As we emerge from this economic crisis, how are we doing? And what is making this recovery so difficult?
Consumers are 70 percent of the economy, and they have to come out from under a massive debt load. They're worried about their savings. They can't use their homes as ATM machines. They can't send any more people into work. You know, in the '70s and '80s, women marched into the paid workforce. They can't work longer hours if they have jobs, because many people are already holding down two or three jobs if they have work. We have almost come to the end of the "coping mechanisms," as I call them.
Why did they lose their purchasing power? And why is it so difficult to fix?
We know that globalization and technological change undermined routine jobs. Either the work was sent abroad because cargo ships, container ships, satellite communication technologies, and eventually the Internet allowed the production process to be parceled out around the globe to wherever it could be done most cheaply, or it was automated here at home. And that means that the two categories of job that are left are, No. 1, high-skilled, well-educated, well-connected people, a lot of them in financial-related jobs, or a larger and larger number of jobs in the local service economy: retail, restaurant, hotel, hospital, and so on.
What steps could have been taken to maintain a manufacturing base?
There were policy moments when the U.S. government could have and should have invested more in education, in job training, in early childhood education, in free public higher education, in research and development, in infrastructure. I mean, the entire infrastructure of the country is crumbling. This is not an ideological proposition. Everybody knows this.
The argument has been made that the TARP money was repaid, that General Motors is back on its feet. So the steps that were taken to prevent a total collapse of the economy succeeded.
Main Street—the homeowners, small businesses—did not get bailed out. They are still in deep, deep trouble. Most Americans don't feel that this recession is over. A lot of people say, even if the TARP money is repaid, "I should get bailed out as well. I can eventually repay whatever is given to me. I can eventually do better. I mean, a business cycle is still a business cycle. But nothing came my way. Nothing trickled down."
You make the argument that Henry Ford in a sense paid his workers well because he wanted them to buy his cars. What's the equivalent of that today?
Henry Ford, by the way, was accused by The Wall Street Journal of being an economic criminal. Many people called him a socialist because he paid his workers $5 a day, which was three times the normal wage. And he said, "Look, I'm a smart businessman, because they are also consumers." And he was right. I call that the basic bargain. Between 1947 and 1975, when the economy expanded much faster than it has been expanding over the last 30 years, everybody gained. The bottom 20 percent did even better than the top 20 percent. Partly because 30 percent of Americans were unionized, partly because we had a high marginal income tax on high earners, partly because we as a country invested substantially in education and infrastructure. We committed ourselves during those 30 years to broad widespread prosperity of the sort we have not had since.
Do you think Obama's economic and political philosophy is significantly different from Bill Clinton's?
No, I don't.
Then how has Obama ended up with this reputation as a European social democrat or worse, in terms of perception by the right and by some in the business community?
It's a good question, because the Obama Administration has been as kind, if not kinder, to business and Wall Street as any previous Administration I can remember. I mean, the Wall Street bailout itself should have convinced the business community and Wall Street that Obama and his Administration were very probusiness.
He had a campaign narrative, but never had a narrative of governing that connected the dots.
It's a real irony, because you have a President who came into office as one of the best explainers in history. But he seems to have got caught up in Washington's instinct for the capillary. You know, the tactical judgments that Washington gets worried about rather than the large, strategic narrative.