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Most economists now agree that income inequality is at an historic high. And the gap between rich and poor is widening – squeezing the middle class as never before. Many worry about how the growing pay disparity is affecting the nation’s economic health. And some, including former labor secretary Robert Reich, argue the concentration of wealth among a very few is jeopardizing our democracy. Others say too much focus on inequality could lead to destructive public policy and hurt american competition. Economists Robert Reich and Douglas Holtz-Eakin offer ideas from across the political spectrum.
- Douglas Holtz-Eakin president of the American Action Forum, chief economist and director of the Congressional Budget Office from 2003 to 2006.
- Robert Reich professor of public policy, University of California, Berkeley; chair of the National Governing Board of Common Cause; and former secretary of labor under President Clinton.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Former Labor Secretary Robert Reich has said income inequality is the civil rights struggle of our time. Many experts agree it's slowing our nation's economic recovery, but partisanship often gets in the way of finding a measured solution. Joining me here in the studio to offer ideas across the political spectrum, former Labor Secretary Robert Reich, now at UC Berkeley, and Douglas Holtz-Eakin of the American Action Forum.
MS. DIANE REHMI invite you to join the conversation. Let's hear your thoughts and ideas. Call us on 800-433-8850. Send us your email to firstname.lastname@example.org. Follow us in Facebook or send us a tweet. And welcome to both of you.
PROF. ROBERT REICHWell, thank you, Diane. It's so good to see you again.
REHMIt's good to see you again.
MR. DOUGLAS HOLTZ-EAKINMy pleasure to be here. Thank you.
REHMI'm delighted. Robert Reich, you're the subject of a recent documentary titled "Inequality for All." You presented a screening of that film last night on Capitol Hill. Tell me the reaction you got.
REICHWell, the reaction -- and there were some Republicans there. It wasn't just Democrats. The reaction is, I think, uniformly a recognition that widening inequality is a problem. That is, right now the latest data we have is 95 percent of the economic gains since the recovery have gone to the top 1 percent, and you can't really have an economy that is functioning in that lopsided kind of way. The differences tend to be what to do about it, and hopefully we'll have a chance today to get into that.
REHMAnd indeed we have a link to that film on our website. You can go to drshow.org, and you can get a sense of it. Douglas Holtz-Eakin, I wonder if you would agree that past inequality has become sort of a permanent fixture we're dealing with now.
HOLTZ-EAKINWell, I certainly hope that the dismal recovery that the secretary referred to is not a permanent feature of the U.S. landscape. I mean, it cannot be overstated just how much distress we're seeing out there on the basis of this poor recovery. So you hear a lot about the unemployment numbers, and our measured unemployment rate is still highly elevated.
HOLTZ-EAKINMore comprehensive measures of unemployment are in double digits, you know, people who are working part time against their wishes, marginally attached to the labor force. The thing that has concerned me even more, though, is that for those who've had jobs, we haven't seen hours rising. Total hours worked in the U.S. economy remain below what they were at the start of the recession.
HOLTZ-EAKINWe haven't seen the average hour earnings rise, and so this is how we get median family income falling during a supposed recovery. That's not much of a recovery. And I think that getting better economic growth at the top line and making sure that people get into work and succeed in work are an imperative right now.
REHMAnd at the heart of the film, Robert Reich, is the question, what role does widening income inequality play in the deterioration of our nation's economic health?
REICHYes. And I think there is, sadly, an explanation for why the recovery has been so anemic, why growth has almost stalled and, in fact, why we've seen such relatively poor economic performance for many years. And that explanation has a lot to do with the fact that the middle class, the vast American middle class, simply does not have the purchasing power to keep the economy going.
REICHSeventy percent of economic activity in the United States depends on consumers who are spending their money. And if consumers and again the middle class, the vast middle class, comprises most of those consumers, if they don't have the ability to spend because all of the money and the wealth is going to the very top, then you're not going to have a very strong recovery. The major job creators in America are not the CEOs and the very wealthy. The job creators are the customers. Businesses are not going to create new jobs unless they have enough customers.
REHMYou agree, Doug?
HOLTZ-EAKINIt's certainly part of the equation. I mean, I would agree with the fact that we haven't seen, as I said, the nuts and bolts of real income growth. We haven't seen hours, we haven't seen hourly earnings, and that's what fills up paychecks. And that's what permits U.S. consumers to spend. And if you look at our recovery, we've had an anemic recovery, and, with a few exceptions, it's been characterized by poor household spending. And so there's no doubt about that. The question is, how do you kickstart the hiring? How do you kickstart the raises? And I think that we could do a better job of that. We certainly have not been successful.
