Former Labor Secretary Robert Reich Believes Biggest Economic Story Of Our Times Isn't About Supply And Demand: 'It's About Power'

Former Secretary of Labor Robert Reich believes the biggest economic story of our times isn’t about supply and demand; rather, it’s about institutions and politics. “It’s about power,” he said in late December 2022.

What Happened: In a video, Reich highlighted the fact that the median annual earnings of full-time wage and salaried workers in 1979, in today’s dollars, was $43,680. “The median earnings in 2018 was $45,708. If between 1979 and 2018, the American economy almost tripled in size, so where did the gains go? Most went to the top,” he said.

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Reich stated that according to the conventional view, the only realistic way to raise wages of most Americans is to give them more and better education and job training, so they can become more competitive.

However, he argued that although the conventional story isn’t completely wrong, it does leave out some of the largest and most important changes, and, therefore, overlooks the most important solutions.

“To understand what really happened, it’s critical to understand that there is no “free market” in nature. The term “free market” suggests outcomes are objectively fair and that any “intervention” in the free market is somehow “unnatural.” But in reality, markets cannot exist without people constructing them. Markets depend on rules, and rules come out of legislatures, executive agencies, and courts. The biggest political change over the last four decades is the overwhelming dominance of big money in politics – influencing what those rules are to be,” Reich explained.

Countervailing Power: Reich cited the great economic thinker John Kenneth Galbraith who had raised the question: Why is capitalism working so well for so many?

“His answer was as surprising as it was obvious: American capitalism contained hidden pools of what he called “countervailing power” that offset the power of large corporations, Wall Street, and the wealthy: labor unions, state and local banks, farm cooperatives, and small retail chains, for example,” Reich said.

However, since the late 1970s, these sources of countervailing power have been decimated, leading to an unbalanced system and producing widening economic inequality and stagnating wages, he stated.

Reich said that to build a new countervailing power and move toward a new progressive economics, one needs to talk about economics in terms of political power.

“Stagnant wages, job insecurity, widening inequality, and mounting wealth at the top are the result of political choices. The system is rigged and must be un-rigged. Second, to get this done, build a multi-racial, multi-ethnic, coalition of the middle class, working class, and poor,” he said.

This story was originally published on Dec. 29, 2022.

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