Robert Reich, UC Berkley professor and former Labor Secretary under President Clinton, joins the Inside Economics podcast to take a retrospective look at economic policies extending back to Clinton that ultimately contributed to President Trump’s election, and a prospective look at where the president is taking policy and what it means for democracy and the economy. His advice: batten down the hatches and buckle up
Robert Reich, UC Berkley professor and former Labor Secretary under President Clinton, joins the Inside Economics podcast to take a retrospective look at economic policies extending back to Clinton that ultimately contributed to President Trump’s election, and a prospective look at where the president is taking policy and what it means for democracy and the economy. His advice: batten down the hatches and buckle up
Guest: Robert Reich, Professor at UC Berkley and former U.S. Secretary of Labor
To keep up to date with Robert Reich: https://robertreich.substack.com/
To learn more about Robert Reich's nonprofit: https://www.inequalitymedia.org/ and https://www.imcivicaction.org/
Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics
Follow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trustee co-hosts, Cris deRitis and Marisa DiNatale. Hi guys.
Cris deRitis: Hi, Mark.
Marisa DiNatale: Hi, Mark.
Cris deRitis: How are you?
Mark Zandi: Marisa, you're back from... Well, you're back from somewhere.
Marisa DiNatale: I was in Mexico, importing tequila and avocados ahead of the tariffs.
Mark Zandi: Still affordable.
Marisa DiNatale: I was scuba diving in Cozumel.
Mark Zandi: Scuba diving. Oh yeah, Cozumel. Did you know that's where I had my honeymoon, in Cozumel?
Marisa DiNatale: No, I just learned that.
Mark Zandi: Yeah. You want to guess how many years I've been married? Long time.
Marisa DiNatale: 35.
Mark Zandi: Pretty good, 40 on the nose.
Marisa DiNatale: Oh, wow. Okay.
Mark Zandi: We celebrated our 40th wedding anniversary a couple months ago. Yeah.
Marisa DiNatale: Awesome. Congratulations.
Mark Zandi: We went to Cozumel for our honeymoon. I don't know why Cozumel. It's a pretty place, but we didn't scuba dive. That's what Cozumel is known for, right?
Marisa DiNatale: It is. Yeah. Yeah. There's really not much else there other than that. I mean, that's the destination for scuba diving in Mexico. Wonderful.
Mark Zandi: Right. Well, good. Well, good to have you back. We have a guest, Bob Reich. Bob, how are you?
Robert Reich: I am very, very well, Mark. Thank you for having me on, and it's good to see you again. Marisa and Cris, it's good to meet both of you.
Marisa DiNatale: My pleasure. You, too.
Cris deRitis: My pleasure.
Mark Zandi: Of course, Bob is your Professor Emeritus at UC Berkeley, former labor secretary, a very storied career. Maybe we can spend a few minutes just hearing from you about your career and the things that have influenced you and how you got to where you are. But I remember finally, it seemed like almost every summer I'd see you in Napa at this Nancy Pelosi event and you'd participate in that event. I don't think they're doing that anymore. At least they're not inviting me.
Robert Reich: Not since Nancy left her post, and I think the Democratic Party must rely on other events. Certainly not with me anymore.
Mark Zandi: Yeah, I'm not on the guest list either, so yeah. But it's good to see you and thanks for participating in the conversation today. Maybe you can, Bob, if you don't mind, just give us a sense of... I was reading your bio. Did you actually grow up in Scranton, PA?
Robert Reich: Well, I was born in Scranton, but we got out as soon as we could. My father had a little clothing shop on Lackawanna Avenue in Scranton, and apparently, it was not doing very well. So, he moved the family to Upstate New York where he started another clothing shop, which did not do well, but he was tired of moving and he had a little baby. We just settled down. So, that's the story. Not much to it.
Mark Zandi: So did you run across Joe Biden when you were in Scranton? I mean, he's a little older than you, I think, probably.
Robert Reich: He is a little bit older. No, I didn't run into Joe Biden in Scranton. You know who else has some Scranton background is Hillary Clinton.
Mark Zandi: Really? What's that?
Robert Reich: Well, I think either her parents or she herself is from Scranton. I can't remember, but I do remember I dated her in college.
Mark Zandi: No, no. Wait, I did not know that.
Robert Reich: You didn't know that? Oh, well, you were going to have to read my memoir that's coming out in August-
Mark Zandi: Oh, absolutely. [inaudible 00:04:09].
