Robert Reich wages war: President Clinton's Labor Secretary is advancing a theory of class warfare.

President Clinton's Labor Secretary is advancing a theory of class warfare. Democrats hope that the message will take.

In the 1980s, Robert Reich was tossing out politically marketable policy proposals like a salad shooter. The quixotic task he had assigned himself -- devising an economic agenda for liberals --would require several trips back to the drawing board. But in 1992 his efforts paid off, when his old friend and fellow Rhodes scholar Bill Clinton incorporated many of his ideas about government investments in people in his platform, Putting People First. At the Democratic National Convention that year, the late journalist Andrew Kopkind overheard someone remark, "The only point of this campaign is to put somebody in the Oval Office who will put Robert Reich in the basement."

Instead, Reich was put in charge of the Department of Labor. It's not normally considered a plum job, but he has raised its profile higher than ever before. His Republican predecessors, Elizabeth Dole and Lynn Martin, never pretended to be economic heavyweights. Reich, by contrast, is constantly explaining the larger meaning of economic trends. "He and Laura Tyson are the two most widely quoted representatives of the Administration on economic affairs," says Princeton economics professor Harvey Rosen. Treasury Secretary Robert Rubin's public remarks tend to concern the bond market. Nobody ever heard from Roger Altman when he headed the National Economic Council, and nobody's ever heard of Council of Economic Advisors chairman Joseph Stiglitz.

The emphasis Clinton places on protecting spending for education and training programs reflects the influence of Reich's ideas. His primary function for the Administration, however, is not so much to make policy as to be an articulate spokesman for the Left. Michael Horowitz, an old Washington hand now at the Hudson Institute, says, "He is a spectacular propagandist. Nobody's better than Reich at agitprop in this Administration." Reich is the Dan Quayle of the Clinton Administration: while others (in this case, centrists like Rubin and Leon Panetta) shape its basic agenda, he mobilizes its base and creates its campaign themes.

In a Democratic Administration, of course, mobilizing the base means pleasing the labor movement. One of the Administration's first acts was to revoke President Bush's executive order implementing the Beck decision, in which the Supreme Court ruled that workers could get back union dues used for political activity rather than collective bargaining. In the last Congress, Reich pushed unsuccessfully for an expansion of the Occupational Safety and Health Administration's regulatory powers over the workplace and for a ban on the permanent replacement of strikers. Having failed to deliver -- and having bucked labor on NAFTA -- the Administration has to try especially hard to keep the unions happy. Reich has tight links to organized labor. Steven Rosenthal, his associate deputy secretary, recently went to work for AFL-CIO head John Sweeney as his political director. Says one Labor Department official of his superiors, "They sort of treat labor the way one treats a mistress. They give them favors, but not in public."

By staying in permanent campaign mode, Reich has landed in hot water more than once. The first incident occurred in March 1993, when the new Administration was trying to get Congress to enact an economic stimulus package. The Bureau of Labor Statistics (BLS) was about to release data showing high job growth in February, which would have weakened the case for that package. So on the morning the data were to be released, Reich held a press conference explaining that 90 per cent of the new jobs were part-time jobs for people seeking full-time work. In fact, that statistic was purely the invention of the chief economist's office, a Reich innovation run by his appointee. In April, Sylvia Nasar wrote in the New York Times that Reich's dissemination of the 90 per cent statistic had "created a furor among the department's career economists and statisticians" and quoted private economists criticizing Reich for spinning the data.

After the election of the Republican Congress in 1994, Reich organized a "central oversight group" to coordinate the Labor Department's response to expected congressional hearings and proposals. The group may have broken the law by using civil servants to mount a political defense of the Administration. "Agency defense teams" were assigned to "identify major DOL actions which could be raised (both negative for defense against questions and positive for use by Secretary as examples)." The central oversight team was supposed to think of ways "to get support . . . on the nightly news or in the print media," to "Establish air tight rational [sic] for vulnerable programs and policies," and to "Develop allies to assist you for the oversight hearings. . . . Recruit them from the staff ranks on the Hill as well as from the diverse constituencies we work with."

