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NationofChange / Op-Ed
Published: Tuesday 11 September 2012
If Obama gets a second term, recreating that bargain — and getting enough votes from Congress to do so — will be his central challenge, and America’s.
The Biggest Economic Challenge of Obama’s Second Term
The question at the core of America’s upcoming election isn’t merely whose story most voting Americans believe to be true – Mitt Romney’s claim that the economy is in a stall and Obama’s policies haven’t worked, or Barack Obama’s that it’s slowly mending and his approach is working.
If that were all there was to it, last Friday’s report from the Bureau of Labor Statistics showing the economy added only 96,000 jobs in August – below what’s needed merely to keep up with the growth in the number of eligible workers — would seem to bolster Romney’s claim.
But, of course, congressional Republicans have never even given Obama a chance to try his approach. They’ve blocked everything he’s tried to do – including his proposed Jobs Act that would help state and local governments replace many of the teachers, police officers, social workers, and fire fighters they’ve had to let go over the last several years.
The deeper question is what should be done starting in January to boost a recovery that by anyone’s measure is still anemic. In truth, not even the Jobs Act will be enough.
At the Republican convention in Tampa, Florida, Romney produced the predictable set of Republican bromides: cut taxes on corporations and the already rich, cut government spending (mainly on the lower-middle class and the poor), and gut business regulations.
It’s the same supply-side nonsense that got the economy into trouble in the first place.
Corporations won’t hire more workers just because their tax bill is lower and they spend less on regulations. In case you hadn’t noticed, corporate profits are up. Most companies don’t even know what to do with the profits they’re already making. Not incidentally, much of those profits have come from replacing jobs with computer software or outsourcing them abroad.
Meanwhile, the wealthy don’t create jobs, and giving them additional tax cuts won’t bring unemployment down. America’s rich are already garnering a bigger share of American income than they have in eighty years. They’re using much of it to speculate in the stock market. All this has done is drive stock prices higher.
The way to get jobs back is to get American consumers to spend again. Consumer spending is 70 percent of the nation’s economic activity. Most of it comes from the middle class and those aspiring to join the middle class. They’re the real job creators.
But here’s the problem. Middle-class consumers won’t and can’t spend because their savings are depleted, their homes are worth a fraction of what they were five years ago, their wages are dropping, and they’re worried about keeping their jobs.
And they’re no longer able borrow against the rising values of their homes because the housing bubble burst — which means they can no longer pretend they’re in better financial shape than they really are.
This is the heart of our economic dilemma.
Last Thursday night at the Democratic convention in Charlotte, North Carolina, President Obama suggested a way to correct this, or at least not make things worse: Raise taxes on the wealthy rather than cut programs the middle class and poor depend on (such as Medicare and Medicaid), give tax incentives to companies that create jobs in the United States, and invest in education.
It’s start but America’s middle class and poor need far more. They need to be able to refinance their mortgages at today’s low interest rates. They need a larger Earned Income Tax Credit – a wage subsidy for lower-paying jobs. And a higher minimum wage that’s automatically adjusted for inflation.
They could use a new Works Projects Administration and Civilian Conservation Corps designed to put the long-term unemployed back to work.
They need stronger unions to bargain for a larger share of the gains from economic growth. And a Social Security payroll tax that exempts the first $25,000 of income and eliminates the ceiling (now $110,100) on income subject to it.
And they need an industrial policy designed to create high-wage jobs in America.
In accepting his party’s nomination for president, Obama said the “basic bargain” that once rewarded hard work and gave everyone a fair shot had come undone.
He’s right. And the U.S. economy won’t return to normal until that basic bargain is remade.
If Obama gets a second term, recreating that bargain — and getting enough votes from Congress to do so — will be his central challenge, and America’s.
This article was originally posted on Robert Reich's blog.
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ABOUT Robert Reich
ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School 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. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.
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By Kiley Kroh
14 comments on "The Biggest Economic Challenge of Obama’s Second Term"
September 21, 2012 11:19pm
It is true that it is a tough time of the president sir Obama. The problem is not only the falling economy of United States, there are several other problems like increasing terrorism, and now the latest is the protest against blasphemous movie due to which in different countries, the public is destroying American goods. So I say that we should help to make America strong and support our president to solve all these problems.
