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Former Secretary of Labor Robert Reich believes public education needs an emergency infusion of funds to stave off massive job losses and program cuts that could have dire consequences for the nation’s youth. He recently told us more.

Listen to the interview, approximately 10 minutes

Public School Insights: What prompted you to come out so forcefully for a bailout of public education in the first place?

Reich: When I was Secretary of Labor, it was very clear that an educated workforce was the most important foundation for the nation's continued prosperity. But in recent years, we've sacrificed education, particularly in this very severe economic downturn, because the states cannot run deficits and because most educational budgets—K-12 and public higher education—derive from state revenues. We've witnessed K-12 and public higher education being decimated: Teachers let go; in some cases, classrooms becoming far more crowded than before; some states and localities adopting four-day programs, rather than the full five days; cutting back on hours; in public higher education, tuitions and fees being raised to the point that many young people cannot afford to attend college, even though they are fully qualified.

Public education is where the nation's human capital is developed. “Human capital” is a cold-blooded term, but it does signify the critical importance of the capacity of our people to solve problems, to identify problems, to work constructively in groups, to have basic communication skills and basic mathematical skills, and so forth. Human capital is much more important to the country's future than financial capital, which can move across national borders at the speed of an electronic impulse these days.

We bailed out Wall Street to the tune of $700 billion when Wall Street found itself dangerously broke, and we nursed it back to health. But our public education systems now find themselves dangerously broke and the federal government is not stepping in to provide them a bailout until times improve.

What is needed, it seems to me, are two things. First, the federal government should provide no-interest loans to states and localities to make up for educational shortfalls until the economy recovers to the point where state and local revenues are back where they were before. And second, we need a longer-term strategy to rebalance the nation's economy between financial capital and human capital. One possibility would be a small transactions tax on every financial deal, say one half of one percent on the value of every transaction. This would generate roughly $200 billion a year. That might put a crimp in the bonuses of some of our leading bankers, but it would help fund public education in a more permanent way, if the federal government had that additional $200 billion.

One final point. The top 25 hedge fund managers this past year earned $1 billion each on average. Do you know how many public school teachers $1 billion could hire? Something in the order of 16,000 to 20,000. We have completely lost our sense of proportion.

Public School Insights: That is a pretty stunning statistic. To go back to another point, some have been arguing that austerity measures are actually good for schools, and that it would not hurt them to tighten their belts a little bit and find efficiencies. Do you think this a compelling argument in the current environment?

Reich: Austerity measures are good for organizations that are fat and bloated, and some people would say that the public school system is in that category. But let me be very clear about something that is often not addressed in public debates. The law of supply and demand is not repealed at the schoolhouse door. If we want talented women as well as talented men to go into teaching, given that there are many other options for talented people, even in a recessionary environment, we've got to pay them enough. They are the custodians of our future human capital and our future economy. If we are paying investment bankers $5 or $10 or $100 million a year, and hedge fund managers even more, it seems to me that it’s the height of absurdity to suggest that our public school budgets are bloated because we are paying schoolteachers $65,000-$70,000.

Public School Insights: To get back to another one of your proposals, the one half of one percent transactions tax that would tip the balance from financial to human capital—what would you say to those who would argue that the last thing that we need in this current environment is a tax on investments?

Reich: It would not be a tax on investments so much as it would slow the wheels of dealing a bit. The returns on investment for most people, in terms of pension funds and mutual funds, would be exactly what they are.

James Tobin suggested a small transaction tax just like this years ago. He was on John F. Kennedy's Council of Economic Advisers. Larry Summers, current Chief Economist for President Obama, has also written in favor of a transaction tax—years ago, when he did not have to worry that what he said or wrote would be picked up.

So this is not a radical idea by any means. When James Tobin suggested it, the notion was that much of what happens in finance is a zero sum game, in which people are simply bidding against one another without necessarily improving the national product one bit. The brain drain towards Wall Street has been a national disgrace and a huge problem for the economy for the last 20 or 30 years. When you consider the amount of talent used up in financial entrepreneurship as opposed to making real products and services, improving healthcare and making people better off, you have to scratch your head and wonder why we do not have a much larger tax on financial transactions.

Public School Insights: You've made some of these points in the work you've done through the Public Video Project. Do you have a sense of what the next steps of this project are and what people in the public education community can do to help?

Reich: The very first step is to pass the [Education Jobs Fund bills], sponsored by Senator Tom Harkin and Representative George Miller, to provide public schools with additional funding. And the $23 billion [in those bills] would be very helpful. But we can't possibly stop there.

Public education is crucial here, because the public simply does not understand the stakes. Most members of the public are only dimly aware of how badly education budgets are being squeezed, how many cuts are being made that are hurting our children and ultimately hurting all of us, and the extent to which public higher education is in serious jeopardy.

The public needs to be educated about this. The American public, if they understood what was going on right now, and if they understood how the playing field in this economy is tipped towards finance and against the skills of our future workers, would be enormously supportive of the kind of measures that we are talking about.

Public School Insights: As you know better than anyone, bailouts of any sort—financial or otherwise—are not particularly popular right now. Or at least the press makes it sound like the public’s fed up and unwilling to accept any more.

Reich: The irony is that we bailed out the wrong institutions and the wrong people. We bailed out Wall Street, General Motors and Chrysler—their executives, their traders, their top guns—but we have done surprisingly little for Main Street, and particularly for our schools and our educational institutions.

I'm not talking about a no-strings-attached bailout such as we gave to Wall Street. I am talking about a zero-percent loan that would be repaid when times improve, when state and local revenues come back, presumably back not only to where they were before but assuming that the economy continues to grow over the next 15, 20, 25, 30 years—forever—those loans could be repaid quite easily in years to come.

And also, this idea of a transaction fee or transaction tax—a very, very tiny transaction tax—that would slow Wall Street down a little bit and provide additional revenues for schools and public universities, makes enormous sense at a time when the economy is so absurdly tilted in the direction of financial entrepreneurship and against product entrepreneurship.

Public School Insights: Are there any questions I should have asked you but didn't?

Reich: I think that the only real question is, how do we educate the public—why the Public Video Project? And the answer is, the Public Video Project is an attempt, one among what hopefully are many attempts being made around the country right now, to reach out to the public with simple explanations of what has happened and what needs to be done. My view is that an important tool for reaching people is a two-minute video that states clearly and plainly what the stakes are and the steps that people need to take. Nothing good happens in Washington unless the public is mobilized and energized and organized to put pressure on Washington. If the public simply sits back then the normal slew of special interests take over.