Reich, Now From the Outside Looking In

Robert Reich isn't a great fan of the budget deal reached by President Clinton and Republican leaders of Congress. "This further imbalances American society," says the former secretary of Labor. "It further imbalances a society already grown far apart."

Mr. Reich is referring to the sharp divide between well-to-do and low-income Americans.

Despite a booming economy, "at least half the work force is going nowhere," he insists in an interview. Their average weekly earnings are "just keeping up with inflation."

Those in the bottom 10 percent of incomes have benefited from a minimum-wage boost last Oct. 1 - legislation Reich fought for tenaciously as a Cabinet member.

But families with incomes above that point, up to the median (where half have higher incomes and half lower incomes), "are still on a downslide," he says.

This theme pervaded his four years in Washington and his advice to President Bill Clinton, his friend from their days together as Rhodes scholars at Oxford University in Britain.

It is a message that runs through his seventh book, "Locked in the Cabinet" (Alfred A. Knopf).

Most reviews, Reich says, have centered on his book's humor or inside personal stories, rather than its underlying theme.

Reich feels great compassion for the economic underdogs of American society. His is a sentiment that has become less pervasive in the country, with its passion for economic success stories, and less persuasive in Washington, with the growing influence of conservative views - even with a president elected as a liberal.

Reich explains the trend by noting that relatively few of the poor vote. Nor do they make large campaign contributions or form political action committees to lobby lawmakers.

"Moreover," he adds, "the working poor and even the lower middle class are living in places quite far removed from people who are middle income and quite wealthy."

He often wonders whether this division will one day lead to turmoil in the nation, a theme he has echoed since before Bill Clinton was first elected president.

He objects to the budget deal because it could "aggravate" the division by giving tax goodies to the prosperous (cuts in capital gains and estate taxes) and the middle class (education tax credits), while doing little for the poor.

The deal does promise health insurance for 5 million poor children and restores some welfare benefits to legal immigrants.

But as Reich sees it, the trend in Washington in the past few years has been to place "most of the burden" of balancing the budget on those of "very modest means or no means." He cites cuts in food stamps, job training, and welfare.

"The poor are sacrificing far more than the rich," he says. "What really concerns me is the failure of the budget process to recognize the difference between public investment and public consumption."

Public investment - in education, job skills, roads - offers returns for the future, he says. Public consumption - such as farm supports and much health care spending - can "enhance livelihoods today" but add little to the nation's economic capacity.

Just as businesses and families borrow, it is "entirely appropriate" for government to use debt to finance investment, he says.

It is not a popular view in Washington these days.

Reich also worries that the Federal Reserve will again raise interest rates May 20. "There is simply no sign of accelerating inflation," he says.

Reich favors a tight labor market, giving employers incentive to recruit and train workers in central cities and poor areas. Even if wages grow, he says, robust corporate profits and growing productivity offer a buffer against a need for business to raise prices.

Reich finds that when he talks about the Fed, people's eyes glaze over. Yet, he says, when the Fed imposes an interest rate increase of a quarter of a percentage point, that means "130,000 people don't get jobs."