more" is their mantra. This is not a battle between the Dims and the Repukes. It is a fight between the 1% and the rest of us and so far they are winning as we slumber.
 
 
+8 # Cassandra2012 2013-02-24 14:09
Yes, went into my local CVS the other day ---1-2 workers and a slew of 'express pay machines'!
I will not use machines when it lays off workers. And will not shop at CVS much any more since they do not support the local economy.
 
 
+1 # brux 2013-03-03 21:28
That is the answer, right there, Americans need to stop supporting this murderous system that is killing them. In every industry now the output are externalities that kill people and created debt and expensive problems.

Agriculture does not subsidize good food, it subsidizes junk food. Education breaks people's spirits and turns them into idiots. Health care just takes people's money for very little value. Out government merely protects the powerful and presides over their oppression of the people.

Stop buying junk food, stop paying into the health care industry as much as possible.

Stop paying for cable, and stop listenind to the BS news and brainwashing violent programming.

Just stop sending your money into this system of death.

Then start to look at what this system has done to people, and what it owes us, and then empower government to get it back and compensate the country.
 
 
+6 # WestWinds 2013-02-23 23:22
# Rain17: Exactly. "The Government" has become a product the industrialists sell us (and we are silly enough to buy over and over again.) The government is nothing but one huge manipulation machine for the best interests of the military-indust rial-war complex. The corporations have stopped caring about ANYTHING except their profits and they don't care how many people suffer or die, they don't care about the damage to the planet or the eco-chain or anything else. In short, they're barking mad. Watch this and then think about it:
http://vimeo.com/59002146
 
 
+17 # Charles3000 2013-02-24 05:16
Rain misses one point; the power of a liquidation phase which is what we have now and with the sequester, it will become stronger. The powers that be want and demand a liquidation phase when much property and assets are held by the "average folks". A liquidation phase is started by withholding money from the economy and forcing the economy down there by forcing people to sell assets at low costs, assets which the few with excess money can buy at low prices. Do not kid yourself; people with real money love the current economy. It is the time when they can buy up assets at low prices and expand their wealth.
 
 
+1 # Michael Lee Bugg 2013-02-27 10:49
Charles, you are absolutely correct, just as it happened during and after the Great Depression! The problem now is that Obama is no FDR or even Teddy Roosevelt, and too many Dems in Congress and state government are also servants of the 1%!
 
 
-4 # MidwestTom 2013-02-23 21:08
To put thing s in perspective here the $85 billion in cir=ts seems large, but we just spent $60 Billion on Sandy relief. The F-35 fighter program was initially projected to cost $400 Billion, but it is now projected to cost $610 Billion. The state of Illinois is $95 Billion behind on it's pension contributions (due mainly to not contributing anything for several years). Civilian Federal workers will be required to take 1 and 1/2 days off per month without pay. This will not bring the nation to it's knees. Sequester is the only way that we will ever reduce Military spending.
 
 
+5 # Cassandra2012 2013-02-24 14:13
Yes, the IL governors (of both persuasions) used the funding for pensions to 'balance their budgets' and now expect e.g. nurses, teachers, professors to give up more (while on low pensions from comparatively low-paying jobs which denied them access to Social Security ! which they took because of the 'guaranteed' pension. Can you spell exploit or callous??
 
 
+2 # Todd Williams 2013-02-25 09:26
Yes, of course you would want to pitch the baby out with the bathwater. I would expect nothing less than such a comment from you, MidwestTom.
 
 
+2 # rockieball 2013-02-26 08:14
Okay let's do it. But at the same time end the corporate welfare not only to the oil companies but big argria and the aircraft industry. Re-regulate the banks, nationalize the Fed and prosecute the CEO's for their fraud. Have a tax on trading in the market. Seems to me those that fight tax increase are fighting any increase that affects the 1%. Yet every time the price of a product goes up the little people are hit with a tax increase. EXAMPLE- a product selling for $1 with a 10% sales tax you pay $1.10. It goes up to $2. You now pay $2.20 for the product. A 100% increase on both the product and on the tax. Yet suggest a 10% tax on trading on the market and we hear loud cries of FOUL!!, IT WILL HURT THE ECONOMY!! Well you hurt the economy more when prices go up for real goods and services than in the house of cards call The Market.
 