Robert Reich: ... with all these very secret sorted episodes that are going to make headlines. So, we'll leave it at that.
Mark Zandi: What? You're going to leave it at that. Oh, because it's in your memoir.
Robert Reich: That's called a tease. That's called a tease in the business.
Marisa DiNatale: Good marketing.
Robert Reich: If I've got you excited, great. Well, I also introduced her to Bill.
Mark Zandi: No way.
Robert Reich: Yes, I did. They say they met in the law school library. So, my introduction a few days earlier obviously did not take, but I did introduce them. And then I did not inhale with Bill at Oxford, but that's all. That's all you're going to get. I'm not going to tell you anything.
Mark Zandi: Okay. Okay. But just to connect a little bit of the dots, didn't they go to Yale Law School? Was it Yale, wasn't it? Okay.
Robert Reich: Clarence Thomas and Bill and Hillary and I were all in the same class at Yale Law School.
Mark Zandi: Oh, so I didn't realize. So, are you a trained lawyer then?
Robert Reich: I am a lawyer and somewhat of an economic guru.
Mark Zandi: Well, you definitely are an economic guru. I didn't realize that you had a legal background.
Robert Reich: Well, you know that I have argued Supreme Court cases. I worked for Robert Bork. You remember him?
Mark Zandi: Yeah, absolutely.
Robert Reich: So law and economics are my backgrounds.
Mark Zandi: Okay. Oh, so that's how you got to know the Clintons and began to help fashion economic policy under the Clinton administration?
Robert Reich: Well, that's right. Again, Bill and I met on our way to Oxford when we were both 22 years old as Rhodes Scholars.
Mark Zandi: I see, I see.
Robert Reich: So this whole thing, this whole saga goes back into the dark ages of the late 20th century.
Mark Zandi: And you were labor secretary in the early '90s. I'm trying to remember back into that period. What was the key most significant issues that you were working on at that time in the administration?
Robert Reich: I should call him President Clinton, right? President Clinton had asked me to run the economic transition team going from the George H. W. Bush administration to the Clinton administration. So, I put together a group of people. Bill Clinton did not know them, but they included Larry Summers and Bob Rubin and Laura Tyson and others. We prepared his economic transition. The big surprise, it should not have come to us as a big surprise, but the George H. W. administration did not allow us to know until quite late how bad the debt was and the budget deficit was. So, I had to push... You remember Dick Darman?
Mark Zandi: Oh, sure.
Robert Reich: Well, he had the data and I finally got him to concede how bad the budget deficit was. Then I took that information to Bill Clinton, and it was what we obsessed about for I would say the first six months or year of the Clinton administration, how to get the budget deficit down. In retrospect, I wish we had obsessed about, which is how to get what we then called investments in human capital, in education and healthcare and infrastructure passed, but be that as it may, this is ancient history, we are recounting.
Mark Zandi: No, very cool. But that was deemed to be a big success when Clinton and Rubin, because that was the period of bond market vigilantes. The bond market was seemingly losing its mind over those budget deficits and President Clinton and Rubin and you and the administration really tackled that issue. At the end of the day, we ended up with a surplus, right?
Robert Reich: At the end of the day, we balanced the budget. We ended up with a surplus, but then we had created the framing that the budget deficit was so important that it was difficult to use the surplus for anything other than to pay down the debt. I mean, you see the trap, and this is where economics and politics meet, Mark. You know this better than anybody. I mean, when you're talking about economics with the public, you are setting the framework for what the public thinks is important. If you say the budget deficit is important and we've got to get it down and you don't talk about healthcare or education or any other public investment or even infrastructure, then the public expects when you do, if you ever do have a budget surplus, well, then you've got to use it to get the debt down.
Mark Zandi: So let me ask you, because we're here and talking about this issue, I mean the debt to GDP ratio back in 1993, I think it probably was 35%, 40%. I mean, I think the issue at that time was the interest payments as a share of GDP, they were high, but debt to GDP was pretty low. Here we are at 100% debt to GDP. If you just look at the CBO, Congressional Budget Office projections under current law or current policy, they keep on rising. Do you think that's a big deal or not?
Robert Reich: Well, I think it's troubling in the following respect, because I'm old enough to remember when the wealthy in the United States paid a fairly high marginal tax rate. Now the way the wealthy are supporting government is not through their taxes, it's through lending the government money. There's not been enough discussion about that great switch that has happened over the last 40 years, 50 years actually. It's very, very fundamental. I think it reflects on one of the major stories of the last half century.
