Reich says that all that has been done to pull us out of the recession, those things that have worked in previous recessions, have not worked.
That’s because the real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven’t kept up with what the growing economy could and should have been able to provide them.
This crisis began decades ago when a new wave of technology – things like satellite communications, container ships, computers and eventually the Internet – made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.
He goes on to explain how households kept up for a while by adding a second wage earner, working overtime, and, eventually, piling up a bunch of debt.
Eventually, of course, the debt bubble burst – and with it, the last coping mechanism. Now we’re left to deal with the underlying problem that we’ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing.
What my high-school dropout Dad said…
Reich quotes a study that shows from the late 1970s to 2007, the income of the top 1% has gone from about 9% of the nation’s total income to 23.5%. So how about that great Republican idea of tax cuts for the rich, to make that percentage even higher? Will that help?
The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.
What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns – sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.
He goes on to prescribe some specific policies to implement, but I think the key point is recognizing the situation:
THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures – Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage – leveled the playing field.
The playing field needs to be leveled once again so that the 99% that make the economy hum can do so again.
So what do you propose we change to make things more “level” and get workers and consumers moving again?
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p>Not trying to be flip, but the post makes good points, but leaves me hanging for what happens next. Reich is quoted, but the ending “The playing field needs to be leveled again” leaves me wanting for how we get there.
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p>I think that ideas on how to get there would enhance the post and generate comments going back and forth on how to achieve your goal and whether people agree with the goal or not.
I think we generally have to stop giving in to the argument that anything which might cost the top 1% some money or take a little bit away from a corporation’s bottom line is going to “cost us jobs”. And I think the corporations need to realize this also. Well paid, healthy, happy consumers (and employees) are good for business.
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p>Reich has some specific proposals in the article:
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willing to talk about the real problem and sharing some real solutions. I hope he keeps getting on the airwaves with his honest talking points and ideas.
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p>The other problem affecting the financial condition of the working middle class is price gouging by corporations. The cost of basic needs (health care, utilities, etc )should be better regulated by our government. There have been hugely disappointing increases recently that that have no merit in our current economy. You can’t take blood from a stone, although they continue desperately to try. As much as they won’t admit it, these increases continue to hurt our economy, and drive down demand for discretionary goods and services.
I agree that regulation needs to be better. We see instances in MA far too often where our regulators who are supposed to protect us approve agreements that are beneficial to the utility and harmful to the consumer. Cape Wind is a prime example. We were told that CW would reduce our utility costs. Now we have an agreement approved by the regulators that costs more and has built in annual escalator clauses. This is not the regulation I want.
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p>As for prices and health care, I think it is a mix of regulation and, unfortunately, uninformed consumers. Here is what I mean. People go to the doctor and often their only expense at the time is the co-payment. This results in people who do not question what things, think tests, cost. People who would argue about the cost of cup holders when buying a car don’t try and get a better price at the doctors. They do not view it as them paying, its the insurance company. Someone has to take an interest in costs of health care. Whether that is the government, the consumer or a combination can be debated, but we all need to work together to drive costs to a more reasonable level.
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p>Finally, we all need to take a cue from the effort put forward by Ms. Huffington and others to get people to bank locally. We need to apply this to our own local purchases. Yes, the local small grocers cost more than Market Basket. Yes, the local hardware store costs more than Home Depot or Lowes. Yes, many small stores cost more than the internet only stores or Walmart. However, these local stores generally treat their employees better and play a larger role in the community than do the large box stores. We need to return to a more local economy where we know the people from whom we buy things. It may cost more at the point of purchase, but longer term the total costs are less and better for our neighborhoods.
I’ve had a couple more thoughts and will post them in separate comments (which means I’ll probably not get to the second one đŸ™‚ ).
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p>How about reopening all free trade agreements to stipulate working conditions, living wages, and benefits for workers in any country with which we trade “freely”. This would have multiple effects:
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p>In any case where this can’t be worked out, the free trade agreement should be repealed.
This is an old idea and one that has been poked at piecemeal (e.g., see Ed Shultz’s promotion of USA Coffee Company and All American Clothing), but it seems that some serious, sustained, collective action could make it happen. It would be nice if one of us could just write a check like the Kochs do, but that’s not going to happen…
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p>There is a lot working against us here:
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p>But I do think that some small steps could be made in the short term and, with the right amount of organization the mindset could start changing – which is the initial big hurdle to get over.