Affordable Term Papers
September 12, 2012 3:47pm
I have an industrial policy for you, single payer health care. Think of the ability even small businesses to hire more and fret less about piles of paper if they were not compelled to worry about employees health care. It would go job to job and no employer would ever have to concern themselves with the intricasies of the employees health management. And we could then also begin to believe that our health care system wasn't in fact "corporate health care" system.
September 11, 2012 5:56pm
Every solution Reich suggests has merit, But he is leaving out the most important issue, This nation has actually De-Industrialized during the past 40 years by our buying into the Global Economy non-sense, We have to Re-Industrialize and start again producing what we concume like we have always done in the past. We were once the manufacturing giant of the world, We had a massive trade Surplus, We were the worlds largest Creditor Nation Now look at us! Worlds larget Importer, Worlds larbest Debtor Nation!
Bring the factories home by re- installing Protective Tariffs like was have done since our inception In short, Amrican first polices need to be reinstated!
Another issue never discussed: Why has the US for past 20 years and why are we still bringing over 1.2 Million new immigrants every year when we dont have enough jobs for ourselves, in fact, we are runnig a 23% REAL Unemployment. This on top of God knows how many illegal aliens are here taking jobs I need an aswner to this Neither Party will discuss it!!
or we are not going to make it!
September 12, 2012 3:24am
I'm with you on the tariffs.
September 11, 2012 4:03pm
I disagree that payroll taxes should be delayed until income exceeds $25,000. As a child, I learned to save part of what I earned. Adults should be able to do that from their first paycheck. Social Security is nothing more than an enforced personal savings program managed by the government. Congress should have left it alone instead of allowing other programs to feed from it.
"And they need an industrial policy designed to create high-wage jobs in America." Corporate taxes are an anachronism, and it is hard to imagine why they ever existed. They are a huge impediment to creating high-wage jobs. An article in the Sept. 3-9, 2012 issue of Bloomberg Businessweek tells how 2,000 families have shared ownership of the Empire State Building for generations. The businesses that occupy it pay rent, and the owners share the income after the management pays the expenses of maintaining the property. My wife has been receiving income from a similarly run property for at least 30 years. Both properties are essentially REITs, which have the unique distinction of not paying corporate taxes. Why are they unique rather than the rule?
Without corporate taxes, more income after legitimate expenses would be available to pay higher employee wages and provide dividends to stockholders, who would then pay income taxes on what they receive. Without corporate taxes, corporations would have no reason to hide profits offshore and would be more competitive in the global marketplace.
Corporate taxes exist for only one reason: creating loopholes. No loopholes, no lobbyists, no corrupt lawmakers.
Unnecessary wars create the need for expensive weapon systems and the endless stream of soldiers, sailors, and airmen needed to use them and maintain them. It has been well known for many years that the biggest expense in any industry is manpower. Hence, robotic systems. The laborer and the footsoldier are becoming obsolete on the battlefield, in the oilfields, in the mines, and the manufacturers' assembly lines.
"They" don't need a "policy" for high-wage jobs. We ALL have a personal responsibility for doing our share, just as JFK said in his inaugural address.
September 12, 2012 3:23am
Major, we enjoyed high wage jobs back when corporate taxes where high. Back then corporations were mostly national and included an actual degree of patriotism.
If corporations are people they have demonstrated that they are unpatriotic, cruel and uncaring people.
September 11, 2012 1:12pm
As usual, Reich has a good grasp of the complex economic factors contributing to our current dilemma.
Jeff Lewis makes a critical point about having access to real data and information, and I suspect a Financial Transaction Tax would fit nicely with a Public Works Admin and Conservation Corps--programs that should have been initiated when the 2008 crash occurred.
Never mind that Republicans spew "trickle down economic" drivel (how can anyone believe in supply side economics at this point in time)?
The solutions are within our grasp if we but demand them: raise the minimum wage, authorize government spending to put more people back to work, break up the banks and conglomerates and hold them accountable for their financial manipulations.