That is the secession of the successful, the secession of the very wealthy into their own world. I'm not accusing anybody of doing anything bad. This is just the way politics and economics interact. But what has happened inevitably is you get more and more and more of the budget. The budget is paid to people who basically are lending the government money.
Mark Zandi: That's an interesting point. I guess from a Republican perspective, they would say, "Hey, look at revenue, government revenue. Tax revenue is a percent of GDP." I think it's around 17%, something like that. It's a percent of GDP, 17.5%. That's consistent with the long run average. It's definitely not higher, but it's definitely not lower. So, doesn't that run counter to that perspective?
Robert Reich: Well, but I think that the question is where the revenue is coming from. If the revenue is coming from average taxpayers or from relatively regressive tax, I mean, if you look at total government revenue that is state and local revenue thrown in, then the whole system has become vastly more regressive. Taxes take a bigger chunk, much bigger chunk out of the pockets of relatively poor middle-class, working class people than they used to because we were much more reliant on sales taxes, on property taxes, and on other forms that are regressive taxes overall.
If you compare the total government revenues where they came from in the 1950s and 1960s and early 1970s, you get a completely different picture, Mark. I mean, the wealthy were paying much, much more to the government, federal, state, and local than they are today.
Mark Zandi: Got it. Got it. Well, I want to come back to your memoir and you said the memoir is coming out later this year.
Robert Reich: August 19th. August 19th.
Mark Zandi: Oh, you've got a day. You've got a day.
Robert Reich: Yes. It's a big day. I mean, it's going to be national holiday. It's just been declared a national holiday.
Mark Zandi: Great. Well, I can't wait, but we'll come back to that. But before we get there, I want to do a little bit of a historical accounting, the Biden administration and economic policy in the administration and how successful or not that was. One of the reasons I bring this up is because I just read a piece in Foreign Affairs by Jason Furman. Jason is a Democrat. He was the chair of the Council of Economic Advisers under Obama. I don't know how you read the piece, but the way I read the piece was it was critical, quite critical, I'd say even highly critical of the Biden administration's policies. A lot of it was centered around the policy's impact on inflation and laid the inflation at the feet of the Biden administration in that policy. I was just curious what your perspective is on Biden's policies and how successful or not they were.
Robert Reich: Well, I disagree with Jason. I think the Biden policies were extraordinarily successful in economic terms. I mean political terms, we can have a different discussion, but Biden handed Donald Trump, Trump II the best economy I have witnessed in 50 years, certainly 40 years. That economy, Donald Trump, obviously he already has taken credit for it. He takes credit for anything he can take credit for, but on almost every criterion, the Biden economy turned out to be a damn good economy. Biden and the Fed, I think that it was both a combination of fiscal and monetary policy really did bring inflation down and yet we had a soft landing, which nobody thought we could have a soft landing. I remember-
Mark Zandi: I did, I did.
Robert Reich: Mark, congratulations.
Mark Zandi: Not Cris. Tell him, Cris.
Robert Reich: You were one of the few. Everybody was worried. I mean, look at Larry Summers. I mean, it was bonkers in terms of we're going to have a terrible time. We're going to have a recession. We've got to get interest rates up into the stratosphere. But I think that they did it really, really well. They put economic doctrine, if you will, orthodox or neoliberal doctrine aside. They looked at the numbers and I was very impressed. I still am.
Mark Zandi: He was critical on many regards, but mainly mostly the American Rescue Plan. That was the COVID relief package, $2 trillion. It was deficit finance. It was viewed as a response to the COVID pandemic. His argument was that that was just too much, too much stimulus to the economy. That is the fundamental cause of the higher inflation. By the way, and we're going to talk about this in just a minute, why Harris ultimately lost because of the political fallout from the inflation that ensued.
Robert Reich: Well, let's talk about that in a minute, but I just want to deal with Jason's arguments and also other arguments here about the Biden economy. I mean, not only do we have a soft landing, but we also avoided a lot of human suffering. Let's make very clear that we had a pandemic that was the first pandemic certainly in living memory. Nobody knew how bad it was going to get. We had a lot of people unemployed. We had a lot of people who were sick, and we had to do something very, very dramatic. Now, look at, for example, the Obama administration, of which Jason was a member. I thought the Obama administration handled the Wall Street crisis pretty well.
