Showdown Fatigue

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We’re one week away from a massive cut in federal spending — cuts that will hurt millions of lower-income Americans who’ll lose nutrition assistance, housing, and money for their schools, among other things; that will furlough or lay off millions of government employees, reduce inspections of the nation’s meat and poultry and pharmaceuticals and workplaces, eliminate the jobs of hundreds of thousands of people working for government contractors, and, according to Leon Panetta and other military leaders, seriously compromise the nation’s defenses.

Bad enough. If the spending cuts go through next week our fragile economy will slow further, causing more unemployment and misery. When consumers don’t have the money to buy enough to keep the economy moving, and government pulls back this much, businesses can’t justify keeping people on.

Yet the silence is deafening.

Republicans won’t deal. Obama has already cut $ 1.5 trillion out of the budget but Republicans insist on far more. They want the White House to propose major cuts in Social Security and Medicare.

Meanwhile, the Bush tax cuts have been extended permanently to everyone earning up to $ 400,000. Only the richest 2 percent have to pay at the rate they did under Bill Clinton, which was far lower than rich paid before 1981. That will generate $ 600 billion — less than half of the cuts Obama has accepted.

No one in their right mind would call this a balanced approach to deficit reduction. Yet Republicans won’t even consider raising taxes on the most fortunate members of our society. They won’t limit deductions and loopholes that have driven down the super-rich’s tax rates to single digits (remember Romney’s “carried interest” loophole for private-equity mavens?).

So where’s the outcry? Why aren’t more people up in arms? Why aren’t big businesses (including major military contractors) and Wall Street screaming into the ears of the GOP? Where’s the outrage from Main Street?

I suspect most Americans are suffering showdown fatigue. After all, we got through the debt-ceiling showdown of August 2011 and the fiscal-cliff showdown on January 1, and the world didn’t end. So most people figure Washington will find a way out of this one, too.

Others have bought the Republican-Fox News lies that the deficit is our biggest economic problem, and government spending is to blame. So a massive, abrupt, and indiscriminate cut in spending seems okay.

It’s not okay. It will hurt the most vulnerable members of our society, and much of the middle class.

Yet it would be even worse if Obama and the Democrats were to give in to Republicans, and not demand more from those who have never been wealthier. Inequality is widening again. All the economic gains since the Great Recession have gone to the top. The richest 400 have more wealth than the bottom 150 million Americans put together.

Why not limit the mortgage interest deduction to $ 25,000 a year, so the rest of us don’t have to subsidize mansion mortgages? Why not a wealth tax on assets in excess of $ 5 million to pay for early-childhood education? Why not a small tax on financial transactions (as Europe is now instituting) to finance better schools? Why not close the loophole that private-equity and hedge-fund moguls live off of, to finance child nutrition and social services for the poor?

It’s no time for showdown fatigue. It’s time to fight.

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,” now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Follow Robert Reich on Twitter: www.twitter.com/RBReich

Robert Reich

Showdown Fatigue

Connecting Entitlement Reform to Immigration Reform

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I was born in 1946, just when the boomer wave began. Bill Clinton was born that year, too. So was George W. Bush, as was Laura Bush. And Ken Starr (remember him?) And then, the next year, Hillary Rodham was born. And soon Newt Gingrich (known as “Newty” as a boy). And Cher (every time I begin feeling old I remind myself she’s not that much younger).

Why did so many of us begin coming into the world in 1946? Demographers have given this question a great deal of attention.

My father, for example, was in World War II — as were the fathers of many other early boomers. Ed Reich came home from the war, as did they. My mother was waiting for him, as were their mothers.

When it comes down to it, demographics is not all that complicated.

Fast-forward. Most of us early boomers had planned to retire around now. Those born a few years later had planned to retire in a few years.

But these plans have gone awry. First, boomer wages didn’t rise as fast as we expected they would. In fact, over the last thirty years the median wage has barely budged, adjusted for inflation.

As a result, most of us haven’t saved as much as we’d hoped.

Then employers scaled back our pensions. Instead of the predictable monthly benefits many of our parents got when they retired, we received “defined contribution” plans — basically, do-it-yourself pensions. Some employers initially offered to match what we socked away, but those employer matches often shrank to the vanishing point.

We nonetheless took comfort from the rising prices of our homes, and assumed they’d become modest nest eggs when we sold them and bought smaller places for retirement.

But then the housing bubble burst.

Meanwhile, whatever we’d managed to sock away in the stock market lost years of value.

