Robert Reich


A larger and larger portion of the economy’s winnings had gone to people at the top. This is the heart of America’s ongoing economic predicament.

Robert Reich’s bestselling Aftershock offers just the economic solutions that you’d expect from such a prominent Democrat — but he presents them with such clarity and directness that you forgive him for being so obvious.

Aftershock makes the case that the “Great Prosperity” that Americans enjoyed in the first three postwar decades, the thirty years that invented and grew the modern middle class, was in large part the result of active political participation in the economy.

And, he argues, the continuing decline of the dream of prosperity for all is in large part the result of the economic policies so vigourously imposed during the Reagan presidency, with a strong echo in Margaret Thatcher’s England.

One of the most interesting subtexts of Reich’s book is that he served as Labor Secretary in the first Clinton administration. If he held then many of the views he supports now, he must have found himself on the losing, “liberal” side of many Cabinet debates. Being isolated in a determinedly “centrist” government may have been a major factor is his exit to academia, and to failed political campaigns of his own, after 1996. It’s tempting to read Aftershock as a kind of “I told you so,” and indeed such a tone lies not too far under the surface in much of the book.

In Aftershock, Reich identifies the growing gap between productivity and wages as the clearest sign of the skewing of the economy:

During the Great Prosperity of 1947–1975, the basic bargain had ensured that the pay of American workers coincided with their output. In fact, the vast middle class received an increasing share of the benefits of economic growth. But after that point, the two lines began to diverge: Output per hour—a measure of productivity— continued to rise. But real hourly compensation was left far behind.

Add to this jobs lost to overseas factories, and the even greater number of jobs lost to automation — “Remember bank tellers? Telephone operators? The fleets of airline workers behind counters who issued tickets? Service-station attendants?” — and you have a formula for the collapse of the middle class. There are new jobs to replace the old ones, but they don’t pay as well as the old jobs did, and they lack many of the benefits and securities that the old jobs had.

The drop in real income is at the core of the problems the middle class faces:

The problem was not that they had been living beyond their means but that their earnings had not kept up with their reasonable expectations for what they could afford as the economy grew. The problem, in short, was that the basic bargain had been broken.

If all of this started in the late 1970′s, why did it take until now for the system to fail? Reich argues that the failing economy was propped up by three middle class trends. First, women moved into paid work at an accelerating rate, until the two income family was not only common but necessary. Second, everyone started to work longer hours. Part-time jobs became full time, one job became two, overtime became a vital part of the average family’s income. Finally, when everyone who could work was working, and when no more hours could be added to the work week, families began to borrow. Savings dropped, new credit cards were added as the old ones were maxed out, and the capital bubble of rising house prices brought a flood of remortgaging and equity loans.

When  these coping tactics finally played themselves out, there was nothing the middle class could do to soften the blow of the collapse of the real estate market and the huge money market losses that followed.

Reich solution contains a stern warning. In his view, nothing less than the viability of American democracy is at stake:

The nation cannot achieve nearly full employment, a higher median income, and faster growth without a reorganization of the economy that spreads the benefits of growth on a scale similar to that which occurred during the Great Prosperity. It is both an economic challenge and a moral challenge; concentrated income and wealth will threaten the integrity and cohesion of our society, and will undermine democracy.

But we can’t rely on politics as usual to solve the problem. The political class is in thrall to Wall Street, and to the lobbyists who promote the brokers’ interests. Reich notes that the clearest evidence that the system is “rigged” against the ordinary working family is “the deafening silence about all this. You would think political leaders would talk about the nation’s surging inequality and the flattening of middle-class incomes. But as the divergence in income and wealth has grown to stunning proportions, it is rare to find even a Democratic politician who dwells on it.”

Reich briefly acknowledges some of the compelling arguments that he has chosen to submerge into his larger, economic point:

I could have grounded my argument in morality: It is simply unfair for a handful of Americans to take home such a large share of total income when so many others are struggling to make ends meet. Or I could have based it on traditional American values: Such a lopsided distribution is at odds with the nation’s history and its ideal of equal opportunity—especially when the deck seems stacked in favor of those at the top. I could have talked about how this degree of inequality undermines the nation’s moral authority and its standing in the world.

Instead, Reich bases his argument on two “tangible threats that such inequality poses to everyone –including even the wealthiest and most influential among us.”

One is economic: Unless America’s middle class receives a fair share, it cannot consume nearly what the nation is capable of producing, at least without going deeply into debt. And debt on this scale is unsustainable, as we have seen. The inevitable result is slower economic growth and an economy increasingly susceptible to great booms and terrible busts. The other threat is political: Widening inequality, coupled with a growing perception that big business and Wall Street are in cahoots with big government for the purpose of making the rich even richer, gives fodder to demagogues on the extreme right and the extreme left. They gain power by turning the public’s economic anxieties into resentments against particular people and groups. Isolationist and nativist, often racist, and willing to sacrifice overall prosperity for the sake of achieving their ends, such demagogues and the movements they inspire can cause great harm.

Are there solutions? Reich thinks so.

He offers a prescription for change that he argues will reverse the worst effects of the current system. None of his solutions is new, but all of them are aimed at restoring the “basic bargain” between labour and capital:

A reverse income tax.
A carbon tax.
Higher marginal tax rates on the wealthy.
A reemployment system rather than an unemployment system.
School vouchers based on family income.
College loans linked to subsequent earnings.
Medicare for all.
Public goods. (i.e., infrastructures)
Money out of politics.

It’s an ambitious program, and I can’t imagine that any American government would ever introduce it all  – unless the economy bottoms out in another Great Depression.

Then, and only then, Americans might have the sense to find — and the good fortune to elect — another FDR.

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