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Robert Reich
NationofChange / Op-Ed
Published: Friday 23 September 2011
We can get out of this recession but not via the Fed’s “quantitative easing” alone.

When Will Wall Street Call for More Federal Spending?

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The Dow Jones Industrial Average dropped another 3 percent today as Wall Street metabolized the truth most Americans already know: We’re in a recession. The “double dip” has arrived.

Most Americans never really emerged from the Great Recession anyway. 

We can get out of this recession but not via the Fed’s “quantitative easing” alone. When consumers can’t spend and businesses won’t spend without additional consumers, government must be the spender of last resort.

Juicing the economy back to health (notice I didn’t use the “s” word Republicans have now vilified) will require at least $700 billion in additional federal spending this year and next. (This number takes account of state and local government cutbacks as well as well as the current shortfall between current economic activity and the economy’s productive capacity at or near full employment.)

But this magnitude of additional spending isn’t feasible in the face of Tea Party Republican intransigence. Hell, Republicans won’t even spend additional money on flood and hurricane relief. The Tea Party obsession about the federal deficit and the size of the government is prevailing.

Not only is this obsession keeping millions of Americans out of work, it’s also starting to bring down the Street.

If this keeps up, we’ll have a showdown between establishment Republicans who understand what must be done — and who will support substantially more federal spending in the short term in order to goose the economy — and Tea Party zealots who refuse to face reality. 

The crack in the Republican Party between its establishment and Tea Party wings is viewed politically as a contest between Mitt Romney and Rick Perry. But in reality it’s a brewing fight between economic pragmatists and right-wing ideologues. (Don’t expect Romney to call for more government spending, at least before the Republican nomination.)

The titans of Wall Street may not want to Barack Obama reelected, but the Street has an even greater interest in saving its assets and its ass.

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 Robert Reich's new film, "Inequality for All" is available on DVD
and blu-ray, and on Netflix in February.

I've always admired Mr. Reich

I've always admired Mr. Reich for his candor and insight. He is right but lets face it: we are in a depression as Richard Posner wrote in 2009. If not for the TARP and stimulus, we would have crashed quite hard. For many out there, the crash has already happened. I believe we are in a slow motion crash headed for world DEPRESSION, which accelerated during June and it will get worse in the coming months. The final result will be worse than the Great Depression. Will there be war? Riots? Starvation? Unrest. You betcha. I only ask Mr. Reich to write a scary prognostication for the near future. Scar the hell out of us but please direct it to the Republican Party, the Tea party asses, and Wall Street. End the Wars and stop the profligate waste of our nations wealth, financial and human....Stop the Machine in Wash. D.C. Oct. 6th.

I think Chris Thompson is

I think Chris Thompson is right that individual focused spending will only create a short term gain and add to the long term pain. Ed seems to believe that there willor should always be a free lunch. It's time to take the medicine, fix the regulary and tax structuaal problems, hold people individually accountable for their actions, and get everyone paying a share of the taxes. Where has individual accountability and responsibility gone? Oh - I forgot - the folks at the University at California Berkley don't believe in that concept.

Flat tire? Rotate it 180

Flat tire? Rotate it 180 degrees and walla! no flat tire... Just don't remove the jack. The $700 billion jack hides the flat economy for a short time, but like the (3X7=) 2.1 Trillion already down the drain, the flat is still there. Buy any item from, heavy equipment, electronics, clothing, petrol, and (dare I say it) elections, and look at the "made in" label. There is ONE of the major causes of the busted economy. Long term employment with an adequet retirement when age dictates that we can no longer work will probably allow us to put the jack back in the trunk. Then reinstate the regulations that were derived from the lessons learned from the 1920/30's depression. The T bags scream that we must stop government spending. To Me, it sounds like they are trying to destroy our government. Maybe that is the Koch ultimate goal.... You don't have to buy hay for a dead cow.

