Robert Reich predicts Obama will unilaterally lift debt ceiling rather than allow a U.S. default

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      One of the best-known economists in the United States says that he doesn't believe President Barack Obama will permit his country to default on its financial obligations.

      Robert Reich, a former secretary of labor in the Clinton administration, told the Georgia Straight in an exclusive interview that it's "simply unthinkable" for the U.S. to experience an Argentina-style collapse.

      "Argentina is one thing," Reich said. "The United States, though, is a central pillar of the global economy.  And a default would have cataclysmic consequences for the global economy. Before we got to that point, even if the Republican Party or the Republicans in Congress refused to raise the debt limit, the president, I’m sure, would go along and raise the debt limit, notwithstanding. There is arguable constitutional authority for him to do so. Even if he has to withstand the slings and arrows of angry Republicans, the stakes are simply too high. And the fallout from not raising the debt ceiling would be too onerous."

      Reich focused on the negative economic impact of rising inequality in his two most recent books: Aftershock:The Next Economy and America's Future and Beyond Outrage: What Has Gone Wrong With Our Economy and Our Democracy, and How to Fix ItThe decline in median incomes is also highlighted in Jacob Kornbluth's new documentary, Inequality for All, which brings Reich and his ideas to the big screen.

      Reich spoke to the Georgia Straight in advance of a two-hour presentation at the Orpheum Theatre on October 3 as part of Simon Fraser University's Community Summit on the economy. Read the full interview below.

      Georgia Straight: You’ve written these books on inequality, Aftershock and Beyond Outrage. Do you think your message is getting through?

      Robert Reich: No, inequality is a larger problem than ever. More and more of America’s income and wealth are concentrated in the hands of fewer and fewer people and families. Our policies with regard to education, financial regulation, taxes, the minimum wage, and so forth have not advanced the ball. In fact if anything, we continue to move in the wrong direction. The Affordable Care Act is a step in the right direction, but even that is under direct assault. And the result is the first government shutdown in 17 years. So no. The short answer is my books have had no influence at all.

      Georgia Straight: You end the 2012 book Beyond Outrage on a tone of optimism, where you have Barack Obama giving a speech in Kansas.... In retrospect, do you see any progress?

      Robert Reich: I think the president…understands the issue. And his occasional speeches on the subject are exactly on point. But for a variety of reasons, he has not been able to do very much to reverse these trends. The Republicans in Congress have been absolutely recalcitrant, very disciplined. They have made it difficult for—and would have made it difficult for any president—to implement an agenda, even though the deficit and the debt are not nearly the problems they were a few years ago. Now, the Republicans are attacking him for a variety of other initiatives. So while I’m optimistic about the longer term, it’s very difficult to be optimistic about the next year or two.

      Georgia Straight: In Aftershock, you gave a lot of credit to former U.S. Federal Reserve chair Marriner Eccles and the role he played during the Great Depression. How would you compare Ben Bernanke’s performance as chair of the Federal Reserve to, say, Marriner Eccles in the face of similar circumstances?

      Robert Reich: Well, Marriner Eccles didn’t have all of the tools at his disposal that Ben Bernanke has. Bernanke has performed exceedingly well, and has done everything in his power to keep the United States economy going and to bring unemployment down. Bernanke’s biggest problem is that monetary policy cannot do it alone. You need an expansionary fiscal policy at the same time. And Congress for the reasons I talked about a moment ago, has been incapable of generating a truly sustained expansionary fiscal policy. So Bernanke has done as much as he can, but even he cannot do all that much.

      Georgia Straight: So he needs the help of the Congress?

      Robert Reich: Absolutely.

      Georgia Straight: Canada has a new governor of the Bank of Canada, Stephen Poloz. What advice do you have for him as he’s looking at this situation with the global economy?

      Robert Reich: Well, I think it would be wise to follow in Bernanke’s steps in the sense that if you have high unemployment and a very slow-growing economy with a lot of underutilized capacity, monetary policy has got to be used as a complement to fiscal policy in order to get the economy going again. This was not a controversial proposition until the late 1970s when we suffered double-digit inflation. And suddenly everyone’s focus turned to overly excessive demand relative to the capacity of the economy. Now, that’s perfectly understandable. Now we know post-2008 that the problems we face are much closer to the kinds of problems that America suffered after 1929. That is, inadequate aggregate demand.

      Georgia Straight: Which can lead to deflation?

