"Five questions for Robert Reich"

Economist.com:

IN OUR lead story this week we say that the worst thing for the world economy would be to assume the worst is over. In order to reinforce our gloom, Democracy in America recently talked to another measured pessimist, Robert Reich. Mr Reich served as secretary of labour under Bill Clinton and is currently a professor at the University of California at Berkeley. His latest book is "Supercapitalism", which contends that the rise of capitalism has weakened democracy in America. Most importantly, Mr Reich is also a blogger.

DIA: You say on your blog that "we're not at the beginning of the end" of this downturn, and perhaps not even "at the end of the beginning". Why so pessimistic?

Mr Reich: I do believe we're approaching the end of the beginning, but I see little reason for optimism over the next 12 to 18 months. Aggregate demand is so far short of total capacity that we're still caught in a vicious cycle in which employers have to continue to cut payrolls, which shrinks consumers' wallets and forces them to buy even less and postpone payments on their loans, which causes more layoffs and generates more bad loans. The stimulus is a step forward but it's less than what's needed, and it doesn't really take full effect until the middle of 2010.

DIA: Do you see any parallels between this economy and the one that you and your colleagues in the Clinton administration inherited in 1993?

Mr Reich: No. At that time the nation was emerging from a medium-sized recession.

DIA: You've said that America should focus more on stimulus spending and less on bailing out the banks. Have you been happy with the balance Tim Geithner and the economic team have struck between these two priorities? What should they be doing differently?

Mr Reich: Tim Geithner believes the economy cannot revive unless the big banks start lending again, and that they won't start lending until toxic assets are removed from their books. Both of these assumptions are highly questionable. And clinging to them gives the major banks enormous power over the administration.

DIA: In America, there's a lot of anger aimed at corporate executives, especially in the finance industry. But by buying houses they couldn't afford, weren't American consumers complicit in fomenting this crisis?

Mr Reich: Yes. But the important question to ask, in terms of avoiding a repeat of this fiasco in the future, is which of these parties -- financial executives and mortgage lenders, or american consumers who took out over-sized loans -- were in the best position to know the risks involved and to avoid them. Many consumers had no idea what they were getting into. Mortgage lenders and the financial industry behind them had every reason to know.

DIA: You have said that America needs unions "to restore prosperity to the middle class". But traditional union bastions like manufacturing are disappearing; the cost of pensions and health care are rising; more and more jobs are freelance, and more and more businesses are non-union. Have we seen the end of unions in America? If not, what form will they take in the future?

Mr Reich: We'll see more unionisation in the personal service sector of the economy -- especially in big-box retailers, restaurant chains, major hotels, and hospitals. Jobs in this sector don't compete with lower-cost imports. And because they require that people do them, they're not easily supplanted by computerised machines. Most of these jobs pay very low wages and offer minimal benefits. Unions would help give these workers the bargaining leverage they need.