REHMHere's what I'd like to better understand. Have we been in this situation previously where the top 1 percent of the country is making so much money and the lower 10 percent, 20 percent, and the middle 75 percent are making so little?
REICHYes. There have been two periods of time, the 1880s and the 1920s. And, in fact, we know that, particularly about the 1920s, since Thomas Piketty and Emanuel Saez, my colleague at Berkeley, have done their studies of the income tax, expenditure -- actually, income tax revenues...
REHMThomas Piketty's book has gotten a lot of attention on this score.
REICHExactly. And their data sources, they've gone back, at least in the United States, they've gone back to 1913, the beginning of the federal income tax, and they've seen that in 1928 and in 2007, you've got the two peak years in terms of the top 1 percent taking home more than 23.5 percent of total income. Well, it's interesting that after 1928 and 2007, in both instances, something happens. You've got bubbles bursting. You've got, in one case, a depression, in the second case, a deep recession. I don't think it's coincidental.
HOLTZ-EAKINBob's more optimistic than I am about what we can learn from some of these data sources. The U.S. income tax in that era touched a very few Americans and to learn about the incomes of the middle class is impossible from those data. To actually learn much about the rich is pretty difficult. You don't reveal much of yourself. It might not feel that way when you fill out your taxes, but you don't reveal much about yourself.
HOLTZ-EAKINYou don't reveal how hard you work, where you work, who you hire or anything like that. And this is not the time or place to litigate the foundations of Mr. Piketty's book, but I think there's a lot yet to be learned. He's started a good debate. He hasn't ended it. I think the key here is to sort of go to a variety of sources. And this is where we are.
HOLTZ-EAKINWe know that beginning the '70s and early '80s, we saw the wage distributions widen. The bottom fell. The top rose. No question about that, was a global phenomenon, happened not just in the U.S. but everywhere. Somewhere in the mid-'90s, the bottom stopped falling in the wage distribution, and that was good news. But the top has continued to rise. There is no doubt about that.
HOLTZ-EAKINAnd so when we talk about inequality in the United States, what we're seeing is a decades-long phenomenon in which the top earners are earning more. And, again, it's not just in the U.S. This is something that's around the globe. The second important fact comes out of some work that Harvard led and has a lot of scholars involved with on mobility.
HOLTZ-EAKINAnd they looked at 50 years of mobility and came to the conclusion that, whether you like the amount of mobility in the U.S. or not, it hasn't changed much. So we've got a situation where we have about the same mobility. We have a much bigger income distribution, and we have to decide whether we're happy with that.
REHMHere's what I want to ask. Bob Reich, what about the role of the minimum wage itself. How much of a role does that play here?
REICHWell, it plays something of role. I think that there are -- there's no magic bullets, Diane, to reversing the trend toward widening inequality. I think raising the minimum wage, expanding the earned income tax credit, which a wage subsidy for low income people would be very important, investing more and better in education, including early childhood education, making college more affordable, having a world class system of technical education for kids that may not go to college.
REICHI mean, it's a conceit, a ridiculous conceit in this country that the only gateway to a good job has to be through a four-year liberal arts degree. Other countries don't do that. Germany has great apprenticeship program and technical schools. There are a lot of things that we can do. The income tax system, I think, also needs to be fairer.
REHMBut let me take you back to the minimum wage for a moment. What do you think it should be now?
REICHWell, there's a very easy way of calculating that, and I'll -- if you look at the minimum wage when I graduated college, 1968 -- I'm old, but I graduated in 1968 -- that minimum wage, adjusted for inflation, if you just kept it flat, would be over $10 an hour today. If you adjusted for productivity improvements -- I mean, even a low wage worker has more technology around him or her than then -- you could make a case for higher than $10 or $10.10, $12, $13. Most of the studies -- and there is a huge academic debate over this as there is over almost everything, you know, two-handed economists.
REHMOf course, yeah.
REICHOn the one hand, on the other hand.
REICHBut in my reading, the predominance of the evidence shows that you can raise the minimum wage fairly substantially, certainly to $10.10, without having very substantial negative employment effects.
REHMAnd hasn't Washington State raised its to $15 an hour?
REICHWell, that was Seattle.
REICHAnd Seattle, you know, has a higher cost of living. It did not start from $7.25, which is the federal minimum wage. The state of Washington had a higher minimum wage, close to $9, so it wasn't that big a leap. But having said that, you know, I remember -- in fact, Diane, I remember back in 1996 you and I talking about this very subject, and I was advocating increasing the minimum wage. And we had a lot of people, conservatives and Republicans, who were saying, don't do that because we'll lose these jobs. We did it, and, in the next four years, we had more job growth than ever in American history.
