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.