If Donald Trump has gotten one thing right, it has been tapping into an undercurrent of populist anger long ignored by both parties. The Republican presidential nominee has given voice to millions of largely white, working-class Americans left behind as their jobs disappeared overseas, stoking economic insecurity and racial anxiety in equal measure, often to demagogic effect. The terrifying picture he has painted of Muslim refugees harboring terrorist sympathizers, of murderous illegal immigrants flooding the southern border, and U.S. cities beset by black-on-blue crime, may be a figment of his febrile imagination, but the rusting factories and abandoned strip malls are all too real.
On Tuesday, Trump’s dark vision of America seemed to be deflated by a startlingly optimistic Census Bureau report, cheering many liberals who have spent the past eight years defending President Barack Obama’s economic legacy. Instead of doom and gloom, the report showed a 5.2 percent increase in the median household income between 2014 and 2015, and the largest annual drop in the poverty rate since 1999. Obama was quick to exalt the rosy new numbers while stumping for Hillary Clinton in Philadelphia. “Let’s face it. The Republicans don’t like to hear good news right now, but it’s important to understand that this is big deal,” he told a crowd on Tuesday, before he jokingly added, “Thanks, Obama.”
Many echoed the president’s sentiments, pointing to the annual report as evidence that the economy under Obama is much stronger than his critics allege. Not all the findings, however, are ideal. Income inequality in the U.S. is still near an all-time high and median household income and poverty levels are worse than in 2007. To better understand what those numbers mean—and what they might mean for Trump—the Hive spoke with Robert Reich, who served as Labor Secretary under Bill Clinton, from 1993 to 1997, and star of the 2013 documentary Inequality For All. Here, Reich explains what Trump gets right about the economy, why another recession could be around the corner, and how America can actually solve its worsening inequality crisis.
The Hive: What was your first reaction to the latest Census report? Were you surprised by the results?
Robert Reich: I was pleasantly surprised. It is good news in the short term. It shows that the recovery is picking up some steam, finally consumers have some money in their pockets. It’s about time.
When you say that it is good news in the short term, does that mean you see red flags for future economic growth?
Yes. The big problem has to do with the structure of the economy over the long term. We’ve had a slow but solid recovery. I think a lot economics observers can breathe a bit of a sigh of relief, but the typical household is still struggling. The median household income is still below where it was in 1999 if you adjust for inflation. Lower-income Americans are even worse off. The bottom 10 percent is back where they were in 1989. In fact, with every business cycle, the bottom 60 percent is losing more ground and it takes a longer time for them to catch up with where they were before. So the overall picture, while certainly better than it has been, is no cause for celebration.
Last year, median income growth outpaced average income growth. Does that mean income inequality is actually decreasing?
That, yet again, I am afraid is a temporary phenomenon having to do with the business cycle. We saw the same thing in the late 1990s. In fact, in the late 1990s, even people at the bottom were briefly doing substantially better than people at the top, and income inequality shrank. That’s largely because the labor market became so tight that employers had to start paying people in the bottom half of the income distribution more money in order to attract them into jobs. We haven’t seen quite that dramatic of an effect yet. I hope we do.
But the important thing to keep in mind is that this is still a cyclical phenomenon, it still has to do with where we are in the business cycle. A recession is not out of the question, in fact, quite the contrary—a recession is an absolute certainty. The real question is does it happen next year, or in three or five years? If I were a betting man, probably within the next two or three years and then in all likelihood, we go back to the long-term trend line, which is widening inequality.
You were secretary of labor during one the most economically prosperous periods in U.S. history. How does the growth that we’re experiencing now compare to when you worked in Bill Clinton’s administration?
Well, for one thing, this recovery is less buoyant than the recovery over the 1990s. In the late 1990s, wages rose more quickly and rose across the board more quickly, and therefore, inequality temporarily shrank to a greater extent than we are seeing now. The middle class in the late 1990s had more purchasing power relative to the economy as a whole than the middle class has today, so it was a stronger recovery.
This recovery that started in 2009 is among the slowest and most anemic recoveries that we have experienced in the post-war era. Again, there is a lot of good news, and I don’t want to rain on any parades here. We ought to be pleased that incomes are growing, but we ought to be aware of how fragile the overall economy continues to be, particularly in terms of working people and the labor market.
Donald Trump has repeatedly cited stagnant household income as an underlying cause of economic anxiety. Does this report debunk his claims or is there some truth to what he is saying?
There is some truth to what he is saying. Unfortunately, nothing that he has recommended is going to help that underlying problem. In fact, if anything, his “solutions” so far would make everybody substantially worse off. The grain of truth to what he is saying is that the economy is not working for most people. If you look at the larger picture, most of the economic gains in this recovery have gone to a rather small group at the top.
The Census report notes that income growth was more heavily concentrated in urban areas than rural areas. Do you see that geographic divide as playing into the Trump narrative?
Yes, to some extent that’s right. Rural America is, in general, worse off than urban America. But that is an oversimplification because there are really two different urban Americas. There is one urban America—exemplified by Seattle, San Francisco, Manhattan, Boston, and downtown Chicago—that is really in a boom. There is another urban America—exemplified by Detroit, Baltimore, Kansas City, and Cleveland—that is falling further and further behind.
In this election, in the swing states Pennsylvania, Ohio, Florida, North Carolina, and Iowa to some extent, we have microcosms of what’s happening in the country overall. We’ve got very wealthy places, but we’ve got a lot of poor places. We have a lot of people struggling. The real question is: are they hopeful or do they think the game is rigged against them?
That struggle has fueled a major debate over whether Trump’s rise is explained primarily by racial or economic tensions. How do you disentangle the two?
A large and growing portion of Americans are anxious about the future, and that anxiety makes them easy targets for demagogues who want to point the finger of blame at racial minorities, at Mexicans, or immigrants, or Muslims. The scapegoating and racial and ethnic paranoia comes directly out of economic fear. We have always had some racism in America, obviously, but the degree to which this kind of scapegoating is occurring is evidence of how economically fearful so many people are.
With the economy expanding, what does this mean for Barack Obama’s legacy? And what impact, if any, do you think it will have on the outcome of the election in November?
Evidence shows that the direction the economy is going has a significant influence on how Americans vote, at least at the margin. Undecided voters tend to vote with the party in power in the White House when the economy is doing well, and just the reverse when the economy is in recession, or falling into recession. Just ask George H. W. Bush, who lost re-election when the economy went into recession, or Jimmy Carter for that matter. At the margin, this helps Hillary Clinton and it gives a positive glow to Barack Obama’s legacy.
But although Hillary Clinton’s policies make sense and Donald Trump’s isolationism and jingoism don’t at all—and in fact are quite dangerous—nonetheless, so far at least, Clinton has not put forward a set of policies that are large enough proportionately to the economic problem at the core of what most Americans are experiencing. We will need a world-class educational system for all of our children. We will need a much larger earned-income tax credit that is a wage supplement. We will need public investments, especially in infrastructure, of a much larger scale. She is certainly suggesting policies that are in the right direction, but they are not of the scale necessary to do the job that must be done.