REHMFormer Secretary of Labor Robert Reich and Douglas Holtz-Eakin, president of the American Action Forum. Short break. We'll be right back.
REHMAnd welcome back. Here in the studio with me, Douglas Holtz-Eakin. He's president of the American Action Forum, chief economist and director of the Congressional Budget Office during the George W. Bush administration. Robert Reich is professor of public policy at the University of California Berkeley, former secretary of labor under President Clinton. He's featured in a brand new documentary. It's titled "Inequality for All." And just before the break, Doug, we were talking about the minimum wage. And my specific question to you is, what do you think it should be now?
HOLTZ-EAKINI don't think we should raise it now.
HOLTZ-EAKINAnd the reason is pretty simple. For the vast majority of American workers, the minimum wage is a non-event. They're not being paid the minimum wage -- a tiny fraction of Americans actually are paid minimum wages and are in poverty. But those who are paid the minimum wage, largely concentrated in restaurants and bars and retail establishments, they are typically low-education, low-skill workers.
HOLTZ-EAKINAnd the evidence is if we raise the minimum wage that they will have a harder time finding jobs. I wouldn't do that right now. These might not seem like big numbers. The CBO, for example, estimated 500,000 such jobs would be lost, but that's about a year's worth of hiring in retail establishments and bars and restaurants. And we're coming out of a terrible recession.
HOLTZ-EAKINIt seems to me an extremely unwise time to make it harder for those with the least attachment to the labor market to find a job because the difference between poverty and non-poverty in the U.S. is having a job. We want people to get into those jobs, but I certainly don't want them sitting out of work and losing whatever skills they have. So you can have another debate about the minimum wage when the U.S. is roaring along like it was in the '90s. It's a very different world. It's not right now.
REHMBut, Bob, what is the role of the minimum wage in helping to strengthen the middle class?
REICHWell, the minimum wage passed in 1938. It's kind of an old new deal idea basically setting a minimum standard of decency. We say -- just as we say -- and we said years later with regard to minimum standards for workplace safety -- we just don't want to live in a society where people don't earn very much, where they earn under a certain minimum.
REICHNow, years ago the minimum-wage worker typically was a teenager, a third wage-earner in a household. Today's minimum-wage worker is more typically a major breadwinner in that household. I disagree with Doug on timing. I think that it is important now to make sure that more people have closer to a living wage.
REICHIt's still not going to be a living wage, but if you raise the minimum wage to $10.10 an hour and you have an earned income tax credit -- now that's again a wage subsidy -- and food stamps -- now granted, they're not as abundant as they were -- but those three together can get a family with one worker and two children out of poverty in most places in the United States.
REHMHere is an email from Marion in Grand Rapids, Mich. who says, "I applaud communities that increase their minimum wage. But what measures, if any, have been put into place to prevent employers from eliminating more jobs and using more automation instead of people?" Doug.
HOLTZ-EAKINIt is not possible to outlaw that, and indeed that's one of the incentives this sets up. There's no question about it. If you look at the minimum wage, in the end, it's a policy redistribution. It says we're going to give these workers more, and you have to answer the question, where does it come from? One place it could come from is hiring other workers. And at a time when people are unemployed, I'd sure hate to take the money out of an unemployed person's pocket to put it in an employed person's pocket. That doesn't make sense to me.
HOLTZ-EAKINAnother place it'd come from would be profits. Everyone thinks that would be great, you know, rich people's profits. If we knew that's where it was coming from, that'd be one thing. A lot of times, it's going to come out of prices. I mean, if you look at fast food restaurants, they're disproportionately visited by low-income Americans. And so it, again, doesn't make sense to me as an anti-poverty measure to raise prices on poor people to give money to different poor people. So...
REICHWell, I disagree. I mean, that's why we're here.
REICHI mean, I -- and I don't want to get into a data contest or a study contest with Doug. But you have economists going back to Alan Krueger and David Carr. And Alan Krueger was head of the Council of Economic Advisors. They did a study years ago. More recently, Michael Reich, spelled just like my name -- he's at the University of California Berkeley -- he did a very -- he and his colleagues did a very big study comparing counties on different sides of state borders with one state had higher than the federal minimum wage.
REICHAnd what they found was that even in times of economic distress -- and the most recent study is during the coming out of the great recession very recently -- and what they found is that raising the minimum wage does two things that prevents job losses of the kind that you would otherwise expect. One is it puts more money into the pockets of more people who are fairly poor. They're going to spend all that money. They're going to spend it mostly locally. And that means more job creation locally. There's more economic demand locally.
