wealth distribution

Political Point of View by Collier Democrats

By Joe Sweet, Issues Committee, Collier County Democratic Executive Committee

Economist Robert Reich, the former Secretary of Labor under President Clinton and a professor at the University of California at Berkeley, recently wrote a book about the state of our economy. Aftershock: The Next Economy and America's Future argues that it was not Wall Street greed that cause our recession, although they were greedy. It was not the failure of the government to properly regulate financial transactions, although they did fail to do so. It was not the risky loans to people without the ability to pay, although those loans were made too often. For Reich, "The fundamental problem is that Americans no longer have the purchasing power to buy what the U.S. economy is capable of producing." Over the last forty years, a larger and larger portion of total income has concentrated in the hands of the richest Americans.

Reich wrote, "In the late 1970s, the richest 1 percent of the country took in less than 9 percent of the nation’s total income.... By 2007, the richest 1 percent took in 23.5 percent of total national income. It is no mere coincidence that the last time income was this concentrated was in 1928." This means that the American middle class has comparatively less income to vigorously participate in the economy as they did in the last few generations. Companies and the very wealthy Americans are not investing this money back into America because of the lack of the demand for more goods and increased services. The American middle class no longer has the resources to maintain their lifestyle of the previous generation.

Since the 1970's, Reich sees the middle class using compensatory strategies to maintain their lifestyles and purchasing power. First, most families witnessed two parents entering the workforce just to maintain the economic status of one parent in the previous generation. Second, in the later part of the twentieth century, the typical middle class person worker longer hours, or second jobs, to earn more money to maintain their lifestyle. Third, by the 1990's, many Americans were borrowing large amounts of money, especially through home equity loans. The economy came to a halt when the middle class could not develop another coping mechanism to buy American products and services.

Reich suggests that we failed to heed the lessons of our great depression. When the income is disproportionately redistributed to the richest few Americans, the economy needs to adjust to allow the middle class to effectively participate in and rejuvenate the economy He added, "Until we take this lesson to heart, we will be living with the Great Recession’s aftershock of high unemployment and low wages, and an increasingly angry middle class."

Although he did not address the Tea Party phenomena directly, his analysis offers a context for their angst. Losing purchasing power and facing higher costs to participate meaningfully in the economy, they blame the government and believe that if the government spent less, they would have more money in their pocket. Unfortunately, this seemingly common sense philosophy, especially in slow economic times, will worsen our situation.

Reich examines how we became the most prosperous country emerging from World War II. Our country became committed to investing in America by developing a superior infrastructure such as a national highway system, and investing in research and development that bought us Tang, Teflon, and the Internet. These investments brought us close to full employment while supporting bargaining rights for workers and a strong safety net for our elderly and those who could not work. Higher education became affordable for most. These policies supported the development of a strong, thriving middle class.

Reich concluded, "In order to fix what needs fixing, we need to be clear about what broke.... The fundamental problem is that Americans no longer have the purchasing power to buy what the U.S. economy is capable of producing. The reason is that a larger and larger portion of total income has been going to the top." While some conservatives claim that President Obama wants to redistribute wealth, they fail to realize that our wealth has already been redistributed to the wealthy.

One can argue the merits of the fairness of this change in the last forty years, however, our real concern should be that without a vibrant middle class with resources to buy American goods and services, we are doomed to lag behind the economies of China, India and Singapore.

Our economy has shown signs of recovery, the stock market has steadily risen over the last two and a half years, the bankers are again bringing in hefty bonuses, and corporations are making large profits. However, a greater and greater portion of these profits are being made outside of the country. General Electric has more foreign employees than American and General Motors now sells and makes more cars in China than in the United States. The American middle class is not sharing in the bounce back. The unemployment rate has not recovered, the purchasing power of the middle class has decreased, our housing market is still fragile (interestingly, higher end homes have not seen as much volatility) and the safety net for those who can not work and the elderly are becoming targets to allow the wealthy to continue with their lowered taxes.

We face a great challenge in being able to support growth and manage debt. Both short term and long term strategies are required. The impulse to curtail government spending is understandable, however, in such moments of great crisis, government stimulus is needed when neither the consumer nor business is able or willing to spend. Our long term strategy requires an investment in infrastructure, education and research and development. Without such critically important investment it will be difficult to compete globally or have the ability to rebuild middle class prosperity.

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Comments » 1

jr18 writes:

Thank you for a balanced and insightful commentary on the present problems confronting our nation. Sometimes it is hard to hear the truth but if we, as a nation, are to grow and prosper,we must admit the reality. We cannot destroy the middle class and expect consumers, those who live on $12,000 -$20,000 a year do not have money for extras when a gallon of milk costs almost $4.00 and a loaf of bread half that. We cannot build our economy on selling french fries. Think of all the people whose lives will be negatively impacted by the cuts proposed in education, health and human services - all to protect millionaires and billionaires from paying an extra 2% on their taxes. Exxon posted a $17 billion dollar profit for one quarter and we still subsidize the company. Tell me how this makes sense when people are dying from lack of health care and children in our country are going to bed homeless and hungry. There are a lot of angry voices out there, slinging around words like "socialism" without any thought . Is it really socialism or a moral imperative when a wealthy nation cares for its weakest members?

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