After word of this effort leaked to the Washington Post, Sen. Connie Mack (R., Fla.), chairman of the Joint Economic Committee (JEC), wrote to Reich expressing concern over the central oversight group -- and particularly the inclusion in the group of the BLS, which is widely respected for its nonpartisanship. (One Labor Department official says of the oversight group, "The purpose of this activity was clearly some kind of anti-congressional effort, and that's not what the BLS is about.") In his response to Mack, Reich wrote, "There is no actual memorandum to anyone on this subject. There is also no memorandum providing 'political direction' to the BLS or any of its employees."

Not so. When Rep. Jim Saxton (R., N.J.), vice-chairman of the JEC, requested that the BLS turn over all documents pertaining to its involvement in the group, the BLS provided memoranda from the central oversight group. Labor Department spokesmen tried to maintain that the documents were "working papers," not memos. Republicans didn't buy it. So far, Reich has seen no need to explain himself or apologize to members of Congress.

Reich raised eyebrows again in June, when the chief economist's office announced that wages had declined by a huge 2.3 per cent over the last year. Reich told Keith Bradsher of the New York Times that it put Republican tax proposals "in a very different light," and the story was widely reported. Yet it wasn't true. The statistic was derived from a BLS survey that compares wages and fringe benefits at a single point in time. Because of the way the BLS changes the mix of occupations surveyed each year, year-to-year comparisons can't be made. By doing so, anyway, Reich presented several years' worth of economic shifts as if they had all taken place in one year. In September, the JEC issued a press release making these points, but so far none of the newspapers that ran the original story has corrected the record.

Ohio University economist Richard Vedder mentioned the JEC release in a Washington Times op-ed disputing Reich's account of wage decline. Reich's response was revealing. First, he asserted that the JEC "has been proven flatly wrong" without providing any citation; second, he denied that he had ever argued that average earnings were declining -- he was concerned with inequality. In fact, the JEC had checked its release for factual and analytical soundness with BLS officials, and officials at both agencies are unaware of any attempt to respond to it. Reich's claim never to have argued that average wages were declining is simply untrue. The 2.3 per cent statistic that sparked the controversy, for instance, was supposedly an average.

Perhaps it is possible to defend or excuse Reich on any one of these incidents -- he probably took more flak than he deserved in the first case -- but taken together, they add up to a troubling pattern. Reich's books and articles have long been notorious for their cavalier approach to facts. His record in office suggests that more than mere sloppiness is at work. Mark Wilson, who left a career civil-service job in the Labor Department for the Heritage Foundation in early 1995, declares, "The work is done very carefully, and I think they selectively take the statistics that advance their agenda." Like the President he serves, Reich seems to think he can remake reality with his utterances. It would be an endearing habit if some people, including the press corps, didn't take him seriously.

Reich's latest big idea is sure to be taken seriously in next year's presidential race. It is that shrinking wages and growing inequality are America's central social problems. Cultural conservatism and anti-government sentiment, in Reich's view, are symptoms of this underlying economic malady. (This type of thinking is a hoary staple of Left political analysis.) Reich is an effective spokesman for this viewpoint. House Minority Whip David Bonior takes a similar line, but he projects resentment of the successful. Reich is the Happy Class Warrior. One Hill aide predicts that "Reich is going to have an autonomous role in nailing down the base, the unions, while the main campaign will try to position Clinton as a New Democrat." The emphasis on wages also dovetails nicely with Reich's "investment" agenda. If wages are stagnant, the way to get them rising again is to invest in improving skills so that more high-wage jobs can be created.

The Left hasn't always liked to hear this message: it sounded too much like blaming the working poor for not having enough skills. The tone of Clintonite liberalism -- defending government programs with the language of efficiency rather than of old-Left moralism, with talk of "human capital" rather than of human happiness -- can also grate on traditional leftists (among others). Culturally, Reich has more in common with New Democrats than with the labor Left.

But in the current political context, progressives are glad that someone on the national stage is talking about inequality, class, and "corporate welfare." According to Robert Borosage, a longtime Jesse Jackson advisor now at the Campaign for New Priorities, "Progressives generally think of Reich as the voice they've had in the Administration both in raising corporate welfare and in terms of caring about workers whose wages are declining, raising questions about inequality." Many of them believe that the corporate-welfare and wage issues add up to a political strategy that could revive their movement.