But if anything, they underestimated the amount of stimulus that was going to be necessary to get the economy out of that hole. It took forever, it seemed, for the economy to get back to where it should be. I think the Biden administration learned a lesson from that. That is you want to deal with it, number one, the human suffering. Number two, you want to have a stimulus that's big enough to get the economy really back to where it should be. You're always going to be playing the odds. You're always going to be erring in one direction or another. Why not err in the direction of reducing human suffering in a big way and getting the economy back in a big way? If that means a little bit more inflation, well, that's too bad. You can deal with that.
The Fed and the Biden administration dealt with it I thought very well, which gets us to the politics of this. Now, I think Joe Biden suffered in ways that we all understand now from not being able to communicate terribly effectively about what he was doing and how he was doing it. One of those very sad aspects of his failure to communicate was not to be able to tell people and communicate effectively that getting inflation down was different from getting the prices down. I mean, particularly in terms of energy and food and housing, I mean, a lot of prices stayed way high.
So, when Joe Biden and the Biden administration said, "Well, we've got inflation down," a lot of people said, "Well, you're on a different planet than I am because my prices are still very, very high." That communication problem, which dogged the Biden administration, and I think nobody knew that the economy in all the ways in which we want an economy to be a good economy was terrific at the end of the Biden administration. But how do you sell it when prices are still going to be very high?
Mark Zandi: Even that I excuse them, right? Because this problem of communication is not just a Biden problem, it's across the globe. I mean, every incumbent everywhere got nailed by the same thing. This is one of the reasons why I think Jason's argument doesn't work for me on inflation. It's not an American thing. It's a global thing.
Robert Reich: It's a global thing. That's exactly right.
Mark Zandi: Yeah. It was a global shock. It was a pandemic, and the Russian war had nothing to do... Really on the margin was the American Rescue Plan. That was a side story to everything else, but every incumbent across the planet had the same problem and could not communicate that either. So, they all lost.
Robert Reich: Exactly. Exactly. The supply side problem, the problems in all of the ways in which the globe was dealing with problems in terms of just getting supply routes and getting the entire global system back together was enormous. You're absolutely right. It affected everybody. But I want to just touch on one other thing that we haven't talked about. There's a baseline here. We are in and we have been in for at least since the 2008 financial crisis a deep public reaction to the establishment. There is anti-establishment politics that has taken over. I think that the financial crisis of 2008 here in the United States and I think elsewhere around the world really did begin a new era of anti-establishment politics.
I mean, you couldn't escape this. This led in the first instance to the Tea Party movement on the right and the occupied movement on the left. Then you had Bernie Sanders who did better than anybody expected him to do in 2016. Then you had this other foolish, crazy clownish person named Donald Trump coming in and becoming president. Nobody thought that was... For Bernie Sanders and Donald Trump to become the leading figures in American politics on the left and the right in 2016 was amazing. Nobody would've predicted that.
But you see that the anger, the sense of outrage, the sense of unfairness, the sense that the whole system is rigged against average working people was the baseline. That baseline really did not change. It was there right through the Biden administration. I think that Biden and Kamala Harris suffered in part because of that.
Mark Zandi: So it's almost like, at least to my ear, what you're saying is that you can trace back the shift over to Donald Trump politically all the way back to the financial crisis and the response to that crisis.
Robert Reich: Absolutely.
Mark Zandi: Some people would take it even further back and say, it goes back even into the 2000s when China entered onto the global scene and did tremendous damage to the US manufacturing base and cull out a lot of middle America. That was the start of the underlying angst that is now expressed by this shift in our politics, but that was by the financial crisis.
Robert Reich: I would say it goes back before then. I think it starts with the Clinton administration, which I was proud to be a part, but that's where you had NAFTA. That's where you had Chinese accession to the World Trade Organization. That's when you had basically financial deregulation, which some people would say led to the Wall Street financial crisis. That's when you planted the seeds of the sense among Americans that the system is rigged against them. But it wasn't until the financial crisis that the coping mechanisms that a lot of families used to avoid understanding or seeing, it's like a veil came down in front of them in 2008.
But a lot of Americans starting in the early '90s worked harder than ever. They were working longer hours. Women went into the workforce in great numbers, not because professional women had greater opportunities available to them because women had to work in paid work in order to keep families going. You had non-college men already on a downward escalator that I remember sharply in the 1994 midterms, non-college men voted against Democrats in big, big ways, major ways. It was a precursor to vote everything else we've seen.
Mark Zandi: When was that, Bob? I missed that.
