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How Can the Economy Recover?

Reich would also establish what he calls a reemployment rather than unemployment system by providing wage insurance to supplement incomes of those who take jobs that now pay less than their former jobs. He would also create a more extensive job-training program. As for educational reforms, he would give a federally financed voucher to each pupil that would be inversely proportional to the parents’ income. He thus proposes a $14,000 voucher for poorer families but only $2,000 for the better off. He also wants to channel funds into early childhood education.

Regarding health care, Reich would simply expand Medicare to all Americans. The savings in administrative costs would be enormous, he estimates. He believes the nation must invest more in infrastructure, but provides few details about how to do it. And he favors public financing of political campaigns and stricter campaign financing laws.

Reich insists that his plan is “doable,” although he does not say how support for it could be mustered within today’s political parties. He thinks, however, that CEOs will someday see the benefit to business of supporting such aggressive government income redistribution and subsidies. “When they understand where all this is heading, the powerful interests that have so far resisted change are likely to see that the alternative is far worse.”

This sounds fanciful, of course. But retaining blind faith in free markets and reduced government presence as answers to rebuilding the nation are demonstrably more dangerous fantasies. Stunningly, the cochairmen of the Obama fiscal commission, Erskine Bowles and Alan Simpson, made public a set of proposals in November that had far more in common with Hubbard and Navarro than with Reich. They would sharply reduce rather than increase taxes on the rich and maintain government outlays at a punishingly low proportion of GDP. The proposals have not so far had clear support from the other members of the commission. But they won a fair amount of praise from commentators in the press who share the oversimplified obsession with budget deficits. (Few seem to realize that Social Security, for example, now amounts to no more than 5 percent of GDP and will reach a high of only 6 percent in coming decades.)

Government action has historically long been necessary for economic revitalization in America. Kaletsky accepts the value of government but does not propose programs adequate to the size of the problems. Reich is bolder, but his analysis is too often lacking in precise economic details. The stakes are now too high merely to show the injustice of the conventional wisdom. If the economy is to be rebuilt, more carefully worked-out proposals of costs and benefits are needed.

Meanwhile, austerity economics could well leave the nation with a lost decade of slow growth and high unemployment. The case for a substantial new stimulus has rarely been stronger. But we are not likely to get it. The Federal Reserve’s so-called quantitative easing may push interest rates on long-term debt down through the purchase of hundreds of billions of dollars of bonds, but lower rates without strong demand will not be enough; ways must be found to encourage the economic demand that will cause firms to borrow money so that they can produce more goods. That combination of rising demand and borrowing by business to meet it is now lacking, and renewing it should be a central concern of Congress and the administration.

After the Republican election victory it seems far less likely that any bold vision will emerge from the Obama White House. Good jobs and secure benefits are what matter today. Obama has begun to talk more consistently about jobs, but it will take policies that are now much harder to push through in the new political environment. Washington has its eye almost only on deficits. Meantime, the frustrations of workers in the lower and middle classes run high. Political fanaticism raised its head this election and more may be lying in wait.

—November 23, 2010

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