REICHThe second is that it also enables businesses to have more choice of whom to hire because it brings into the labor market a lot of people who might otherwise be on the edge of the labor market. They say, well, you know, minimum wage of $7.25, it's not worth it, but $10 I might come in. And that, in turn, reduces turnover, more reliable workers. That saves money. So it's a wash. I mean, I think most of the studies are showing -- the studies that I think are the most accurate -- that raising the minimum wage does not in generally -- generally speaking, does not result in job losses.
REICHThe other piece of Doug's point, that it is going to result in price increases, well, remember these institutions, these fast food outlets or retail outlets, Walmart and others, they are in intense competition. They don't want to raise their prices if they can possibly avoid raising their prices. It's going to come out of profits.
REHMAll right. I want to move on to another area where you perhaps agree that inequality of income is linked to education. So how do we make education affordable, Doug?
HOLTZ-EAKINI think this is absolutely the key issue. And we started the show by talking about the civil rights issue of our time. I think it's the K to 12, perhaps even the pre-K educations in the United States. One of the things that the 2001 law, the No-Child-Left-Behind law did is it collected data. And those data now allow us to identify the student, the teacher, the principal, the school district, the county, the state of failure in the U.S. education system. And it's absolutely visible, it's absolutely rampant, and it's a disgrace.
HOLTZ-EAKINAnd it's often concentrated in minorities and low-income Americans. It's an enormous impediment to having them get out of poverty to live the kinds of lives we would expect Americans to live, to be able to successfully compete in the global economy. And if I had to pick one thing that we were going to do, it would be to fix the K to 12 education system. There are issues in higher education which I agree with, but I think the more important thing is to stop leaving so many young Americans behind at the start. They will never recover.
REICHNow I agree with Doug on this. I think that obviously we have to start very early. Early childhood education is critical. We know those young brains are already formed to a large extent by 5 years old in terms of what they're going to learn and their readiness to learn. We also know there are a lot of studies that show that if you do provide children with a stimulating preschool environment, they're going to do well for the rest of their lives relative to a control group that doesn't have that kind of stimulation.
REICHK through 12 -- you know what? The sad thing about K through 12 and the debate over education right now is you've got two groups that have squared off, the way we are squaring off so much in America right now. One group says it's all teachers, and they've got to make them more accountable. The other group says it's all money, and we've got to get more money into the classroom. Well, the fact is, it's both.
REICHWe've got to -- you know, the United States is one of three countries out of 45 major countries in the world that spends less per student on poor kids than it does on wealthy kids. Now, think about that for a minute. We have a widening gap in terms of income and wealth, and we are spending less per student on poor kids and poor communities than we are on rich kids and rich communities in K through 12. And everybody else in the industrialized world, every other rich country does it exactly the opposite.
REHMAnd how is student loan debt affecting the inequality that we're seeing?
REICHYou mean with regard to college.
REICHIt's a huge problem. And go back to the 1960s, 1950s when you had less inequality, and you had a great increase in the percentage of Americans beginning to go to college. And at the state university level, where 75 to 80 percent of our students go, those tuitions were zero, Diane, University of California Berkeley, zero.
REICHWhat's happened over the last -- particularly over the last 10 years is that state legislatures, because they are squeezed for money, they have pulled money out of higher education. That means students have higher tuitions. They've got to get loans. Many poor families, middle class, working class families cannot afford it. Students are graduating typically with $30,000, $40,000, $50,000 loans. And we are -- I mean, it's a disgrace.
REHMAnd now we move on to the issue of immigration simply because we have Eric Cantor having lost in a big surprise election. How, in your view, Doug, does immigration affect income inequality?
HOLTZ-EAKINFirst, let's just put aside the notion that somehow Eric Cantor lost over the immigration issue. There is zero evidence to support that. And, as I mentioned before the show, my organization the American Action Forum did some polling of Republican primary voters. I mean, this isn't likely voters. This is people who vote in the Republican primaries. Asked them questions about, is the immigration system broken? Yes. Do you favor immigration reform? Yes, I do.
HOLTZ-EAKINDo you favor an earned path to legal status? Yes. You know, temporary work programs, yes. It is an urban myth that somehow the voters in Republican primaries are standing in the way of immigration reform. They support it and they support it now. And that would be true in Mr. Cantor's race as well.
REHMSo what do you think did happen in Eric Cantor's race?
HOLTZ-EAKINHe didn't take care of business in the home district. And people who do not stay in touch with their constituents have a sad history of losing their jobs. Mr. Cantor is now on that list.