Robert Reich: That was 1994. That was midterms of 1994. Remember that's when Republicans took back Congress. Nobody thought the Republicans could take back the house. They did. They took back the house. Newt Gingrich came in saying that it was a revolution, but you have to see the seeds of Trumpism starting at that particular point. A lot of Americans, they worked harder. They used their homes as piggy banks, as housing prices rose. Then in 2008, that was no longer an effective coping mechanism because you had a housing crisis and a debt crisis. I think that that's when everybody or not everybody, but certainly the working class of America began to say, "Wait a minute. There's something fundamentally rotten here."
That's how Donald Trump and Bernie Sanders, the Tea Party movement, the occupy movement, American politics became fundamentally anti-establishment. That's how Donald Trump rode into the White House in 2016. That's how he managed to continue to lie to people through his teeth I mean in ways that nobody expected a president to do that and then lie his way right through saying that the 2020 election was rigged. I mean, we are still living, Mark, with that shameful event. I mean, it's still with us. It's still a cancer on our political system, and we can't avoid it. We can't avoid it. The economy can't avoid it.
Mark Zandi: So here we are, President Trump won the election and he's fast moving on economic policy. There's a lot of moving parts here, tariffs, immigration policy. We've got a lot going on in Congress regard to fiscal policy, tax, and spending policy, all the things that are going on with DOGE and executive orders, the most recent one being around regulatory policy, bringing that back into the executive branch for approval. I mean, just a blizzard of things within a month of the President Trump's inauguration into second term. So, where do we begin? How do you think about all this? I can't even wrap my mind around all the things that are happening here and what it all means. Where do you begin to think about this?
Robert Reich: Well, I start thinking about democracy and capitalism. I mean, they are synergistic. Democracy really does rely on a capitalist system that is transparent and that works well. Capitalism relies on a democracy that is transparent and is not dominated by big money and is trusted by people. If you get off track in one or both of those, then you are very much in trouble, then it's very hard to get back on. I mean, Donald Trump basically is not a small-D democrat. He doesn't really believe in small-D democracy. He is a... I don't know, authoritarian? I mean he wants all authority to be collapsed into the executive branch. I mean, quite fundamentally against the notion that the framers of the Constitution had that we have three co-equal branches.
I mean, he is now essentially thumbing his nose at Congress saying, "I can impound whatever spending I want." He's thumbing his nose at the federal courts saying, "I don't have to be bound by what you are telling me, even in terms of my impoundment of my freeze on federal funding. I can allocate money the way I want. By the way, I can use tariffs in any way I want." I mean, you may remember, Mark, I mean, I'm old enough to remember when Congress actually had some authority over tariffs, but no, now he's just, "I'm going to put 25% tariffs." This is wild, crazy stuff. It's dangerous obviously for democracy, but it's also dangerous for the economy.
I think that if he actually puts 25% tariffs, a lot of people I talk with and you talk with say, "No, it's all a bluff." But if he does what he is saying he's going to do, it's going to wreck the American economy. It's going to wreck a big, big chunk of the global economy. The mass deportations of 11 to 20 million people who are working here in the United States, I mean, what is that? That's also going to have enormous negative consequences. The tariffs and the mass deportations are going to cause extraordinary inflation. If you're just beginning with inflation, I mean the price, the consequences of this are terrible.
But it's also undermining all sorts of institutions that we come to rely on and expect. I mean, look, putting all regulatory agencies under the administration, what happens to the Fed? What happens to the independence of the Federal Reserve? I mean, once you go down this pathway, you are in a different universe.
Mark Zandi: So there are folks that would support him, a lot of folks, a lot in the business community, and they say, "Look, hey, the government needs a good hard look at. There is potentially a lot of waste and potentially some fraud, and we need to look at this very, very carefully. DOGE is taking a crack at it." Then you have folks that say, "Look, the regulatory environment got out of hand under President Biden, and it's squelching innovation and economic growth. It's not a bad thing to take a hard look at the regulatory environment." Then you have folks that say, "Look, we should have tariffs maybe, but they raise a lot of revenue and maybe we can use that to help pay for more tax cuts."
Robert Reich: So Mark, there are people in the business community who will say those things. That's right. But you tell me, honestly, let's have a candid discussion right now about business leaders. You know many of them, I know many of them. I know what they say in private. What they're saying in private is I don't want to take a risk of Trump wrath. I don't want to say anything that's going to get him angry with me. So, I'm going to go along with everything. I mean, Jamie Dimon, for example, somebody who you know and I know, who speaks very much for the American business community, who is a reasonable man and he's a Democrat. Where is he? What is he saying? Is he standing up and saying, "Rah, rah, Trump tariffs"?