      Robert Reich: Well, it leads to recession. Very very slow, anemic recoveries, chronically high unemployment, and a fragile economy overall—accompanied by a great deal of economic insecurity.

      Georgia Straight: How close do you think the United States is to an Argentina-style default?

      Robert Reich: I don’t think the United States is close to that because it’s simply unthinkable. Argentina is one thing. The United States, though, is a central pillar of the global economy.  And a default would have cataclysmic consequences for the global economy. Before we got to that point, even if the Republican Party or the Republicans in Congress refused to raise the debt limit, the president, I’m sure, would go along and raise the debt limit, notwithstanding. There is arguable constitutional authority for him to do so. Even if he has to withstand the slings and arrows of angry Republicans, the stakes are simply too high. And the fallout from not raising the debt ceiling would be too onerous.

      Georgia Straight: So you don’t anticipate a default happening anytime soon?

      Robert Reich: Well, I anticipate us getting up to the brink. I don’t think the president would lightly decide to unilaterally raise the debt ceiling. That means that he will literally be breaking the law. Again, arguably the constitution allows him to do so, if not requires him to do so, under these circumstances. It’s going to be—it could be—a constitutional crisis of sorts. But I don’t think at the end of the day that the president would allow the United States to default on its financial obligations.

      Georgia Straight: Does the president or his secretary of the treasury ever pick up the phone and ask you for your advice?

      Robert Reich: He has occasionally asked me for advice. But rarely. I was part of his economic transition team when he came into power. I’ve seen him a few times in the Oval Office since then, but I don’t consider myself a regular adviser.

      Georgia Straight: One of the issues you raised in Aftershock—kind of peripherally, but you said it’s a problem with the rising anger that’s happening with the Tea Party—is the possibility of fascism. Is that something that people should be concerned about when they look at these swirling economic currents and the fiscal policies being advocated?

      Robert Reich: I wouldn’t be that alarmist. The problem for any society is when large numbers of people become angry and frustrated because they are working harder than ever and they’re not getting ahead. Their pay is actually declining, adjusted for inflation. They’re economically insecure and they feel like the dice are loaded against them. The problem is that under these circumstances, people begin looking for scapegoats. You have a very fertile field for demagogues, whether they’re right-wing demagogues or left-wing demagogues, who point the finger of blame. And that finger of blame can be directed at immigrants or the poor or the rich or corporations or unions or the government itself. And that generates a kind of polarization, gridlock, divisiveness that is difficult for a nation to handle. The United States hasn’t succumbed to fascism. I don’t believe we would or will, but we are more polarized right now and more divided than we have at any time in my memory—even though, ironically, most of the substantive issues we face are not as divisive as they were, for example, during the 1950s with Joe McCarthy and his Communist witch hunts. Or in the 1960s with the civil-rights movement or in the early ’70s with the Vietnam War or Watergate.

      Georgia Straight: You draw the parallels between now and the 1920s and 1930s. That’s why I was asking because that was kind of the heyday of fascism.

      Robert Reich: Yes, and as I said, that’s when some countries in the world succumbed because their economies were under such stress. People were so desperate. And it’s not just fascism, but any kind of ism can become dangerous. But I’ve just seen in the United States, the tendency has been—if you look at the Progressive Era between 1901 and 1916, or the New Deal between 1933 and 1939, or the Great Society between 1963 and 1968, and even to some extent, Bill Clinton’s administration in the 1990s—you have movements to save capitalism, American capitalism, from its own extremes. To save capitalism, in other words, from itself.

      Georgia Straight: Your books suggest that if we can only stimulate demand and we can spread the wealth a little more to increase the purchasing power…. But unlike in previous times, we’re facing some pretty serious environment issues. I’m wondering how concerned you are that if everything works out the way you want it to be, are we going to accelerate some of the problems facing the global environment. Can we even have 1950s- or 1960s-style rates of economic growth?

      Robert Reich: That question assumes that the only kind of consumption is of material goods that deplete natural resources. But of course, there are many other kinds of consumption. We could consume education. We can have more and better health care. We can have more and better environmental protection, for example. It’s no coincidence that the environments of rich countries tend to be cleaner than the environments of poor countries because with economic growth comes more capacity to do more things, including having a clean environment. We mustn’t confuse consumerism—that is, the acquisition of more stuff—with the capacity of an economy to do a whole variety of things, including generating a sustainable environment.

      Georgia Straight: How did you get the idea to do the new movie, Inequality for All?