REHMWhat do you think of both those questions? How much does immigration have to do with income inequality and how much did it have to do in Eric Cantor's loss?
REICHWe don't know about Eric Cantor's loss. Just that there are a thousand stories circulating in this bubble called the nation's capital right now.
REICHBut let me just say this. When you have widening inequality, what we do know, the political scientists have studied this very carefully -- we do know that there's more polarization. There's more anger. There's more vitriol because people are frustrated and they are angry.
REHMAnd they take it out on the other.
REICHThey take it out on the other. And the other could be -- if you are a Republican it could be the poor or the African Americans, the Latinos or the immigrants or the French...
REHMOr the Democrats.
REICH...or the Democrats or the United States government. But if you're a Democrat...
HOLTZ-EAKINI'm going to (word?) that characterization of Republicans for the record.
REICHSure. No, I'm talking that those who were angry, and you were frustrated. If you're a Democrat, you take it out on corporations and the rich, and you can -- you know, both sides has enough -- there's enough blame to go around. Unfortunately, the blame game doesn't get us to solutions. And when you have an electorate that is increasingly angry and frustrated, they are prime fodder, a fertile ground for demagogues on the left or the right who want to play the blame game.
REHMAnd you're listening to "The Diane Rehm Show." Now the Tea Party has come up stronger there in that Cantor loss. The question becomes, how will or how might the Tea Party affect what you both see as income inequality? Doug.
HOLTZ-EAKINI think that's overblown. I mean, honestly, the national Tea Party organizations didn't enter into the Cantor race. Mr. Brat is now celebrated for winning this on $200,000. This is a tribute to the fact that, you know, politics is not just money. It's also very local. And so I don't view that as a harbinger of the national electoral outlook in any way.
HOLTZ-EAKINImmigration is a big deal. No question about it. It's a huge economic opportunity for this country. And there are a couple things that I think people miss in this debate. The first is that, without immigration, we don't grow as a country. We have low fertility rates. And without immigration, we shrink in population. We shrink in our economic scale. We shrink in our world influence. Japan is very much like that. So we don't want to do that. And that means that all of our choices about our future population, our workforce, our skills and competition come from our immigration choices. It's a great opportunity to do an immigration reform and do it wisely.
HOLTZ-EAKINThe second thing that I think gets missed is the notion that somehow your job is at risk because of immigrants. None of the data suggests that. In fact, there's a traditional job ladder of a low-skill person taking the entry job, and that gives the entry-level person a chance to move up. And that job ladder happens with immigrants and domestic workers. And they don't push out domestic workers. They actually act as compliments and help them aid growth and wage growth in the U.S. And that's the bulk of the evidence.
HOLTZ-EAKINAnd the last one, and then I'll stop my speech, is people worry about competition. The competition's already happening. The competition happens whether that worker is across the street, across the state or across an ocean. It's a global economy. We're competing already with these people around the world. Let's not just celebrate that competition. Let's take the best, bring them here and reap the benefits of their skills.
REICHI agree with Doug entirely. I think that the evidence shows, and not just recent evidence but evidence over the past century, that immigrants actually generate economic growth. They generate economic activity. Immigrants invest, immigrants spend. Immigration is good for the economy. And given that our economy and our people are aging so quickly, we need new young immigrants if we're going to be able to support a very rapidly-aging population.
REICHSo unfortunately the superficial story, Diane, that gee, immigrants are taking away my job at a time when there are few jobs to be taken anyway. That superficial story, again, is easy for somebody who wants political office to state and get a lot of support, but it is contrary to reality and evidence.
REHMSuperficial it may be, but we hear it a lot, I mean, concerns about it.
HOLTZ-EAKINQuite frankly, that's not surprising. No one's confused about how well things are going. I mean, this is not a great labor market. Nobody who's actually out there looking for a job wants another competitor. No one who's actually out there in their first job that really isn't everything they dream for wants to imagine having to wait in line behind someone for a promotion.
HOLTZ-EAKINSo I understand the distress and the frustration. I think that's real. I think Bob hit a very important point about people who are frustrated and angry. This is an angry electorate. This is an angry population. There's no question about that. It is unfortunately the job of elected leaders to step back from that anger and guide us toward a place where the anger gets relieved by real solutions. That's what you like to see.
REHMDouglas Holtz-Eakin and Robert Reich, they'll be back with me after a short break. We'll take your calls, your email. I look forward to speaking with you.
REHMAnd welcome back. We'll go right to the phones to Brian in Grand Rapids, Mich. Brian, you're on the air.
BRIANHello, Diane. What an honor.