Is he standing up and saying, "Yes, this mass deportation is great"? Is he saying all the health, safety, and environmental regulations, particularly environment are bad things for America? I mean, he has been remarkably quiet, as have many business leaders who don't want to come out and say what they actually believe. This is mass intimidation.
Everybody knows these tariffs are crazy. Everybody knows that one of the existential crises for this country and the world is global warming and climate change, and you've got to do something very dramatic. The Biden administration began to do that, probably not nearly enough. Then Trump comes along and gets out of the Paris Accord again. Are you kidding me? I think this is dangerous for the economy. It's dangerous for the business community. I think business leaders need to have the courage of their conviction. They need to stand up and they need to say that this is crazy.
Mark Zandi: But you can't dismiss this perspective. I mean that people actually believe the alternative and they're just not saying. I talk to the business community as well, and I do run across a lot of the tech guys. Look at the tech guys. Andreessen or Bill Ackman or those folks, they are quite vocal in support of Trump. So, the business community writ large, many of them aren't against what Trump is saying and what Trump is doing.
Robert Reich: Well, Andreessen and Ackman, I mean even some of the people who are heading tech companies, I don't know what they're looking at frankly. I mean, it may be that they're looking at different data that I'm looking at. I mean, Mark, you and I have talked a lot over the years. We've appeared on panel discussions. I respect your views. I hope you respect mine. I'm certainly not a radical. I'm not out in the stratosphere. I'm just looking at data and I'm looking at history and I'm looking at institutions. Frankly, what Trump is talking about seems utterly crazy to me. Now, if Bill Ackman and Andreessen, if we were all in the same room, maybe we could have a rational discussion. I don't know. I don't know. But I do know that a lot of business leaders I talk with are candidly, frankly, quietly intimidated.
Mark Zandi: Right, right. Well, let me ask you this. The picture you're painting is that the policies that are being pursued here are going to be a problem for the economy, that the economy is going to suffer from this, that capitalism broadly is going to suffer. What kinds of things do you look at to gauge whether that's actually going to happen or is happening and to what degree? I mean, are there certain benchmarks you're using to gauge whether that fallout is actually unfolding?
Robert Reich: The simplest benchmark is inflation, and closely related to that is what the Fed is doing. Is the Fed really going to reduce interest rates? You look at the transcript of the Fed meeting, the recent Fed meeting. They're concerned about tariffs. They're concerned about Trump policies. They don't want to reduce interest rates until they are much more satisfied that we're not facing inflation. Well, that's the surface criterion. Then you look more deeply at what's happening. Unemployment, what are we seeing in terms of unemployment data? Are we really on the right track right now? I would say a lot of danger signs, but this again, is all in the immediate term.
We haven't even seen the Trump tariffs yet. There were a lot of people saying to themselves and telling themselves, "Oh, it's just a bluff." I don't think it's just a bluff. I think he is willing to do things that a lot of people say, "No, that's totally crazy." Is he going to turn Gaza into a resort, a Mediterranean Riviera resort? I mean, a lot of people, they laughed when they heard that, but he seems to be serious about that. We could talk about a lot of individual things, Mark, but if you look at the entire package of fiscal policies and consolidating more and more power in the executive branch, I mean, I think one area that's interesting is antitrust policy.
I honestly don't know where the Trump administration wants to go with that because they're giving indications at the Federal Trade Commission that they want to ease up on mergers. But at the same time, I'm hearing from a lot of people in the antitrust community that at least Vance and maybe others in the administration are very serious about maintaining a strong antitrust. If that's true, good. I think there's too much market power concentrated in too few hands right now. I think that's one of the problems we have in getting prices down.
Mark Zandi: So if you look at forecasts, so that's what we do for a living at Moody's. We put pen to paper, and we produce forecasts. We have to make obviously lots of assumptions about policy. What's the Fed going to do? What is President Trump actually going to do with regard to tariffs and immigration and fiscal policy and that thing? If you look at the projections that are being made by economists that do this for a living, it's sanguine. The world's not going to fall apart. Growth slows. Yes, we have a bit more inflation, maybe unemployment picks up a little bit, but at the end of the day, we navigate through no recession. There's a lot of elements to that forecast, but one is that Trump will respond to signals that the economy's not cooperating like he did in his first term. He had tariffs.