BOTH issues have political drawbacks, though. Soon after the 1994 elections, Reich challenged Republicans and conservative think tanks to support cuts in subsidies to business. The GOP old guard largely muffed the challenge, but so did Democrats. "It's the Clinton Administration defending corporate welfare," argues Stephen Moore, fiscal-policy analyst at the Cato Institute, citing the Administration's defense of the Energy Department and "the Department of Corporate Welfare" (also known as the Commerce Department). "Even some of the programs Reich likes are corporate welfare." Subsidizing corporate training programs, for instance, is a major item on Reich's agenda. Reich once championed industrial policy, the theoretical underpinning for corporate welfare.

On wages, too, Reich's political message may prove difficult to get across. He wants simultaneously to convince voters that the economy is chugging along thanks to Administration policies and that wages are shrinking. "Why would the Clinton Administration want to badmouth the economy?" asks Alan Reynolds, an economist at the Hudson Institute. "His people are out there saying, 'We're doing a terrible job."' (Of course, some Republicans will be tempted to respond to Reich with a message -- it's a weak recovery, but there's no wage problem -- that could also be a hard sell.)

Whatever the politics, is Reich's economic analysis of trends over the last two decades accurate? It's hard to say, because Reich conflates several distinct issues. At various times he has argued or implied that returns to capital have increased at the expense of returns to labor; that workers' wages have lagged behind their productivity; that wage or income inequality is increasing; that median or average wages are declining; and that median family incomes are declining. (The average wage is the sum of all wages divided by the number of wage-earners; the median wage is defined by the fact that half of all workers make more and half make less.)

Reich's assertion that profits are rising while wages are declining as a proportion of national income is based on recent data. But as Professor Vedder points out, one would expect profits to rise as a proportion of national income "in the mid-to-late boom period of a business cycle." The expansion of capital is why the boom continues and wages increase. Vedder adds that if every single dollar in post-tax profits were given to workers (which would be economically disastrous) wages would rise by less than 10 per cent. "He's clueless about the role of profits in a modern economy. Profits are the engine of growth." Reich's case is not helped by the fact that profits as a share of GDP have declined, not increased, over the decades wages are said to have stagnated; the ratio of wages to profits has increased.

Reich cites the decline of median family income from 1979 to 1993 as evidence that "[t]he typical American family is living on less than it did 15 years ago," thus discrediting the Reagan record and, by extension, current Reaganite proposals. Again, Reich's use of statistics conceals at least as much as it reveals. He includes the disastrous last year of the Carter Administration in his indictment of Republican economic policies. The same Census Bureau data he uses show that real median family income increased by 13 per cent from 1982 to 1989 (the years between Reagan's tax cut and Bush's tax hike).

Furthermore, wage figures don't include fringe benefits like health care, 401(k) plans, and the like, which have been a growing proportion of total compensation. Median compensation statistics are not available, but averages are. The inclusion of fringe benefits makes a major difference in these averages: while average wages have declined 13.5 per cent in constant dollars from 1973 to 1994, average compensation has increased 9.6 per cent -- roughly in line with average productivity. Presumably including fringe benefits would cause median figures to perk up too. (On the other hand, government policies mandate or encourage many of these fringe benefits, so their value to workers may be less than their cost.)

In addition, official wage and compensation figures are widely acknowledged to overestimate inflation over this period. When the consumer price index is adjusted, compensation growth looks much better. Finally, Vedder, like many conservative and libertarian economists, argues that "the best measure of people's material welfare is not their income, it's their consumption, what they feel they can purchase." Per-capita consumption increased a whopping 40 per cent in real terms between 1973 and 1994.

REICH'S point about inequality is harder to dismiss. Economists who have looked into the matter agree that wage and income inequality has been increasing for at least two decades. However, inequality of consumption is much lower, and income mobility remains high. The growth of household inequality also may be an inevitable corollary to the growth of single-parent households and two-earner families. Reich deserves credit, however, for focusing public attention on the circumstances of low-wage workers. Many right-wing economists agree on the need to improve the education and skills of the work force.

Where Reich goes wrong is on public-policy solutions to the problem. High on his agenda is "investment" in federal job-training programs. But these programs do not appear to increase long-term hourly earnings significantly, according to the few rigorous evaluations that have been conducted. In a controlled study, participants in summer-jobs programs, which Reich criticizes congressional Republicans for cutting, showed no higher rates of work or graduation than non-participants. For much of the target group, the government could accomplish more by easing minimum-wage and child-labor laws. Some programs have negative effects on participants' employment prospects.