Absolutly it is about tearing

Absolutly it is about tearing apart the government, wich will also tear down the U.S. As a Canadian who still respects the U.S. contribution to the world (while decrying it's increasing number of mistakes these last 60 years). I would hate to see that happen. We face the same issues here in Canada as our right wing attempts to destroy the nation. Good luck to both our countries and fellow citizens.

jussmartenuf's picture

Stop buying into the constant

Stop buying into the constant barrage of propaganda put forth on Fox and talk radio.
All the stimulus money was NOT down the drain. The stock market rebounded by 63% (6,600 vs 10,771) Several hundred thousands of jobs were saved by saving not only GM and Chrysler and all the allied auto industry. There has been an increase of 2.9 million jobs created. It is still a battle but stop repeating the Republican lie that all that money went down the drain and start telling the truth.
900,000 young adults have been added to the health insurance rolls, the cost of medicare has gone down as the US has reduced the payments to insurance companies on the horribly overpriced Advantage medigap charges from which they were reaping huge profits. Stop listening to the insistent negativity the right wing is putting out there in order to poison the mind of the public for their personal interests, wake up and smarten up. Wall Street is owned lock stock and barrel by Republicans who care not one twit for the middle class other then what they can wring from them. When we vote for a president it should be for truthful reasons, not lies perpetrated by those that care only for themselves.
The Republican party is packed with traitors who see success for the American public as against their best interest. They have stated so themselves, Rush Limbaugh said he hopes Obama fails, that is treason in the first degree.

I pretty much agree with your

I pretty much agree with your statement. The truth is the politicians we elect to office only hear their own voice, not the voices that elected them. All this cr...p about a mandate. I'd like to know which aliens from another planet elected these idiots. This is a great time to be rich, when things get tough the Government gives you a reward in the form of Treasury money with the hope you will create the jobs they are telling the American People you will create. Trickle UP Economics, by putting money in the hands of consumers to create demand. Marketing only creates a demand where there is money to spend. Apparently we did not learn the lessons from the Great Depression. It took a lot of spending on behalf of WWII to finally get us out of that mess. One can only hope that common sense instead of common ignorance comes to bear at some point.

bail out the homeowners give

bail out the homeowners give them the cash to pay down what they owe that will open the spending back up to buy things then demand will take over and if it don't work we saved a lot of homes P

When will Reich defend

When will Reich defend Californians from displacement at University of California Berkeley by a Foreign passport and US$50,600? University of California Berkeley Chancellor Robert J Birgeneau ($500,000 salary), displaces qualified for public university education at Cal. Californians with $50,600 FOREIGN students.

Ranked # 70 by Forbes, the University of California Berkeley is not increasing enrollment. $50,600 FOREIGN students are accepted by Birgeneau at the expense of qualified instate students.

Your opinions make a difference; email UC Board of Regents

There's a reason they call it

There's a reason they call it "currency". Think like electricity. It is only useful when it's in motion. If its parked in great stagnant pools, like in offshore accounts and other parking modes, it's not going to be useful to anyone except the guy in charge of the penstock, like the Koch's or say Apple (who are sitting on about $76 bil). The one thing you can count on the government to do is to spend the money that it gets hold of. Not always in the most brilliant ways, but at least the money is then in motion. The biggest mistake Obama made was to be black. It would take some incredible song and dance to convince me that the heart of the tea bagger movement isn't fundamentally racist. That doesn't mean they all are, just mostly. And it wouldn't take much for a Dick Armey or the kochs themselves from co-opting these people for their own economic interests, primarily among those being having their refineries absolved of environmental regulations and their taxes lowered (again) and generally destroying the power of the government that is the manifestation of the Constitution that they so venerate. Is there a more effective means of forcing Obama out than making the "economy scream". (This is in quotes for a reason. Have you read your history?)

I couldn't have said it

I couldn't have said it better!...applause to Riconui!