BRIANTwo points. About a month ago, some of the richest people on the planet, with a combined wealth of a third of all the capital on -- you know, we're set up to save capitalism. And, you know, when I compare that to what our gross -- or our national debt is, I think they had $130 trillion worth of worth. And our debt is like $12 trillion, something like that. The other point I wanted to wonder was, how much does Reaganomics and the trickle-down theory have to do with what we're experiencing today? Is this a result of that?
REICHWell, Brian, undoubtedly the richest people in the world -- and I think there was a study -- maybe the study you're referring to is that the 85 wealthiest people in the world have more wealth than the bottom half of the world population. You know, they -- we haven't seen this kind of concentrated wealth worldwide, I don't think, ever, but certainly in the United States, as said before, since the 1920s or by some measure since the 1880s.
REICHTo what extent does trickle-down -- as you put it, trickle-down economics -- the notion that if you give more tax breaks to the wealthy that that supposedly trickles down to everybody else, to what extent is that responsible? Well, undoubtedly, when Ronald Reagan did reduce the top level of income taxes from 70 percent down to 28 percent, that was the beginning of a major shift in our tax code.
REICHBetween 1946 and 1981, the top marginal tax rate on the highest earners was never below 70 percent. And even when you got rid of all the -- or considered all of the tax credits and tax deductions, it was still -- they were paying well over 50 percent. So there was a huge shift in the tax burden. And, undoubtedly, that does play some very important role.
HOLTZ-EAKINI think that the important thing to remember is the most fundamental cause of this has been shifts in how much people get paid. You know, increases at the top, decreases at the bottom, they occurred in the '80s, Republicans, the '90s, Democrats, the 21st century, Republicans and Democrats. The foundations of what we're seeing are not partisan, and they have persisted in periods of cutting taxes, raising taxes, cutting spending, raising spending.
HOLTZ-EAKINIt's important to go to the core. The core here really is skills. It's education. That's the route forward for Americans. And to continue to have a year to year battle over whether the top tax rates should be 45, 50 percent, 38 percent, when you need to have a multi-decade battle over making sure our young people learn and can compete, is to miss the point.
REICHI tend to agree to some extent, Doug, with you about that. I do think our tax system is grossly unfair. People know it. I think a lot of the resentment and anger out there has to do with a sense that the game is rigged. You have tax loopholes that enable hedge fund, you know, heads of hedge funds and private equity people who are earning not just hundreds of millions, but in many cases billions of dollars to treat their income as capital gains, subjected to a lower rate. So it's part of the whole sense that the public has that…
REICHIt's just not fair.
REICHAnd I agree. But even in terms of education, you've got so many middle class, working class people, poor people that just feel like they're doomed. I mean, their kids are in classes and in schools that are not good.
HOLTZ-EAKINThey are, yes, I agree.
REICHAnd partly because educators are not performing as they should, but partly because they're not enough resources. The local tax base cannot afford good schools. And we're segregating by income. Another piece of this is labor unions. You know, the drop in the middle class -- and the middle class' share of total income is directly correlate with the decline of the percentage of the population that have been unionized. If you're not unionized, you don't have bargaining power to get a larger share of the total pie.
HOLTZ-EAKINA couple things I agree with, many I disagree with. I do want to agree with the very important notion that you have to perceive the tax system as being fair. America's always had a -- basically a system of self-taxation. We report our income. We voluntarily pay our taxes. The foundation of that is you think it's a fair game. And the notion that somehow the tax system's unfair, undercuts that completely. And I do believe we need a fundamental overhaul of our tax system, if only to restore some faith in it, as a starting point.
HOLTZ-EAKINThere's no doubt about that. The facts on the tax system are very different than the perception. And I think that's very revealing. You know, we've taken most people off the income tax, 50 percent of Americans don't pay it. Their biggest tax is the payroll tax that goes into Social Security and Medicare. The rich are paying the vast majority of taxes. But it's still perceived as unfair. And so we need to come to a realization that this is a rich person's surtax. The income tax has become…
HOLTZ-EAKIN…a rich person's surtax.
HOLTZ-EAKINAnd do it in a fair fashion.
REHMOne of the areas you cover in the film, Bob Reich, is automation. Here's an email from Kara: "Please address the issue of automation of labor -- nothing new, but could become a real problem for many more future workers, for example, drones replacing delivery drivers. What really is the role of progressive technological advances, when those advances deprive workers of their livelihood?"
REICHWell, that's a great question. Now, the technology has been displacing work for hundreds if not thousands…
REICH…of years. But what's happening now is that the pace of technological change is occurring faster than the ability of people to adjust and adapt to it. And we're going to see not only the replacement of cashiers by automated check, you know…
REHMEven the parking lot, you just go in there. There's no longer somebody at the parking lot.