      Robert Reich: A young director named Jake Korbluth came to me about two-and-a-half years ago or three years ago, and suggested the movie. He had read my books up to that point and thought that a movie about inequality based on Aftershock would be useful. I acquiesced. I thought, “Sure, why not?” I had tried everything else. I was being a bit naïve. I didn’t know how hard it was to do a movie. Jake is extraordinarily talented. The movie, even after its first week, has done remarkably well, exceeding all of our expectations. It won an award at Sundance. It’s opened in 26 major American cities, expanding to more than 40.

      Georgia Straight: I’m waiting for it here. It hasn’t shown up in Vancouver yet.

      Robert Reich: All you need is a movie theatre that asks the distributor. This is all a very decentralized system. The Weinstein Company, the Radius division, is distributing the movie. I hope it comes to Vancouver. I think that people here would find it illuminating.

      Georgia Straight: Has it had any impact on your life?

      Robert Reich: It’s had a devastating impact over the last month because I’ve been out flogging it (laughs). For the last couple of years, it’s certainly taken more time than I ever expected. But it’s also been great fun.

      Georgia Straight: Are you working on any new books now?

      Robert Reich: Yes, as a matter of fact. It’s a terrible habit. They kind of percolate up to my cerebral cortex, my frontal lobe, and I have to start writing. And I am doing another book. Usually, it’s a process of discovery. I don’t know precisely what the book is about until I get well into it. And then I have to reorganize around its central theme. But it will continue to be an exploration of these structural changes in modern economies and the political and economic consequences.

      Georgia Straight: Have you received any backlash? If so, how has that manifested itself when you talk about inequality? I’m just wondering what the response has been from your critics.

      Robert Reich: There’s always a backlash, particularly on something as sensitive as issues of inequality. Political conservatives assume that even raising the issue generates a sort of class warfare. My approach is the opposite. I think not raising the issue—when, in fact, we’re at almost record of levels of concentrated income and wealth and political power—that becomes more dangerous. Then you have real class warfare. So as the movie gets more and more exposure, I expect more criticism from people who are anxious talking about the issue. But frankly, I don’t care. I think it’s healthy and important.

      Georgia Straight: What are the biggest misconceptions about the economy that people reading newspapers or watching newscasts might have?

      Robert Reich: The biggest misconception is that there’s something called an economy separate and distinct from the rules that define it. There is no economy in a state of nature except a kind of social Darwinist survival of the fittest and biggest. In civilized societies, the rules of the game are developed and enforced by government, courts, legislatures, and agencies. What is property? What is liability? What is a valid contract? What can be traded? What can’t be traded? All sorts of issues, including the rules of bankruptcy, the rules of antitrust, and so forth—we take these for granted, but they do tilt the playing field in one direction or another. Some of them make an economy more efficient. Some are designed for efficiency. Some of them are designed for growth. But some of them reflect a society’s sense of fairness, inevitably. What I am trying to get people to understand is that if they don’t feel that the distributional consequences of the current arrangement is adequate, then we should have the power in a democratic society to change the rules so that those distributional consequences are more to our liking.

      Georgia Straight: Where did you get your empathy for average people?

      Robert Reich: Well, I don’t know. I think most of us are empathic toward average, working people. My father had a dress store. He sold dresses to the wives of factory workers in the 1950s. And I was always short for my age and I was getting beaten up and bullied. Maybe that had something to do with it as well. But remember, I grew up at least in my formative years in the 1960s. So that John F. Kennedy, Martin Luther King, Robert Kennedy were all major political figures whose careers and basic precepts I took to heart. Even in 1967, I was an intern in the office of Robert Kennedy. So there was no doubt in my mind that I would be working on the political economy. I don’t think I would have predicted exactly the career I ended up taking, but I was always interested in the questions of distributional justice.

      Georgia Straight: How gruelling is it for you to be, really, the leading voice for liberal economics in the United States?

      Robert Reich: Well, I don’t think I am the leading voice of liberal economics. I think there are many people.

      Georgia Straight: Joseph Stiglitz?

      Robert Reich: Joe Stiglitz would be one. Or another, Paul Krugman, is very articulate. I am not comfortable with the labels. I think too often, labels close off discussion.

      Georgia Straight: How would you classify yourself?