Hello, Riconui. As I noted

Hello, Riconui. As I noted below I'm a Libertarian, not actually a, ahem, Tea-Bagger, although many people, I suppose, would put Libertarians and Tea Partiers in the same boat. Having talked with many Tea Partiers these last few years, I have to strongly disagree with your racist assessment, though. Sure, there are a few, as there always are. But most Libertarians and Tea Partiers I know would have the same vitriol for the President whether he was a woman or a white guy. The over-riding fear is the bankruptcy of the government of the United States. That is something we should all take very seriously. Its consequences will NOT be pretty.

we need to put a lot of cash

we need to put a lot of cash in the hands of the job creators right not the owners. The consumer the engine of the economy has always been the consumer ,if We would of spent the money right in the first place we would not be here we should have saved the consumer by giving everyone who holds a mortgage 100 thousand dollars to pay mortgages housing crises fixed bank crises fixed free up debt and the engine restarts to spend money you then have to spend like remolding buying new cars o fixed car crises my my we would be back in business hiring new employees again unemployment fixed now we have a dub dip we will all lose our homes this time i say tax the rich to pay for all this unemployment make it hard to lay off forever make them pay

What seems to be missed, post

What seems to be missed, post facto to both public and private debt reaching unsustainable levels, is that our banking system is criminally out of control. It's fed on a corrosive fractional reserve system that breeds the necessity of ever extended leverage, like any good Ponzie, and run by 'executives' that evolve ever nearer towards the advanced model adopted by Bernie Madoff, rest his black heart and soul.It should be needless to note that American worker/citizens have been betrayed by ambitious Democrats and Republicans alike eagerly serving the interests of a global banking/corporate matrix. The reselling of the same bill of goods of trade to voter/workers sold to them behind highly polished doors. Sold, but without the campaign financing incentives and promises of well paid post public careers. It got real traction during Robert Reich's watch at Labor, if I'm not mistaken.In any case, it should also be needless to note that you can't borrow your way out of debt. But, that's what's being proposed here, at interest, mind you. Music of a sort to the ears of those still with boardroom seats and new victims to burn at a very nice quarterly return.I've always liked Robert Reich, and always for the wrong reasons. I'm also a life long Democrat, blue collar unionist, socialist, artist and academic outcast. The only one of those that I'm truly beginning to regret, is the first.'When Will Wall Street Call for more Federal Spending?!' Rather, when will the Democratic party call for the executive heads of those responsible for the criminal destruction of equity and subversion of justice and utilize its mobilized electorate to demand it, NOW?!Meanwhile, the Republic becomes Reich, ...and Robert writes this silly shit in lovely Berkley.

I agree that the banks are

I agree that the banks are culpable, and heads should roll. But the issue is "what to do?" Reich's argument makes sense to me. I guess that makes me a Keynesian. If the private sector is locked up, as it obviously is, then something has to prime the pump. Who else but the federal govt.? Besides, Reich has said over and over that he doesn't want to borrow us out of debt, just get the wheels rolling in the short term, while we make long-term adjustments.

Joe Specht is a

Joe Specht is a "libertarian," and therefore above the fray, I suppose. Don't tell me, let me guess: in the last five POTUS elections, Joe has voted for McCain/Palin, Bush/Cheney, Bush/Cheney, Dole/Kemp, and Bush/Quayle.

We also call such people "Republicans."

Hello, Rob Hogue. Your first

Hello, Rob Hogue. Your first comment was accurate; your second one not so much. I am indeed “above the fray” in that I have never voted for a Republican OR Democrat for POTUS. Since I began voting in 1994, I am proud to say, I have been "wasting" my vote on Libertarians. Not a single vote for a Republican, except in primaries, I confess, voting for the likes of Ron Paul. If you agree with Reich that more government spending is the answer that gives you an accuracy rate, by my count, of exactly 0% so far.

Refusing to face reality is:

Refusing to face reality is: one, denying that the national debt has reached dangerous proportions; and, two, believing that a few more trillion dollars of government spending will "juice" the economy more so than the last few trillions of dollars has.

The effects of these denials will be felt when interest rates begin to skyrocket. That has yet to happen due to the downward pressure the current deflationary depression has placed on bond yields. As the national debt continues to outgrow the economy, however, this "cap" on interest rates won't hold, and future generations will pay an extreme price for decades of fiscal mismanagement by the politicians of both parties of the U.S. government. (I am a Libertarian, by the way.)

It's interesting that Mr. Reich and others are already pinning the blame for the inevitable collapse on those who refuse to continue spending into oblivion. I honestly have to wonder if Mr. Reich and others believe this, or whether they are simply working in advance to make future political hay.

fine put the cash in the

fine put the cash in the hands of all mortgage holders so if the thing does crash no one else loses there home or freeze mortgages till the thing is over

I ask the same question about

I ask the same question about Tea Partiers.