 
+12 # dick 2013-02-23 22:39
Most of them aren't stupid. They have agendas other than near full employment. They are filled with fury & hatred. They run in safe districts. They know they can hold the House. They're locked & loaded for doing evil. Things could get very, VERY ugly soon.
 
 
+18 # chicagoflygirls 2013-02-23 23:37
Regarding "The financial power brokers will not allow the economy to fall into another recession. This is not out of any noble desire, but to protect their bottom lines. They don't want the economy to falter because it will undermine their profits." I disagree.

These nasty folks have put aside more than enough money to weather this storm for a few years, and they want to bedevil this President any way they can. They are idealogues who will literally cut off their companies' noses to spite their faces. The jobs lost and the pain felt will not be theirs. They feel immune and they probably are.

The only answer is to put the Republicans out of their jobs in the next election cycle, if they haven't already gerrymandered themselves into permanent employment.

The tea party idiots are feeling great about all this, feeling that they "WON" something, but ignoring the consequences of their actions.
I see what the new crop of teaparty leaders are like and they are not fit to lead anyone anywhere. They are nasty children, who are already showing that they have no good ideas of what is good for this country or the suffering people in it. But of course, they have their lovely government benefits now, so they are no longer even able to relate to the rest of us.
 
 
+12 # IAMMe 2013-02-24 05:20
Reich says 'anyone in Washington can understand this'. It's not that they don't. They do! Bring down the government and let the rich get richer. Have as many workers as they want on their knees ready to work for $5 an hour.
 
 
-35 # moafu@yahoo.com 2013-02-24 06:23
Mr. Reich, you are an intelligent man and by all public impressions a kind and respectable man. With all your knowledge, experience and training why would you accuse the government of having "half a brain". Surely you realize that if a person, company, or nation is in debt, it can not get out of debt and expand its possessions and influence by going deeper into debt ! Utterly illogical.

The Constitution was established by competent and intelligent men like you. However, they established a system whereby the government would NOT have to borrow to operate, and that the gov't. would not implement a graduated income tax to pay that debt.

Half a brain is enough to live within one's means.
 
 
+13 # engelbach 2013-02-24 08:13
You miss the whole point of investment. You don't get out of debt by selling off the business. You have to spend money to make money.

Government investment in jobs will cut unemployment, slow the outlay of funds for unemployment benefits and welfare, stimulate spending to spur more hiring, and bring in additional tax revenue to offset the investment and, in time, the deficit.

It will also, not incidentally, lift the working class out of the doldrums and reinvigorate the crumbling infrastructure.

Debt is not a bogeyman. It's the means by which businesses start and expand, and households buy houses and cars.
 
 
+8 # tonenotvolume 2013-02-24 10:31
The problem with half brain people is that they equate the dynamics of the economy with the finances of a person. So, you cut out your credit card purchases, tighten up the family budget, and look for deals. You force yourself to live on less and depending on your debt it takes months or years to fix the problem. Do you think your individual cells or body functions care about this? But in the dynamics of government, those affected cells and systems are us and we will be affected. Don't use that argument; it's misleading. Sure, we're in debt but let's look at it from the correct perspective. There's plenty of cash available if we reorder our priorities and one of the first should be to stop hemorrhaging revenue to the top tier of income earners. No other country allows this disgusting accumulation of wealth by so many individuals. The real problem isn't that Washington has half-a-brain, it's that our government is mentally ill. Oh but, now I'm using that half brain argument.
 
 
+8 # tabonsell 2013-02-24 17:24
Where in the Constitution do you find anything to support your idea that the Founders established a system whereby the government would NOT have to borrow to operate..."?

In the Constitution I studied in graduate school it said Congress has the power "to borrow Money on the credit of the United States..." That is in Article I. Section 8, and is the first power given to Congress after the power to tax and spend.

The nation has had a debt since the first year in operation and that debt has been with us the entire run of the nation, except for two years in the jackson administration which historians say were some of the most-miserable in our long history.
 