They did damage. It hurt the manufacturing base. The farmers got nailed. He had actually cut checks to the farmers to compensate for the loss of exports to China, and then he ultimately relented. In his way, he'll declare victory, strike a deal, great deal, and then move on. That's the underlying assumption that we're all using here, that if things go off, start going off the rails, that he will respond. He sees the stock price is falling. He sees the economy weakening. He starts listening to business people. They're saying, "What are you doing?" in private. Obviously not in public, and he'll respond to that. Does that sound right to you?
Robert Reich: Well, to some extent, yes. I think that he still does look at the stock market. If the stock market starts losing ground, he does adjust or he does listen more than he does before to business community. But here's the thing that makes me particularly concerned. In his first term, he was surrounded by people who knew a lot. They knew a lot about the economy. I mean, Mnuchin was not-
Mark Zandi: Treasury secretary.
Robert Reich: ... a stupid man. Yeah, I mean, he was actually thoughtful. When Trump sees the stock market dropping, he consults with some of the people around him who know a lot, but he's now surrounded by people who don't know nearly as much. In fact, there are many more ideologues around him who are... What are they, nihilists or authoritarians? I don't know. You come up with a term. This is not business as usual. A lot of economic forecasting is based on an assumption about institutional permanence, about the future being basically like the past in terms of laws and constitutional frameworks and norms being basically like they were over the last 10 or 15 or 20 or 30 years. But can we assume that now?
One thing that keeps me up at night is thinking that we really are heading into a different universe where the norms and the institutions and the laws and constitutional frameworks that we have taken for granted are no longer there. When the Trump administration says to the federal courts, "No, we are not bound by you any longer," which it is on the verge of doing, that is a signal to me that we're on a different planet and that all of the assumptions that we use in terms of making forecasts are wrong or they're just based upon a false premises.
Mark Zandi: Yeah. Yeah. Okay. So, I'm going to put you in an awkward position and you can tell me you're not going to do this, but okay, now you have my job.
Robert Reich: I wouldn't want your job for a million bucks.
Mark Zandi: Yeah, your chief economist of Moody's. So, what does that mean? Would you have a recession in your forecast? I mean, it sounds like you're saying we're headed for an economic train wreck and the economy is just not going to be able to navigate through this in a reasonably graceful way. That's what it feels like you're saying to me.
Robert Reich: Yeah. Well, I think I'd do something slightly different. I'd say assuming that the institutional frameworks of our government and our laws and institution and constitution remain as they have let's say since the Civil War, that's a 60 to 90% safe assumption. Here's where I think we're going, but I want to give you a different track as well. I want to give you a completely different view of where we could be going if I'm wrong about that institutional framework because I think that there is some not insignificant danger that we're going to be on a different track entirely as a country, as a world, a society in terms of who we are and what we're doing. I haven't even mentioned this yet, but Donald Trump siding with Putin against Ukraine.
I mean, this is huge. This is 180 degree turn for the United States in terms of foreign policy. We're putting up big tariffs against Europe or threatening tariffs against Europe. We're saying to them, "You're on your own. We're on Putin's side." Well, what does this mean in terms of the future? So if I were you, I'd say, "Okay, I'm going to give you my 15 or 20% odds of being on a different track of the United States becoming an authoritarian, non-democracy, something in the order of Hungary maybe for a while, and our laws and institutions and assumptions being completely thrown out the window." Let's take a look at that. What does that really mean over the next 5 or 10 or 15 years?
Mark Zandi: Yeah, we actually do a lot of scenarios and there's a lot of dark scenarios for sure. Yeah, for sure. Let me just quickly, because we're running out of time, bring Cris and Marisa into the conversation. Cris, anything you want to push back on or tease out here with Bob?
Cris deRitis: Oh gosh, there's so much.
Mark Zandi: There's a lot.
Cris deRitis: I was intrigued by this idea, I'm looking forward to the memoir, that the seeds of Trumpism were really sown in the Clinton administration, and I would even argue that perhaps this is more cyclical than that. We have these periods of wage inequality, rise of populism. You go back historically, you see that. So, do you think this is just a fever that needs to break, that the Trumpist wave will crest and then there'll be a backlash and a new regime will start once again? Is that what you see from a political future or do you see this as something that has much more permanence going forward, that this Trump movement is just going to continue?
Robert Reich: Well, I am of the view that history does again, as the saying goes, it doesn't repeat itself, but it does echo. We are in a period of time that is similar to the Gilded age of the late 19th century, early 20th century. That was a time when a lot of the institutions of the country were tested in terms of inequality and corruption and the robber barons running a lot of the country. That ended not terribly happily in 1929. Could we see a repeat of that? I think that that is not a totally far-fetched scenario. It wouldn't be like 1929, but it could be something else, an echo of 1929. 1929 ushered in eventually the Second World War.