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p>Could you imagine if companies started getting a flood of emails, letters, and phone calls saying, “I wanted to buy this from you, but it’s made in another country, so I bought Y brand instead.” Or, “I’d buy this TV, but I refuse to because if something goes wrong, I’ll have to talk to someone in another country.”
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p>It would only be when the corporations start to feel it in their pockets that they’d have to rethink their labor policies. And it would take some brave entrepreneurs to take a chance on domestic manufacturing to give us the choice of buying American.
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p>Furthermore, the culture also has to change to favor locally owned businesses over the corporate chains. This again is a difficult thing for those who are strapped, but a little short-term sacrifice would mean long-term gain. That money stays in the community rather than heading off to the Cayman Islands or some 1-percenter’s brokerage account.
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p>Thoughts?
Reich is a dope — the major economic event of the 1970s was not buying, selling, computers. The major event was cutting the dollar off from gold, to which it had been pretty much locked for 180 years of American history and 600 years of world history.
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p>This was supposed to be a move to allow bureaucrats to manage the economy through monetary policy. That’s how it was sold anyway. That’s certainly why Reich will defend the floating dollar.
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p>Spending is not the solution, it works for a while as welfare but then the effects disappear once spending stops. You can see this yourself in the past few months. Then the austerity begins.
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p>I wish there was a less freakish answer but most of the stuff Reich talks about is a waste of time. Get back on gold.
The immediate and primary impact of an effort to return to a gold standard would be a massive and horribly destructive deflation. There isn’t enough gold to sustain a modern economy. Most of the world learned that in the 1970s, and that’s why the gold standard was dropped.
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p>Whether he’s a “dope” or not, Mr. Reich has identified the same fundamental problem that you and I have been discussing on a different thread — the wealth have essentially strangled the economy by collecting all the wealth.
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p>Until the wealth held by the top 2% of the population is returned to the 98% of the population it was taken from, we will all continue to suffer.
No, no and no.
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p>The dollar link to gold was dropped because it prevented easy money. If you printed up too much money, your gold reserve drained away and that was embarrassing.
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p>Democrats are still attached to the idea of money management from the top, it’s another paradox for an essentially popular party to hang on to such an elitist idea.
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p>I used to point out to people that the social maladies they were talking about started 30 years ago when the dollar was delinked. Now I say 40 years ago. At some point we will go back.
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p>But to return to the point of the thread, if you make stuff, you trade it for somebody else’s stuff or service. Essentially an economy is just people bartering extra things they made at their specialty with extra stuff somebody else made.
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p>With services you are freed from the constraints of stuff. You can create a painting worth $10,000 from $200 worth of physical stuff and $9800 worth of mental stuff. Eliot Spitzer paid $5000/hour for a certain service. So the sky’s the limit and you’re not building up all this junk in the environment either.
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p>If a certain country has a buildup of goods and services, it’s probably because there is a wall between it and those international buyers who want to trade for those goods and services. If international buyers are poor, maybe their governments are inhibiting them from producing properly through high taxes or other screwups.
But you’ve really put your finger on the problem. Easy money and fiscal stimulus are being used to keep the indebted American consumers spending even when we are tapped out. To make matters worse, the worldwide economy depends on this crazy, unsustainable consumer spending. The great recession should have been seen as an opportunity for real (if painful) reform of this broken system — but instead we’ve been furiously propping up our house of cards. Until we make real reform, expect worse bubbles, collapses, and budget crises to come. Change will come eventually, but the more we put it off the more unpleasant it will be.
Had what could have been an embarrassing experience today. Went into a local store to buy something to make for dinner. Realized that I did not have any money since I had left my wallet at home. Owner told me not to worry about it and he would catch me the next time I come in. Now I probably shop there every 10 days or so, but was great to have that type of response to my predicament.
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p>Could that happen at Shaws? NO!
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p>Could that happen at Walmart? NO!
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p>Could that happen at Market Basket? NO!
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p>This local, family-owned merchant has me at a customer for as long as they are there. What could have been an embarrassing situation for me was turned into a win-win. I got my food for dinner and they enhanced customer loyalty, not only from me, but from many of the other customers in the store.
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p>This is the type of economy we need to support. Sure he costs a little more, but the service, support and involvement in the community more than make up for it.
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p>Shop Local, Buy Local