Robert B. Reich, a co-founder of The American Prospect, is a Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. His website can be found here and his blog can be found here.
I’m trying to remain optimistic that the president and congressional Democrats will hold their ground over the next month as we approach the so-called “fiscal cliff.”
But leading those negotiations for the White House is outgoing Secretary of Treasury Tim Geithner, whom Monday’s Wall Street Journaldescribed as a “pragmatic deal maker” because of “his long relationship with former Treasury Secretary Robert Rubin, for whom balancing the budget was a priority over other Democratic touchstones.”
A half century ago America’s largest private-sector employer was General Motors, whose full-time workers earned an average hourly wage of around $50, in today’s dollars, including health and pension benefits.
Today, America’s largest employer is Wal-Mart, whose average employee earns $8.81 an hour. A third of Wal-Mart’s employees work less than 28 hours per week and don’t qualify for benefits.
There are many reasons for the difference—including globalization and technological changes that have shrunk employment in American manufacturing while enlarging it in sectors involving personal services, such as retail.
I wish President Obama and the Democrats would explain to the nation that the federal budget deficit isn’t the nation’s major economic problem and deficit reduction shouldn’t be our major goal. Our problem is lack of good jobs and sufficient growth, and our goal must be to revive both.
Deficit reduction leads us in the opposite direction—away from jobs and growth. The reason the “fiscal cliff” is dangerous (and, yes, I know—it’s not really a “cliff” but more like a hill) is because it’s too much deficit reduction, too quickly. It would suck too much demand out of the economy.
I hope the president starts negotiations over a “grand bargain” for deficit reduction by aiming high. After all, he won the election. If the past four years have proved anything, it’s that the White House should not begin with a compromise.
Assuming the goal is $4 trillion of deficit reduction over the next decade—that’s the consensus of the Simpson-Bowles Commission, the Congressional Budget Office, and most independent analysts—here’s what the president should propose:
When the applause among Democrats and recriminations among Republicans begin to quiet down—probably within the next few days—the President will have to make some big decisions. The biggest is on the economy.
His victory and the pending “fiscal cliff” give him an opportunity to recast the economic debate. Our central challenge, he should say, is not to reduce the budget deficit. It’s to create more good jobs, grow the economy, and widen the circle of prosperity.
The deficit is a problem only in proportion to the overall size of the economy. If the economy grows faster than its current 2 percent annualized rate, the deficit shrinks in proportion. Tax receipts grow, and the deficit becomes more manageable.