We assumed we’d at least have Social Security and Medicare. After all, we’ve been paying into both programs for years.

Yet both are now being eyed by deficit hawks who say the only way to avoid large and unsustainable budget deficits in future years is to limit these programs.

For example, Erskine Bowles and Alan Simpson have just offered another of their deficit-cutting plans — paring back Social Security’s annual cost-of-living adjustment and reducing Medicare by squeezing suppliers and cutting benefits for higher-income retirees.

So are the boomers doomed?

Not necessarily. One possible response to the aging of America, not yet on the table: Expand the number legal immigrants coming to America.

As I’ve noted before, the biggest reason Social Security and Medicare are projected to cost so much in future years is because America is aging so fast.

It’s not just that so many boomers are planning to retire, and their bodies will wear out. It’s also that seniors are living longer. And families are having fewer children.

Add it all up and the number of Americans who are working relative to the number who are retired keeps shrinking.

Forty years ago there were five workers for every retiree. Now there are just over three. By 2025, if present trends continue, there will be only two workers per retiree. There’s no way just two workers will be able or willing to pay enough payroll taxes to keep benefits flowing to every retiree.

This is where immigration comes in. Most immigrants are young because the poor countries they come from are demographically the opposite of rich countries. Rather than aging populations, their populations are bursting with young people.

Yes, I know: There aren’t enough jobs right now even for Americans who want and need them. But once the American economy recovers, there will be. Take a long-term view and most new immigrants to the U.S. will be working for many decades.

Foreign-born workers are now 15 percent of the nation’s workforce. At the present rate of immigration, between now and 2050 immigrants and their children are projected to account for nearly all the growth of the American population under the age of 65.

Immigration reform is already on the national agenda, but we’ve been focusing on only one aspect of it — how to deal with undocumented workers.

We need to think more broadly, and connect the dots. One logical way to help deal with the crisis of funding Social Security and Medicare is to have more workers per retiree. And the simplest way to do that is to allow more immigrants into the United States.

Immigration reform and entitlement reform have a lot to do with one another.

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,” now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Follow Robert Reich on Twitter: www.twitter.com/RBReich

Robert Reich

Connecting Entitlement Reform to Immigration Reform

The Economic Challenge Ahead: More Jobs and Growth, Not Deficit Reduction

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Can we just keep things in perspective? On Tuesday, the President asked Republicans to join him in finding more spending cuts and revenues before the next fiscal cliff whacks the economy at the end of the month.

Yet that same day, the Congressional Budget Office projected that the federal budget deficit will drop to 5.3 percent of the nation’s total output by the end of this year.

This is roughly half what the deficit was relative to the size of the economy in 2009. It’s about the same share of the economy as it was when Bill Clinton became president in 1992. The deficit wasn’t a problem then, and it’s not an immediate problem now.

Yes, the deficit becomes larger later in the decade. But that’s mainly due to the last-ditch fiscal cliff deal in December.

By extending the Bush tax cuts for all but the top 2 percent of Americans and repealing the alternative minimum tax, that deal increased budget deficits by about $ 3 trillion above what the budget office projected last August.

The real deficit problem comes after that — when rising health care costs combined with 76 million decaying boomers will cost us all a fortune.

The answer is to move from fee-for-service health care to pay-for-healthy-outcomes, including lots of preventive care. This will almost certainly require a single payer instead of our balkanized health care system drowning in paperwork as each part of it bills and tries to collect from every other part.

Right now the central challenge is to reignite the economy — getting jobs back, improving wages, and restoring growth.

Deficit reduction moves us in the opposite direction. That’s because most consumers (whose spending is 70 percent of economic activity) are still losing ground, and businesses won’t expand and hire without more consumers.

So government has to be the spender of last resort.

Under these circumstances, increasing taxes on the middle class (as, for example, Republican legislators and governors are eagerly doing by raising sales taxes, and as the federal government did last month by raising Social Security taxes) makes it even harder for consumers to spend. Which means slower growth and fewer jobs.

Likewise, cuts in government spending, such as occurred in the fourth quarter of 2012, cause the economy to contract — as it did in the fourth quarter.

In other words, we’re still having the wrong discussion. It shouldn’t be how to cut the budget deficit. It should be how to bring back good jobs and economic growth.

Deficit hawks and government-haters are still framing the debate. That bodes ill for all of us.

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,” now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Follow Robert Reich on Twitter: www.twitter.com/RBReich

Robert Reich

The Economic Challenge Ahead: More Jobs and Growth, Not Deficit Reduction