REICHWell, that's, again, the low-wage workers and low and middle-wage workers have been affected very powerfully by automation. The big story over the next 10 years is that professional workers are going to find that their jobs are also…
REICH…going to disappear. And when the professional class in America starts losing their jobs to automation, politically, Diane, it becomes a completely different issue.
REHMSo who are you talking about when you say the professional class?
REICHI'm talking about lawyers, accountants, a lot of doctors. We're going to see, for example, people are going to be using applications to diagnose themselves with regard to blood pressure and everything else. We are going to see so much technology that is -- in fact, I had a conversation recently with one of the top executives at Google who expressed concern to me that so much labor replacement is going to be going on over the next 10 years, he said to me, I'm concerned because I don't know who's going to buy our products.
HOLTZ-EAKINHistorically, this has always gone on.
HOLTZ-EAKINI think Bob's exactly right on that.
HOLTZ-EAKINIn every era the same concerns are raised. The acceleration of change, the fact that we're just not going to be able to handle it.
REHMBut do you agree it's gone faster in this era?
HOLTZ-EAKINI think maybe we think that, but if you went from, you know, horse and buggy to, you know, the steam engine and the industrial age, that was an enormous amount of change in a short period of time. I don't know. And I won't pretend to know what feels the fastest to people. I do know that the middle class has already had this hit them, and the middle managers.
HOLTZ-EAKINIn the 1980s, we invented information technologies, and we essentially made a whole range of middle-management jobs obsolete because you could take the data and convey it from the retail to the executives. And you didn't need all those guys who used to write memos and figure out what was going on. So we've already used automation to displace people from the bottom to the middle. There's no doubt about it.
HOLTZ-EAKINNow, dial the clock forward. The thing that concerns me about this is I would hope that we would have greater aspirations for our children then to be parking lot attendants. I would hope that we shouldn't be fearful that the best we can have is a child who competes with a drone to deliver my Amazon products. Let's get serious about equipping those children to be able to do jobs way better than that. And to settle for the idea that we have to defend them against a drone because we failed to educate them, it strikes me as a national failure of enormous proportions.
REHMAll right. To Richard in Fort Myers, Fla. Hi. You're on the air.
RICHARDI have, I guess, a statement or a question for Mr. Reich. He's sort of my hero, actually. He's the only one that seems to make any sense in what's going down. But, anyway, I -- with regards to the wealthy and their ability to control local elections, and the sense that they realize that it's local politics that essentially is the most important.
RICHARDThe ability of them control local elections in states like Texas, Wisconsin, and the ability to funnel their money into local elections nationwide because of the way that money is controlled in the election process. And I'm wondering, you know, if this ability to control our local elections affects elections such as Senatorial elections, Congressional elections.
REHMOK. Let's take a look. Is there a strong correlation between not only income inequality but political polarization because of money?
REICHAbsolutely, Diane. In fact, what we're seeing -- and we've seen it again, that we saw it in the 1920s, the last time we had this kind of extraordinary concentration of income and wealth at the top. We see that power, political power follows money. And when money goes to the top, political power goes to the top. The Supreme Court didn't help with Citizens United, that case that basically allowed, you know, said corporations are people and previous Supreme Court cases that have said that money is speech.
REICHBut we have never seen the likes of the amount of big money in politics we have today. And Richard is absolutely right. It's at the local level. It's at the state level. It's at the federal level. I was talking last night to members of Congress about this. And I said -- when people ask me what to do about widening inequality, my number one step, step one -- you know, you can do a lot of other things -- minimum wage, taxes, everything else -- number one get big money out of politics.
HOLTZ-EAKINI share the concern about money. I don't like the amount of time our elected officials spend fundraising and not being able to do their jobs. But I, you know, it is important to step back and be realistic about what actually goes on. The, you know, the topic of this week in the gossip columns of Washington, D.C., is what happened to Majority Leader Cantor. He spent $5 million. His opponent spent $200,000. Money doesn't dictate political success.
HOLTZ-EAKINNow, Mr. Reich talked about the decline of labor unions. There has been no bigger spender in politics over the past couple decades than the labor unions. If money mattered, we'd all be union members. It doesn't. It isn't just money. If money was the key, Tom Steyer would have a cap and trade program for everybody. He doesn't. George Soros would have gotten everything he dreamed.
HOLTZ-EAKINHe didn't. There are a lot of rich people. There's a lot of money. Guess what? They don't always agree. They cancel each other out. So I'm of mixed emotions. I don't like the amount of time spent chasing the money. I think there's a better way to have our elected officials spend their time. But I don't think there's this simplistic, hey, I'll throw money at it, I'll get whatever I want. It's not like that.