Could we be seeing something like that happen? That was a huge leveling effect. I mean, you talk about getting rid of the Gilded Age. We didn't get rid of the Gilded Age until the depression and then the Second World War, but what a horrible thing to have to expect or think about as the way we get back on track. I hope that we don't have to do that, but there are very profound similarities.
Mark Zandi: Marisa, anything you want to push back on or tease out?
Marisa DiNatale: Yeah. So, Bob, where do you think that this ends up in terms of policy on tariffs, on the budget? I mean, we haven't seen very much pushback from Congress against what President Trump has done in terms of a lot of the executive actions. We did see the Senate passing a version of a bill overnight last night without the $4 trillion of tax cut extensions in it. Policy ultimately, if we look six months ahead, where do you think we actually land? Do you think there'll be pushback?
Robert Reich: Good question. I think the Republicans are cowed, they're intimidated. Look who they just allowed into the administration without a peep. I mean extraordinary. So, yes, they will go along with a tax cut. They'll go along with $4.5 trillion dollars or $5 trillion tax cut. How are they going to pay for it? Well, they will pay for it in part by fairly drastic cuts and some of those cuts, you know as well as I do. There's no place to get much out of the federal budget unless you go into Social security, Medicare and Medicaid, and National Defense. Are they going to get it out of national defense? I doubt it. Are they going to get it out of Social Security? Not directly. Maybe indirectly.
Out of Medicare, maybe, again indirectly. Medicaid, I think they're going to really make major cuts in Medicaid. So, the framework here, Marisa, is you have very substantial cuts in programs that the poor and the working class really need in order to pay for a big tax cut that disproportionately helps people who are very wealthy. What then? Will the public understand that? Will Democrats help them understand that? Will that lead to a major takeover by Congress of Democrats in 2026? Maybe. I think likely if in fact that's the scenario in terms of fiscal policy that we are going to see.
Mark Zandi: Well, let's end the conversation this way, Bob. So, you're obviously pretty bleak and I get you. I hear you, a lot to be nervous about here, but paint the opposite picture for us. How could this play out in a way that would be surprising from your perspective to the upside? Is that even conceivable to you? If it is, what would that scenario look like?
Robert Reich: We've talked about pieces of this, Mark. One is that the stock market begins to react.
Mark Zandi: And by the way, just as a sidebar, I'm really curious if you've got thinking why isn't it reacting? Which is a question I get all the time. I mean, it's gone sideways here, but why isn't it reacting?
Robert Reich: It's not reacting because people have discounted Trump's assertions as bluffs. He has so much bluff on his side now that he can say just about anything. People say, "Well, that's just bluff." Let's just say, and you asked me what's my optimistic view, my optimistic "view" of an ironic meaning of optimism is that we get close to genuine tariffs and real mass deportations and the stock market really starts reacting and the bond market. Trump sees that and he's angry with the people around him who have told him to go ahead, some of the ideologues who basically are nihilists and even including Musk.
He says, "No, this is crazy," and he pulls way back. Meanwhile, the Democrats are making hay on this redistribution from the working class to the wealthy, and they are teed up to make major, major victories in 2026 in the midterms, which they do. They take over both the house and the Senate, and basically, that's the end of the Trump administration.
Mark Zandi: Got it. Got it. Okay. What you're saying and I do agree with it is that the one governor on economic policy under President Trump are the markets, the stock market. I constantly go back to that 10-year treasury yield. What is it doing? That is a real time barometer on what investors, and that's where the money is ultimately. I do worry we're in a bit of a hall of mirrors in that President Trump is looking at the stock market and the stock market's thinking, "Oh, he's going to bail us out. He's not going to do anything that hurts us." Therefore, they never sell. If there's ever a down day, they use that as an opportunity for investors to come back in. So, that's not an equilibrium, but that could-
Robert Reich: No. It's not equilibrium. In fact that I think it's realistic to think. Stock markets, they hate uncertainty and we're entering a period of extraordinary uncertainty. We haven't seen uncertainty like we are just about to enter for many, many years since 2008.
Mark Zandi: Yeah. Yeah. Well, thanks so much for spending time with us. I really do appreciate it and very kind of you. It was good to see you again. Thank you. I do want to say to the listeners, I hope you enjoyed the conversation and we're going to call it a podcast. Talk to you next week.