 
+2 # davidr 2013-02-24 21:58
Yes. In fact, the very idea of making a new Constitution drew upon the desire to improve US access to international credit. What European bankers or national treasuries were going to advance money for purchase of North American manufactures or to finance internal development if the states continued to be set up as 13 tinhorn principalities issuing their own currency and indifferently paying their debts? The Federalists were not opposed to borrowing. They were opposed to defaulting. They wanted a good credit rating to enable future borrowing on the most favorable terms. In service to this goal, among others, the Constitution created a strong, centralized administration able to fulfill all terms of debt repayment, plus coherent national scale (i.e., aggregated national wealth, the ultimate source of debt repayment and lender confidence). If in the alternative, however, the Framers had wanted a system of government that couldn't borrow money, they would never have replaced the Articles of Confederation as they did.
 
 
+3 # ericlipps 2013-02-25 14:17
Quoting tabonsell:
Where in the Constitution do you find anything to support your idea that the Founders established a system whereby the government would NOT have to borrow to operate..."?

In the Constitution I studied in graduate school it said Congress has the power "to borrow Money on the credit of the United States..." That is in Article I. Section 8, and is the first power given to Congress after the power to tax and spend.

The nation has had a debt since the first year in operation and that debt has been with us the entire run of the nation, except for two years in the jackson administration which historians say were some of the most-miserable in our long history.

Right! In fact, at the start of World War I the U.S. was the world's largest debtor nation; loans to other nations (snd war reparations from Germany) helped transform it, temporarily, into the largest creditor.

Then along came first Ronald Reagan and then the two Bushes to put us back in our prior place. . . .
 
 
0 # flippancy 2013-02-26 09:11
Bull, the constitution requires us to pay all our debts, and we don't overspend by a far cry. Our problem has been caused primarily by Reagan and Bush 2 and is a direct result of tax cuts for those who never needed them in the first place.

Government spending on safety net programs increases the economic good, tax cuts for the rich destroy the economy. This has always been the case throughout all of human history.
 
 
+11 # Robineagle 2013-02-24 06:32
Robert and Friends,

I thought you were going to tell us why so many in congress don't have half a brain and I was eager to read your thoughts about this; so I was disappointed you did not include it. Anyway, thanks for what you did share. My thoughts are though that it probably has something to do with candidates having to raise so much money and make political deals just to get elected. That plus the gerrymandered districts and so much money being poured into our political system by vested interests.

In any case, what you describe is only going to get much worse. Part of the reason that the economy is not doing better is because we are running out of easily extracted natural resources and undermining the health of the natural environment. As this continues there will be less wealth.

I encourage you to write about the need to invest in real wealth and prosperity by making a rapid transition to a fully sustainable America, the very foundation on which all of life is based. I would be happy to consult with you about this proposition.

Rob Wheeler
US Citizens Network for Sustainable Development
Global Ecovillage Network
robwheeler22 @ gmail.com
 
 
+7 # bibi 2013-02-24 07:08
How does one keep a balance between rampant consumerism which is called an addiction by psychologists,( & that we should look at other ways to find happiness), and the importance of buying and spending to keep the economy thriving?
 
 
+1 # charsjcca 2013-02-24 07:21
The key item that should resonate with American citizens is the 20% notion. Just as the 47% number sank Mitt Romney. The one in five number should capture the attention of my fellow citizens. Government is not the enemy. Anyone who followed the base closure and realignment process already knows this. Whole communities were impacted when a military installation shuttered its doors. We tried to use the facilities for other purposes but it is very difficult to replace the economic activities associated with a ship yard. I have had experience with attempting to do that. Creating an economic activity that replaces 5,000 workers is a task not easily embraced. So the 20% issue is worth understanding.

I live in a county that is supported by several military installations. To close them is to return my county to sharecropping and that economic option is no longer readily available.

It is that we must cast aside this government hating modality and look toward abundance. What do we have for the present journey?
 
 
+11 # Rita Walpole Ague 2013-02-24 08:53
Dear Prof. Robert: Thank you again, for the umpteenth time, for jiggling our brains. If I may be so bold.....

My theory, not proven, but certainly with mucho de facto, is that ruination of the general economy, with all we the sheeple suffering severely, is purposeful and planned by our villainaire rulers. What better way to insure enlistment in the military (a.k.a. the mic), thereby insuring ongoing war for $$$ into the coffers of you know who. After all, the draft certainly played a huge role in our getting out of Vietnam, did it not. And, if no dreadful draft exists, then plan they must on how best to keep our 'mic' going stronger and stronger.

