Feel upbeat about the economy? You should be. The economy is getting worse more slowly.
That’s the learned conclusion of two economic experts who debated paths to recovery at the 2010 Panetta Institute Lecture Series in Monterey in March 2010.
Harvey Pitt, former Securities and Exchange Commission Chairman, and Robert Reich, former Secretary of Labor, find troubling signs in the economy, including high unemployment, risky long-term debt, frozen credit markets, overvalued bank assets, and a failed regulatory system.
Neither addressed why they call the economic downturn a “recession,” when it’s a depression that Sylvia Panetta said could “end up rivaling the Great Depression.”
In the past, both men supported the reconfiguration of the American economy through cheap credit, monopoly control of markets, rising concentrations of political power, the dominance of banks in the economy, and shipping American’s jobs overseas. By the end of their discussion, it became evident that both men continue to support the boom and bust cycles of neo-liberal capitalism. They would like to reduce the risk to the overall economy but not restrict growth.
Nevertheless, their sobering assessments find long-term problems and a fractious political system that makes any positive Congressional solutions almost impossible. Beneath the surface ran very different assumptions about the development of the economy.
A Bush appointee, Harvey Pitt pushed deregulation, whitewashed the SEC investigation of Cheney’s Halliburton illegalities, and refused to release the SEC report on Bush’s insider trading scheme. He recently founded the Kalorama Partners, which advises corporations on avoiding problems with regulators, and was forced to resign as SEC chairman due to his cozy ties to the Big Five Accounting firms during the Enron scandal. One Congressman described the SEC under Pitt as “a total shambles,” and the GAO found Pitt’s leadership dysfunctional and chaotic. Yet, now he’s a recognized expert on the economy.
During the debate Pitt said, “the regulatory system totally failed,” even though the New York Times reported him “watering down corporate governance reforms mandated by Congress” when he headed the SEC. Pitt criticized the stimulus package for giving money to companies “whose conduct created the problem in the first place.” We could have “gotten more bang for the buck” by putting money into the hands of voters.
Reich agreed with Pitt, although he quickly pointed out that no one fully grasped the problem at the time or “knew how bad things would get.” The $800 billion stimulus “was not large enough,” and although it preserved two million jobs, Reich would like to have seen more of it invested in infrastructure instead of shoring up failed banks.
The men reserved a great amount of criticism for Capital Hill gridlock, although their views of the causes were at odds. “I’ve been in Washington 42 years, and in my view it’s the worst it’s been,” said Pitt. He mused that a Democratic majority was “a prescription for disaster,” because they could pass “pet projects” with no need to compromise.
Reich pointed out that bipartisanship “changed dramatically with Newt Gingrich” in 1994, which led to “incredible polarization.” Obama’s tendency to compromise cannot overcome Republicans hostility. By compromising on healthcare, and environmental and regulatory reform, Obama is losing his followers and undermining his electoral mandate.
Reich asserted that Obama should keep his campaign promises and push through his agenda. Without reform, healthcare costs are “on the way to 20 percent of GDP,” which will “eat up the economy.” The financial sector is becoming “so complicated, no one understands it,” and the anti-government, anti-spending public won’t allow us to spend our way out of the recession.
Both men decried political animosity and gridlock, with Pitt reminiscing about the days after 9/11 when everyone pulled together. Reich asserted that the middle class cannot pull together because they are demoralized by the wage stagnation of the past 30 years. Meanwhile, the 400 wealthiest households increased their income 31 percent in 2007. “How can people pull together when the rich are taking the lion’s share?” Reich asked.
In 2001, the wealthy averaged $131 million per household, but by 2007, they increased their incomes to $345 million per household. Thanks to the Bush tax cuts, they paid 17 percent in taxes, less than many middle class families pay. “It cannot work if the middle class isn’t sharing in the wealth,” said Reich.
Like an out-of-touch grandfather, Pitt claimed such talk leads to “class warfare” and suggested that “everyone must pull together.” He wants leadership that “gets people working together toward common goals” and warns against oversimplifying issues.
The back-and-forth exemplified larger issues in the on-going economic debate. Unfortunately, the exchange didn’t provide any new light on the subject. Much more interesting is the radical restructuring of the economy that is going on behind the scenes. Reich pointed out that people who lost their jobs were pushed into lower-paying jobs and that full employment is years away. Meanwhile, the banks are getting richer, the gap between rich and poor is widening, corporations are consolidating power, and property is being redistributed upward. After Bush’s mismanagement, the economy may never recover its health from before the downturn.