Robert Reich: 'Austerity Is a Terrible Mistake'

The verdict on the prospect of yet more austerity is unequivocal. "The austerity narrative is nonsense – and its dangerous nonsense. It's sort of the Vietnamisation of the economy – [that] you're saving the economy by killing it."

The political economist who has served in three US administrations, most recently as labour secretary under former president Bill Clinton, is a longstanding vocal opponent of the kind of neo-liberal economics that have influenced policy in the US and the UK since the early 1980s and fostered soaring levels of inequality and entrenched poverty. He dismisses as "nonsense" the notion that if the rich get richer wealth will "trickle down" to the wider population.

Reich, 67, argues that the human costs of sweeping cuts to unemployment benefits and to food stamps in the US and to social security in the UK needs to be highlighted urgently and in tandem with any discussion of the policy's economic futility. "With austerity you have only to think for half a moment about the economic reality," he says. "The issue is not the deficit per se. The issue in all our countries is the ratio of the deficit to GDP – to the entire economy. And if you embrace austerity and thereby reduce economic growth you actually end up potentially in a worse place than you started, with a higher ratio of public debt to GDP. At the same time you are generating huge amounts of human suffering unnecessarily. It takes a huge toll on individuals, on families and on communities."

With no sign of austerity abating, the veteran campaigner warns against heeding declarations from politicians on the right, such as the chancellor, George Osborne in Wednesday's budget, as they boast of recovery and insist that the upturn in the UK's economy means the austerity medicine is working and more cuts are necessary. Rather, he stresses, the post-crash recovery has been "the most anaemic recovery from a deep recession on record", pointing out too that "95% of the economic gains since the recovery began in 2009 [in the US] have gone to the top 1%", and that continuing to slash public expenditure is plain wrong.

"The global economy is extremely fragile right now," says Reich. "This is the worst time to take the false snake oil of austerity economics. It's a very dangerous potion. We are doing it here in the US as well. We are not doing it as loudly, we're not embracing it quite as much, but the fact of the matter is we do need a much more stimulative fiscal policy."

Talking about the potency of the austerity and cuts narrative peddled by politicians – that there is no choice and that "we are all in this together" – coupled with the misguided mantra that helping people via welfare systems will only make them more dependent, Reich acknowledges how hard it is to effectively counter the dominant spiel propping up austerity.

"I don't know how best to help the public understand how absurd this really is because it's difficult to show the public what the alternative might be." It doesn't help, he adds, that an "incredibly polarising … divide-and-rule" approach by politicians has been pitting the middle class against the less well off and is one reason why effective opposition movements remain "muffled".

"You have so many people who are afraid of downward mobility they are going to put up fences and separate themselves from the people who are even more needy than they are," he says.

Serving in government under three presidents gives Reich, now professor of public policy at the University of California, Berkeley, an edge to his activism. For decades he has been an outspoken advocate for policies that bolstered ordinary working people's living standards, including collective wage bargaining and for the rich to pay their fair share of tax. (It was during a spell as an intern with Robert Kennedy in the 1960s that he found his Democratic political calling and has since, among other things, been called "a class warrior" by foes on the right).

His most recent salvo, a powerful and engaging documentary, Inequality for All, which takes a forensic look at the growing gulf of income inequality between the very rich and the rest, was a surprise hit, taking a special jury prize at last year's Sundance film festival. It has seen him relentlessly touring the US with radical senator Elizabeth Warren, who could challenge Hillary Clinton in the Democrats' 2016 race for the White House. "I'm getting a groundswell of frustration, some anger, a lot of cynicism," he says of the feedback.

As the countdown to the presidential election and the general election in the UK begins, the issues Reich focuses on: low pay and stagnating wages, job insecurity, unemployment and underemployment, widening income inequalities and poverty, as well as cuts to public expenditure – all of which have been exacerbated by austerity – are top of the agenda. And, with President Obama recently declaring inequality the "defining challenge of our time", Reich's policy critique is especially apposite.

Referring to declining living standards generally in the US, but reflecting on how this impacts whatever the country, Reich says: "We know that the median household income continues to drop adjusted for inflation. It's now 5% below what it was at the start of the recovery [in the US]. We can't go on in this direction. Reforms are necessary."

In his typically affable manner, Reich explains that the wages people earn matter to economic growth. Sustained recovery is only possible if the middle and working classes have money to spend and if, rather than cuts and austerity, investment in "public goods" is made a priority. "The top tax rates do have to rise and we have to invest much more substantially in education, infrastructure and human resources – and make sure our poor children and lower-middle-class children all have real chances to get ahead."

Whatever the austerians say, Reich is convinced of two things. There will come a tipping point when people will demand reform of the worst excesses of capitalism and when the full folly of austerity will be exposed. "In the short term I think the austerity agenda will crumble [beneath] its own weight," he predicts. "It will lead to a stagnation of a sort that will reveal itself to be a terrible mistake."

Striking a note that politicians on the left should be pondering, he adds: "I think the whole debate about stimulus or austerity is really about the business cycle. What we are talking about – widening inequality – is more structural and that requires, beyond a reversal of austerity, some much more fundamental reforms."

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