Reich has proposed imposing a 1.5 per cent payroll tax to finance training programs. It's a bit perverse to increase payroll taxes as part of a program to raise wages and create jobs, since such taxes rather obviously subvert both objectives. Alan Reynolds argues strenuously that the prospect of high taxes in general reduces the incentive for workers to spend the time and money to improve their own skills.

A more direct approach to raising unskilled workers' wages, also favored by Reich, is to increase the minimum wage. That would kill jobs, according to a longstanding consensus among economists. But Reich entered office touting a study claiming that the minimum wage did not cause job loss, and could even create jobs. Then the Employment Policies Institute discredited the study by exposing its sloppy construction. More reliable data vindicated the conventional view. The Administration has retreated to the position that "over a dozen" studies show that raising the minimum wage has an insignificant effect on jobs. Carlos Bonilla, the EPI's chief economist, refuted these studies convincingly: those that supported the administration were not well constructed or based on adequate data, those that were properly done didn't support it. One study, for instance, dealt with high-wage industries unlikely to be much affected by a minimum-wage increase.

Perhaps Reich's worst proposal is "economically targeted investment" (ETI). Radicals have long advocated directing trillions of dollars in pension funds to sectors of the economy deemed socially beneficial, like low-income housing. It's a way to extend control over the economy even in an era of fiscal retrenchment. The idea was one of the central planks of Jesse Jackson's 1988 campaign. By 1992, it had made its way, in a veiled form, into Putting People First. The Labor Department has cautiously advanced this agenda under Reich, issuing a bulletin in 1994 to show that ETIs were consistent with existing pension law (which directs pension-fund managers to maximize returns and minimize risks) and establishing an information clearinghouse to facilitate ETIs. If, as Reich claims, ETIs are prudent investments that happen to have beneficial side-effects, the private sector should already be making them. More likely, ETIs would yield substandard returns, threatening pensioners and taxpayers alike. "They're basically using middle-class financial assets as a leftish sandbox for all their pet projects," says Chris Frenze of the Joint Economic Committee.

Distrust of Reich is now "pervasive" among Republicans, says one congressional aide. Rep. Peter Hoekstra (R., Mich.), chairman of the relevant oversight subcommittee, is heading several investigations of the Labor Department. The latest target of congressional inquiry is Reich's conduct during the November partial government shutdown, when he furloughed 90 per cent of OSHA workers and issued a statement saying that OSHA would be unable to prevent tragedies in the workplace. If that were true, the Anti-deficiency Act (which prohibits the suspension of federal activities necessary to protect lives and property) would have mandated that they not be furloughed. "This was Bob Reich not thinking, and seeing an opportunity to have a press conference," sighs one Labor Department official.

Hoekstra is pressing Reich to respond to allegations that a high-ranking department official tried to coerce an un-unionized company into signing a collective-bargaining agreement by putting pressure on one of its biggest clients. The Labor Department's temporary establishment of a toll-free hotline workers could call to learn how a higher minimum wage would improve their lives (!) is among the many other issues the subcommittee is examining. Committee staffers complain that the department has been remarkably uncooperative. Says one, "We have reports that this is being systematically done and that this is . . . very intentional."

Reich's reign has taken a toll on employees in the Labor Department. Republican cutbacks and being labeled "nonessential workers" have disconcerted many workers throughout the Federal Government, but sources in the department argue that morale had declined before the 1994 elections. Expectations were high when Reich took over, but the politicization of the department and the resulting adverse publicity and investigations disillusioned many.

So has the Administration's aggressive implementation of racial and sexual preferences. In July, Deputy Secretary Thomas Glynn announced that the department would try to maintain diversity in the face of downsizing; many white men interpret that to mean they will be laid off first. (Says Marshall Wittmann of the Heritage Foundation: "You may soon have the phenomenon of the angry white bureaucrat.") "It's a demoralized work force," says one career civil servant. Mark Wilson warns of a "serious brain drain occurring at the Department of Labor," and other current and former employees join him in worrying that the quality of the department's work will suffer. An official who has been there for more than twenty years says, "This department is in disarray. I have never seen anything like this."

Morale at the White House, on the other hand, is high. Democrats think Reich's wage story resonates, and they intend to campaign on it next year. It could work. But if liberals think Reich offers a way out of their political and intellectual morass in the long term, they may need to go back to the drawing board.