"2009 is likely to be a very hard year."
Robert Reich could have easily uttered this sentence within the last week. Instead, he used those words to describe the prospects for the economy during a September 2008 speech at The Commonwealth Club.
Of course, any cynic or chronic pessimist could have seen the worsening of the economy persisting into this year or longer, but the former labor secretary under President Clinton and current professor at Cal has been one of the few sounding the alarms over the economy for some time.
His assessment of the then-pending $700 billion bailout to Wall Street sounds dead on today. “The bailout will not ultimately do much," said Reich, "It will provide a one-shot shot of confidence. It will stop the bleeding, but it will not end the underlying problem.”
Indeed, today, many wonder what the initial half of the bailout money went toward. Without reliable accounting of the dollars, some wonder whether financial institutions are hoarding the relief money while credit markets still languish. Reich pointed out that the financial dilemma the country faces is actually a "crisis of trust" and, though the bailout in September was a message to investors that the government is willing to do something big to alleviate the problems, it will not fix the long-term problems with the economy without substantial oversight and a strong monetary policy.
He did focus on one interesting unintended consequence of the bailout: a resumption of avarice. “You take greed away from Wall Street and what you have is pavement,” he said to a round of guffaws.
Reich says corporate leaders and their earning are predicated on the short term. In this situation -- where the government has, in effect, subsidized the down side to investing -- he says the "risk is greater" that corporations will continue to dabble in seizing the quick buck.
Today, as President-elect Barack Obama attempts to push another large round of stimulus benefits through Congress, Reich's 2008 words are useful; he urged listeners not to view the next president's capacity to apply his agenda in Washington as being depressed.
Reich recounted how during the beginning of Clinton's term in 1993, the discovery of larger deficits forced the new president to pare back some of his campaign promises. Don't necessarily believe it this time around, said Reich, because the September bailout is technically not an expenditure. The money will be borrowed from Asian and Middle Eastern countries, he said, which are more than happy to invest in relatively safe Treasury bills, something that has indeed occurred.
Because many in the Obama administration believe expanding the deficit to stoke the poor economy falls in line with the Keynesian mantra of infrastructure spending, balancing the budget is far from the most important policy objective and should allow the incoming president to hold his campaign promises intact.
Robert Reich will try his hand again at making sense of the economy while peering into the future this Wednesday at The Commonwealth Club of California's Annual Bank of America-Walter E. Hoadley Economic Forecast. The event will be held at the Hotel Nikko at 222 Mason St. with lunch at 11:45 a.m. and the program starting at 12:30 p.m.