And, then there's all the profits made by the villainaires via recession/depre ssion m.o.. How folks across the globe, with even a bit of 'moxie', laugh at we Yanks and our being so naive. Lots and lots we've gotta do to...UNDO THE EVIL COUP !
 
 
+6 # tm7devils 2013-02-24 09:56
Half a brain...? I'd be surprised if any two T Partyers put together had a WHOLE brain. (not to mention the remainder of the Right and some of the D's)
At least with the Three Stooges we got a good laugh...
I think it boils down to this - we have to add an additional criteria in order to become a legal voter - proof of one's ability to think rationally and critically...WE 'RE the ones who put these nut jobs in congress.
 
 
+3 # Ray Kondrasuk 2013-02-24 11:31
Sunday's syndicated Thomas McClanahan column railed against Obama's business-bustin g raises, maintaining that higher wages cut profits and cost jobs.

Republicans are already on record for opposing tax hikes on the wealthiest, thus in effect, increasing MAXIMUM earnings.

In tandem, shouldn't they now propose enhancing that upwards transfer of wealth by LOWERING the minimum wage?
 
 
0 # flippancy 2013-02-26 09:15
The places with the highest minimum wages are also the economically healthiest places. It benefits industry greatly because higher wages increases buying exponentially.
 
 
-6 # Martintfre 2013-02-24 14:05
//There are two big categories of customer: One is comprised of individual consumers. The other is government.//

Sounds like the parasite (government) justifying robbery from the producer (the people).

The term 'customer' implys that they have a choice -- but with government they spend and send us the bill they even create IOU's for a generation yet to be born so in reality we have no choice.

The fraud of elections as a reign upon the monopoly corporations (Republican and democrat) is and will continue to be a fraud until all special government protection for the political parties are removed and they have no more legal standing or support then the common individual citizen.

controlling who is and who is not allowed on the ballot, controlling who is and who is not in the debates is but a few examples of this monopolistic control.

A good economist (not the fool who penned this drivel above) observed that monopoly is the enemy of good government and monopolies require government protection to last.
 
 
+3 # Todd Williams 2013-02-25 11:17
So Robert Reich is "a fool who penned this drivel?" And just how are we to categorize your posting? Are you also a qualified economist who pens drivel? Boy, you sure think alot of your skills.
 
 
-2 # sisu 2013-02-24 20:35
Must we choose from one of three solutions?
1. Inflation,
2. Default
3. More debt
$. Is there another?
 
 
-1 # tm7devils 2013-02-25 01:10
Yes, Marshall Law...
 
 
+1 # flippancy 2013-02-26 09:16
Yes, increased infrastructure spending.
 
 
+2 # JFR 2013-02-25 02:34
There are two factors impacting the economic recovery. One is demand -- a factor of necessity and capacity to transact. But the other is the flattening of wages - where you can maybe stay level in a career and often fall behind.
This one isn't discussed as much. Large corporations have policies in place that provide no increase for inflation / cost of living and force an AVERAGE of all increases to hold within 3%. The combination ends up holding workers to a flat income model unless the can change jobs [to get more pay for increased experience] or get promoted [contained in most companies].
IT demand in Detroit is extremely high and wages are not going up. Scarcity of workers is no longer triggering an increase in wages - as it should in a 'free' economy. We need to understand why incomes are flat-lined and consider the less than free marketplace which has companies set wages comparing what each of them is paying / wants to pay - insulating against demand.
 
 
+2 # Walter J Smith 2013-02-25 07:37
This is the closing conclusion and it is a good one: "Anyone with half a brain should be able to understand all this. But apparently many in Washington don't have half a brain." It is good, but it is not good enough.

Washigton is the puppet house. The puppets are controlled by the Wall Street Muppets.

Get over it. And explore what is outside the silly. obsolete notion that the puppets have any idea what they are doing or who is pulling their strings.
 
 
+3 # bmiluski 2013-02-25 09:22
When are people going to realize that the MIDDLE CLASS IS THE JOB CREATOR. If we don't buy, then the 1% can't make. If they can't make they won't hire.
 
 
0 # flippancy 2013-02-26 09:04
Sadly, many in Washington DO have half a brain!
 

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