REICHI agree. It's not that simple. But -- and by the way, labor unions and their contributions to politics in terms of money, Doug, relative to corporations, the latest data shows that labor unions are about 2 percent of what corporations are spending. But…
HOLTZ-EAKINWe'll have that fight later.
REICH…the larger point…
REHMYeah, we'll have that argument later.
REICHBut the larger point is that I don't think there's any question that when you have -- I mean, Louie Brandeis, Louis Brandeis, the great Supreme Court Justice put it best in the early years of the 20th century. He said, "We can have great money in the hands of a few people or we can have a democracy, but we can't have both."
REHMAnd that's a pretty powerful statement. Do you disagree with that, Doug?
HOLTZ-EAKINIt's an assertion, not a proof. And I think we need to always be ruled by the data and not just our emotions.
REHMAnd you're listening to "The Diane Rehm Show." Let's see, here's an email from Peter in Arlington, Va. He says, "I'm all for income equality. But how does our society get those with power and money to give some up?" Now, you talked about the tax situation.
HOLTZ-EAKINWell, I guess my question -- for Mr. Reich, since he's here. I'd ask the speaker if he was here. You know, how much inequality do you want? I don't think we want equality, because we certainly think that people who don't get out of bed and don't try shouldn't get the same as those who go to work. So…
REICHNo, of course.
HOLTZ-EAKIN…we want some inequality. So tell me how much? When will I -- How will we know it when we see it?
REICHWell, I'll tell you one way we can think about it -- or should think about it. Some equality is inevitable. We're not all born with exactly the same endowments. And some inequality is necessary if people are going to have the right incentives to work hard and save and invest and innovate. The question really is, when do you get to the tipping point, where the degree of concentrated income and wealth at the top is such that, number one, it affects the economy, as we've been talking about today?
REICHThe middle class doesn't have enough purchasing power to get out of first gear. Number two, it starts undermining politics because corruption becomes rampant. And let me just say a word about corruption.
HOLTZ-EAKINSo it's not inequality, it's corruption that's the problem.
REICHWell, no, it's the economy.
HOLTZ-EAKINSo that's what I want to hear.
REICHNo, no, no. I mean those are just two. We've also talked about political polarization. We've also talked about upward mobility, and the difficulty of poor kids. 42 percent of American kids born into poverty…
HOLTZ-EAKINBut the data is the mobility hasn't changed. So, we, you know…
REICHThat's over the last 10 years.
HOLTZ-EAKINNo, no. Those are the past 50 years.
REICHDoug, right now we know that 42 percent of American children born into poverty will never get out of poverty. That's a higher percentage…
REICHYes. That's a higher percent. OECD, the Organization for Economic Cooperation Development data that compares unfavorably every other rich country has a much lower rate of permanent poverty. That is the upward mobility capacity of children born into poverty is much greater in every other country. Now, we…
REHMWhat would you…
HOLTZ-EAKINSo let's agree, let's agree on that.
HOLTZ-EAKINI think poverty is a big problem.
HOLTZ-EAKINI think that's…
HOLTZ-EAKIN…should be the number one focus and the solution to poverty…
HOLTZ-EAKIN…has been education and getting people into jobs. People need to work, we need work phase things.
REHMSo your number one focus to inequality in income would be education.
HOLTZ-EAKINWell, let's worry about poverty.
HOLTZ-EAKINAnd let's -- well, and, you know, something that Bob mentioned earlier, which is we have something that's actually worked. We have something called the earned income tax credit. It is a wage subsidy. It promotes work. And it's targeted on poverty. It's a very effective tool.
REHMAll right. I want…
HOLTZ-EAKIN(unintelligible) it's a distraction.
REHM…one thing you would do. We're almost out of time.
REICHWell, OK, beyond getting big money out of politics, I don't think we can talk about getting people out of poverty without talking about the middle-class stress as well. Because as the middle-class is under stress and shrinking, it becomes less possible for people to move up into the middle class and politically harder for the middle class to agree to anything that is going to amount to help for the poor.
REHMAnd clearly, this discussion could go on for weeks. I wish you could stay.
REICHAnd it will.
REHMAnd it will. Robert Reich, professor of public policy at the University of California Berkley, former secretary of labor under President Clinton, Douglas Holtz-Eakin, president of the American Action Forum, chief economist, director of the Congressional Budget Office during the George W. Bush administration, thank you both.
REICHThank you, Diane.
REHMAnd thanks for listening, all. I'm Diane Rehm.
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