Former Secretary of Labor Robert Reich asks who is to blame for the credit unwind:
A. Big government, bureaucrats, and the cultural and intellectual elites who back them.
B. Big business, Wall Street, and the powerful and privileged who represent them.
These are the two competing stories Americans are telling one another.
Yes, I know: It's more complicated than this. In reality, the lousy economy is due to insufficient demand—the result of the nation's almost unprecedented concentration of income at the top.
There seem to be a few steps missing between concentration of wealth and insufficient demand, but the more important question is how Reich knows what sufficient demand is.
Would $2.4 trillion in additional demand be enough? If you count up all the fiscal bailouts of 2008 and 2009, that is at least how much the taxpayers have spent, every penny of it with just one goal: to take up insufficient demand. There is still insufficient demand for bad mortgages, bad credit card debt, bad auto debt, bad government debt, bad everything debt, and securities backed by bad debt. A non-trivial portion of that money has been spent to hire people directly or pay off contractors who in turn promise to hire people.
It hasn't worked, and Reich's combination of both amorality and naivety here demonstrates why Bill Clinton ended up picking him up by the seat of his pants and the scruff of his neck and tossing him out of the White House. (Note: Clinton did not really do that, but for a look at how relaxed Reich himself was about facts during that long-ago period, read Jonathan Rauch's 1997 review of Reich's memoir Locked in the Cabinet.)
If Obama and the Democrats were serious about story A they'd at least mention it. They'd tell the nation that income and wealth haven't been this concentrated at the top since 1928, the year before the Great Crash…
But Obama is doing none of this. Instead, he's telling story A.
Making a big deal out of the deficit—appointing a deficit commission and letting them grandstand with a plan to cut $4 trillion out of the projected deficit over the next ten years—$3 of government spending for every $1 of tax increase—is telling story A.
Appointing a deficit commission is the meagerist gesture a president can make toward the iron reality that the deficit is now more than $1 trillion every year. Many Americans, who are not Nobel laureates or former cabinet members or developers or bankers, believe this is a problem.
The straw men Reich shows us are themselves built out of other straw men – abstract Republicans and Democrats who divide a narrative that is then delivered to "the nation."
Reich believes if the Democrats just jump up and down enough, the people will be enlightened. Here's a more earthly possibility: The people have heard enough about Story A and Story B, and to the extent they showed a preference last month it was for Story A.
Reich warns President Obama against repeating the errors of Bill Clinton, who applied some pro-market policies—the most important of which was briefly retarding the growth of government spending—following the 1994 Republican congressional win. To the untrained eye of the people, these policies seem to have brought about budget surpluses during the dotcom bubble. Understandably, the people would like to try that winning strategy again.
It might not work this time around, but the presidency is an executive job, not a partisan job. Obama is right to respect the vote. Reich's reality-framing sophistry can't gussy up a tired idea that has now been tested in the economy and at the voting booth, and has failed both times.