Wow, Mr. Specht. Where were

Wow, Mr. Specht. Where were you when the deficit was created and over 2 billion in surplus was erased? Where were you when two wars were financed with "emergency funds" and NEVER, EVER put into the budget and paid for? That bit of folly, along with the HUGE tax cuts to the top 1% totaled 8 trillion dollars in deficits. Where were you when that deficit was created Mr. Specht? The mess was created though and now must be fixed. FDR didn't "fix" the depression by balancing the budget. He created jobs through federal programs that put people to work and so put money into the economy. It raised tax revenue through higher employment and gave crucial hope and purpose to a demoralized population who badly wanted/needed to work. The "political hay" you speak of has already been sown, but not by the current administration or Mr. Reich. It was sown by all the increased spending into oblivion that began 13 years ago. Where were you then?

Marenk, so little of what you

Marenk, so little of what you said is anything I can even respond to. But let me piont out one distinction between the federal government of the U.S. in the 1930s and that of today. The U.S. government of the 1930s was not COMPLETELY BROKE. The U.S. government of today IS.

You may not be aware that what Reich, and apparently you, are advocating (in massively increasing government spending) has generally been defined as Keynesianism. The part of this magical elixir you progressives ignore, however, is that, as Keynes said, while the government should spend borrowed money in economic declines, it should repay the debt and have surpluses in time of economic prosperity. Has the federal government repaid borrowed money or gathered any meaningful surpluses at any time in the past eighty years? No, it hasn't. It has squandered the last eighty years overspending, creating more debt, and making more promises that it will be unable to keep.

So, as a result, spending our way back to prosperity is an option that is no longer on the table. Oh, and, by the way, so is feeding the masses once this horrendous experiment with "progresivism" comes to its inevitable horrendous end.

Joe Specht - Free Market Underdog

Reich is a hack. The idea of

Reich is a hack. The idea of the government "juicing" the economy. Is like saying a business can do better by paying more rent, utilities and insurance premiums. It is total nonsense. If you keep paying money and "buy" nothing you will continue to have NOTHING! How about making interest free LOANS not giveaways, for small business to refit all of the gas stations with nat gas. Make interest free loans to small businesses to refit autos to burn Nat gas. And finally give a tax break to auto buyers who BUY new autos that run on Nat gas. Create hundreds of thousands of jobs, slow down pollution and become less dependant on foreign oil. This would drive the price of everything we buy way down. But Reich/Obama would NEVER take an approach like this because there are no votes to buy. You can not create value by FIXING a bridge. Send my mail to

Reich has produced nothing to

Reich has produced nothing to convince me that we are doing anything structurally to sustain the economy past the stimulus.

Of course you have to be brain dead to believe that spending more money won't prop things up in the short term. Been there done that.

I think we're pushing on a string until we put some efficiencies and engage in a stable regulatory and tax structured environment. You're going to have to put something in place that provides investors and consumers some degree of confidence beyond another spending spree.

The one thing he leaves out the equation of course is how much damage the Obama presidency has done to the confidence equation.

you are full of it nothing he

you are full of it nothing he can do would start the engine unless they infuse a lot of cash to the homeowner it would free up spending and save our self s
something so simple you cut nuts cant fig that out the right thing to do is not the time to cut any thing till we recover but that's not the plan

Do you mean "ecological

Do you mean "ecological collapse" or "economical collapse"? Seems we're on the verge of both; and we need to figure out how to have a stronger, more prosperous economy while not losing what we have left in the way of ecology to further development.

Reich is right that

Reich is right that "government must be the spender of last resort." The money it spends should come from taxing the idle assets of wealthy individuals and corporations. The reason we have this recession is that money isn't circulating enough. Government can solve this problem by taxing and spending. This won't increase the deficit and, when the circulation of money increases, tax receipts will also increase.

This makes sense to me.

This makes sense to me.

Juicing the economy is fine

Juicing the economy is fine in theory, but in the face of ecological collapse, we need to rethink what we want of the economy and figure out how to have prosperous communities with a smaller economy.

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