      Robert Reich: A humanitarian? I don’t know. I certainly would argue for a decent society, a humane society. I think we want to be having many more discussions than we do about what is the nature of a good society. I’m continuously pleasantly surprised by how many people agree on some basic principles, regardless of the label that they apply to themselves. For example, should someone work full-time and still be in poverty? The answer, according to surveys, is no. A wide cross-section of Canadian and U.S. citizens say if you’re working full-time, you should not be in poverty. Or to take the other extreme, should we have effectively an ongoing aristocracy in which the family you are born into determines your life chances of success? If you’re born into wealth, you’re almost invariably going to be wealthy, as are your children and your children’s children. Most people feel that perpetuation of family dynasties is wrong. We ought to have a lot more mobility. People ought to have equal opportunity and not necessarily be consigned to a certain place on the economic ladder simply because of their parents. I could go on. My point is that once you get rid of the labels, there is a huge amount of consensus about what a good society means.

      Comments

      10 Comments

      Green Billy

      Oct 4, 2013 at 11:22am

      At some point, progressives of sound mind will need to accept that Obama duped them. It's been more than half a decade now, of handouts to giant corporations like Monsanto, ever-escalating wars, a ban on labelling GMO's, 300% increase in medical cannabis raids by the feds, the NSA revelations, etc.. Is the answer to elect republitards? Of course not, but continuing to pretend Obama isn't a corporate shill won't help anything either.

      I know it hurts to admit you've been masterfully bamboozled by a dashing young lawyer, but acceptance is necessary in order to "move forward" at some point.

      anonymous

      Oct 4, 2013 at 1:26pm

      I will post the open letter to Mr. Reich that I handed out at the event last night.

      I believe that Mr. Reich is trying to do the right thing. The only problem, if it is a problem, is that he is a part of the machine responsible for "manufacturing consent".

      Every topic he addressed last night, the statements he made were 100% correct. The problem is, the audience is never told how complex these issues are to address, because most people are uninformed and have their own biases.

      The consent of public opinion must be manufactured. And, this is being done for the good! It's just frustrating that this has to be done instead of fully informing the citizenry. As Abraham Lincoln said, "I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crises. The great point is to bring them the real facts."

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      W

      Oct 4, 2013 at 5:13pm

      The conceit we must address, if any GB, is that a leader (any leader) will solve all of our problems without us doing anything to help or assist.

      President Obama neither bamboozled us nor otherwise obfuscated his credentials or abilities or politics. I do think he fell prey to his own misguided notion that his election suggested a post-racial society. If anything his election has shown just how deeply racist his country truly is and how much the oolour of his skin has poisoned his chances of success. Especially with conservatives and Republicans.

      Add to those people the so-called progressives who think that social justice, inequality, poor education, lack of opportunity, systemic racism/sexism and wealth concentration are all solved with the wave of a hand.
      And further those conservative sycophants who want progressives to accept the yoke of such fantasy.

      As if any failings were solely the fault of one man. Or worse, all within his sole ability to resolve. We do need to grow up and realise that nothing about our society works if we aren't all engaged and actively doing something about it.

      There are many people out there who can hurl insults from the sidelines and pretend to be trying to help. Most prove by their words with whom they are truly aligned and what type of society they want. Despite it being clearly disingenuous and lacking all culpability for the racist miscreants they've elected.

      Reich's enduring point: that we determine by our votes, our actions, our words and interactions what type of wealth distribution we have, what type of economy, environment and democracy. Is a salient argument against blaming one person and suggests that one take personal responsibility to positively address collective wrongs.

      I agree with Mr. Reich that a humane democratic society that does not perpetuate injustice and inequality is a worthy and noble goal. One of which we are capable of working towards and bringing into fruition.

      We just have to stop thinking it down to one of us. Its up to all of us regardless of our skin colour or that of our elected representatives.

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      MarkFornataro

      Oct 4, 2013 at 6:49pm

      CBC reports that "a major Democratic Party fundraiser" has asked Harper if he is part of the Republican's economic brinkmanship vis-à-vis the Keystone XL issue. Tom Steyer asks Harper "Have your government, your government's lobbyist and/or agents representing TransCanada communicated with House Republicans about including Keystone in the original litany of demands put to President Obama?"
      http://www.cbc.ca/news/politics/u-s-anti-keystone-billionaire-takes-aim-...

      Sez Eye

      Oct 5, 2013 at 12:01am

      This would be a reach too far. Loss of the senate in '14. Impeachment of a sitting president.