It's entirely about policies, practices and an approach based on economic facts and current realities, not 'belief' systems or political planks and rhetoric.
However, these days unless there is a certain amount of name-calling, labeling, overgeneralization and distortion of the facts, our politicians of both parties don't seem to have the common sense or will to act on the public citizen's behalf. How can we have a functioning democracy with the plutocrats and corporate apologists buying our political process? We live in very strange times.....
September 12, 2012 3:16am
"However, these days unless there is a certain amount of name-calling, labeling, overgeneralization and distortion of the facts, our politicians of both parties don't seem to have the common sense or will to act on the public citizen's behalf."
Sage, the circus you describe is pure theater designed to keep the people uninformed and misinformed while a criminal overclass takes advantage.
September 11, 2012 12:52pm
I like the details of Reich's Social Security tax idea; shifting the burden away from those who need more money for basic necessities (and would spend that money, helping grow consumption) onto those who can afford to cover it.
I like the idea of strong unions, but they MUST become transparent and accountable. Let's face it; Unions have earned a bad rap because they have a history of abusing their power, and blowing off the membership. At the same time, they can facilitate (and many times have) problem-solving and improved efficiencies within the workplace, be it private or public. Perhaps a middle-ground can be found, by establishing rules that require Unions to share records (and stronger enforcement of present FOIA laws for Federal agencies, too). Should be awfully easy to do this, given the internet.
Along with this, I would like to see mandatory full disclosure of a substantial array of records by all who collect money from the Federal government. This would certainly include all Fed-contractors. And, logically, should spill over to compel even extensive tax records of all elected officials and candidates. Yes, Mitt, that means you ... as it means every Dem, too.
A functioning Democracy requires active engagement of the entire citizenry, and this can only happen when we all have access to real data and information.
September 12, 2012 3:12am
Jeff, you are so right.
Corrupting union leadership has been one key element in undermining union power. Transparency could bring the tradition of corruption to and end.
September 11, 2012 12:25pm
The problem with all of this is that it is premised on economic growth. The economy is actually shrinking due to ecological collapse, and it is never really going t5o grow again. I have offered some suggestions for my community, and I would like to see what Robert Reich offers in a way to prosperity in a smaller economy. Check out http://prosperityforri.com/38-studios-and-economic-development-in-rhode-... for what might work in RI
September 11, 2012 9:58am
I know you have a logical set of facts on which to base your postulates but there is one HUGE mess that really is the key. We have a pile of over valued (ie. On paper they are valuable but nobody will actually pay for them) assets... houses and mortgages and CDOs and CDSs and who knows what else. The "value" does exist somewhere - in cash. It is in the coffers of the BANKS, Wall St. and in the offshore accounts and Safety Deposit Boxes of the Boards and Executives who got TARP money and used it for Bonuses. It SITS and does nothing. Meanwhile the houses and Mortgages are not worth much. Maybe 3 -5 million are bogus with fake values which are still underwater being touted and played with. More tax money is paying lenders to drag the Foreclosure process on and on. WHY? Because the lenders KNOW that Geithner and Bernanke actually work entirely for them, and not for the PEOPLE and their solvency. Obama faces 2-3 million sudden and shocking Foreclosure actions, dumped into the courts for sale dates. It should happen around October 10th and produce a complete explosion of misplaced anger at Obama for not fixing this. And Geithner will express himself as he did already with a letter expressing his disappointment that DeMarco would not force Banks to write down values and even ordered Fannie and Freddie and FHA NOT to allow writedowns. Obamas ONLY action in the next 30 days should be to STOP ALL FORECLOSURES for 12 months. ThenBreak Up Banks so they can't go (as GMAC did) into Bankruptcy to evade judgements. All else is fluff.
September 12, 2012 3:09am
I'm not sure how much of the anger will be "misplaced". Obama appointed Geithner. Or was Geithner appointed for Obama. Either way.
September 11, 2012 9:19am
I think it's a great start.
I also wonder about your perspective on a Financial Transaction Tax. A 1/10 of 1% (one tenth of 1 percent (0.1%)) on stock market exchanges could go a long way to balancing the budget/generating a surplus.