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      Alan Layton

      Oct 5, 2013 at 10:04am

      I suspect the Tea Baggers plan has been to force Obama to raise the ceiling on his own. What else can he do but take the matter in to his own hands? The most important thing for right wingers in the US is to prove that a black man should never have been elected President. It was just an aberration, a horrendous mistake. At first they tried to accuse him of lying about his birthplace and now it will be about how a black man disobeyed their precious constitution. Even if they can impeach him on his very last day in office, they will have scored a victory. The opposition to Obamacare is just a red herring. It is, and always has been, about colour.

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      Bruce

      Oct 5, 2013 at 7:26pm

      @Alan Layton.....totally agree.
      Crawl into the mind of a Tea Bagger and you'll find thinly veiled hatred. The guy could have done every single thing the Republicans wanted and still he would be hated!

      RUK

      Oct 7, 2013 at 11:40am

      I have an extremely tenuous theory that the economic stalement between the Senate and President is because all sides recognize the need to cut the military but neither party wants to be blamed for defiling the de facto state religion (America The Belligerant); hence, sequesterization may be the way to acheive that.

      There is generally back channel stuff going on in government - we'll see what the real bottom line is very shortly.

      Sukh Hayre

      Oct 7, 2013 at 1:47pm

      Just because the U.S. developed it first does not mean that they get to collect rents in perpetuity for it.

      Did the housing bubble not actually serve a social good? Because, after the bubble popped, the housing still exits. The housing built won’t necessarily be perfect for what it is needed, but one must be pragmatic. Without the housing bubble, the economy would have been where it is today, but 10 years earlier, starting in 2002.

      And, as a side note, if that had happened, could that not have emboldened terrorism, if the likes of Al Qaeda was able to make poor, desperate people believe that with Allah’s help, the U.S. economy had been brought to its knees (even though there would be no true economic link)?

      The wealth being “destroyed” today would never have existed in the first place without the bubble. At least millions of people were put to productive use building millions of needed homes. In the end, who owns them is not the issue. Eventually, the inventory overhang (along with families doubling up) ensures that people get to live in a better home than they otherwise would have been able to, and the rent will fall to a level that can be supported by their level of income. “Investors” will only be able to have their properties sit vacant for so long before they start undercutting each other and rents begin to fall.

      The fact that credit unions have not taken the moral, if not fiduciary, duty to properly educate the credit union member-owners is almost criminal as far as I am concerned, because the only thing they have learned from the U.S. crisis is that they should just keep growing loans, and follow the business-as-usual strategy until the bubble finally pops.

      This may be, in some warped way, a valid explanation for banks, but, there is no way that this type of behaviour can be justified by the people who have been chosen to lead a cooperative.

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      Sukh Hayre

      Oct 7, 2013 at 1:49pm

      October 3, 2013

      Mr. Reich,

      The message you outline in “Aftershock” as the cause of the financial crisis is one that I have been trying to get the major credit unions here in B.C. to share with their member-owners since the financial crisis began in 2008.

      For the past five years, I have been consistently rejected by Tamara (Vancity’s CEO), and the CEO’s of B.C.’s three other major credit unions as well.

      Virtually the exact same forces that fuelled the housing/credit bubble in the U.S. until it popped in 2007, were used to fuel the second leg of the housing/credit bubble in Canada BEGINNING in 2009.

      Up to now, has it not been in the best interest of the U.S. to follow an economic policy that actually did allow the wealth gap to grow in a very managed manner, so that inequality would reach its maximum level, at the same time that the benefits of U.S.$ hegemony came to an end?

      My logic for this conclusion is that, because the U.S. was the printer of the world’s reserve currency, and therefore, by simple mathematics, had to run a trade deficit, it made sense to limit the amount of money that the vast majority of people had to spend on imported goods. If wealth had been more “fairly” distributed, that would have given everyone in the U.S. more disposable income, and that just would have meant that the cost of imported goods such as oil and manufactured goods would have been bid up with this extra cash sloshing around? And therefore, have been leaked out of the U.S. and into foreign hands?

      This wealth would then show up as increased savings of the Chinese and OPEC governments instead of the U.S. elite. At least in the hands of the U.S. elite, domestic policy can be put in place to reallocate this wealth after the benefits of U.S. dollar hegemony have run its course.

      The reality is, the past thirty years, the U.S. has tried to extract as much oil and manufactured goods from the rest of the world in exchange for US$ IOU’s because they felt it was the best way to get compensated for all the intellectual property that was developed in the U.S., and the rest of the world was going to benefit from, with only the U.S. having had to commit the resources to develop it. No nation is going to want to pay rents for intellectual property, when it can so easily be duplicated. They will do so only as long as there is something of greater value to be gained.

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