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A brilliant new reading of the economic crisis—and a plan for dealing with the challenge of its aftermath—by one of our most trenchant and informed experts.
When the nation’s economy foundered in 2008, blame was directed almost universally at Wall Street. But Robert B. Reich suggests a different reason for the meltdown, and for a perilous road ahead. He argues that the real problem is structural: it lies in the increasing concentration of income and wealth at the top, and in a middle class that has had to go deeply into debt to maintain a decent standard of living.
Persuasively and straightforwardly, Reich reveals how precarious our situation still is. The last time in American history when wealth was so highly concentrated at the top—indeed, when the top 1 percent of the population was paid 23 percent of the nation’s income—was in 1928, just before the Great Depression. Such a disparity leads to ever greater booms followed by ever deeper busts.
Reich’s thoughtful and detailed account of where we are headed over the next decades reveals the essential truth about our economy that is driving our politics and shaping our future. With keen insight, he shows us how the middle class lacks enough purchasing power to buy what the economy can produce and has adopted coping mechanisms that have a negative impact on their quality of life; how the rich use their increasing wealth to speculate; and how an angrier politics emerges as more Americans conclude that the game is rigged for the benefit of a few. Unless this trend is reversed, the Great Recession will only be repeated.
Reich’s assessment of what must be done to reverse course and ensure that prosperity is widely shared represents the path to a necessary and long-overdue transformation. Aftershock is a practical, humane, and much-needed blueprint for both restoring America’s economy and rebuilding our society.
Robert B. Reich is Chancellor’s Professor of Public Policy at the Richard and Rhoda Goldman School of Public Policy at the University of California, Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written twelve books, including The Work of Nations, which has been translated into twenty-two languages, and the best seller Supercapitalism. His articles have appeared in The New Yorker, The Atlantic, The New York Times, The Washington Post, and The Wall Street Journal. He is also cofounding editor of The American Prospect magazine and provides weekly commentaries on public radio’s Marketplace. He lives in Berkeley and blogs at www.robertreich.org.
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From our Q&A with Reich
Q: What’s the “Aftershock” in your title?
A: The absence of a real recovery from the Great Recession. There’s even a likelihood of a return to recession – the so-called “double dip.” Typically after a recession the economy picks up again, and jobs and wages come back. Not this time, because this wasn’t a typical recession. It was the culmination of years of widening inequality in which most of the gains of economic growth went to the top. The middle class didn’t have the purchasing power to buy what was produced – other than by going ever deeper into debt. Eventually that debt bubble burst. And now we’re left with the aftershock.
Q: Does that mean the economy will never recover?
A: We may eventually have a recovery on paper. Share prices may move upward as big corporations make profits by shifting production and sales abroad. And by continuing to trim their payrolls – substituting software and merging with other companies.
But the real economy will remain in the doldrums. Unemployment will stay high for years. And the wages of most people with jobs will continue to stagnate or decline.
(…read the rest)
Your analysis of Kenneth Lewis’ $100 million to spend in the economy is 14 years behind my question to the same issue. I engaged an actor whom I was working with then that his fee had gone from $200k to then $13.5mil for one movie. When I proposed he take at least $500k and divide among the 50 or so members of the actual working crew I was met with a defensive response. I said how much the quality of life could increase in giving a $5k bonus to someone struggling to raise a family of four. This actor never understood the analysis then as you are comparing to Lewis now. There is no answer.
Reich is the best economist out there.
Reich cuts through the academic obfuscation currently advising government policies.
This book is a ‘must read’. We only wish he was in a government position to implement his urgently needed ideas.
My feeling is that this is a very real problem for the United States of America! The concentration of wealth is a problem in many other countries as well, but in ours it is also our history and our form of government that almost warrant a sacrosanct enforcement of the principle of concentration of wealth. Very few other countries have done as much to mandate such an awful system of government that protect the principles of human rights, of civil rights or apparent justice for all but then undermines it by essentially making it so expensive that very few can exercise their full human rights, civil rights or even their rights before the courts. Witness how many people we have in jail without a just cause and with very few opportunities to be served by volunteer organizations without whose help they would never make it. Witness what we have done historically to the unions! Business with its money and political clout has essentially made the whole country think that it does not need unions because business is so enlightened and generous that unions are not needed. This is what Wall Mark continues to state! And nothing could be farther from the truth, but business continues to hire people who specialize in fighting unions. It is unfair… but over the years business has managed to convinced a substantial number of people to think that is so. All of these things keep us a country that is modern but staunchly ancient and backward on the concept of progress. We have so far been able to buy our modernity… as a mere appearance to make us look before the world as modern and forward looking while we are indeed a backward and not at all forward looking country. We are not preparing for the future we are controlling the future and the people who think we should move forward.
This is a book that all citizens of the world need to read for a full definition of the ‘credit crunch’
Through the history of this country, it has become much worse for the middle class because of the greed of the few at the top of the food chain. Mr
Reich knows and does expose this in his brilliant book…
the argue about Lewis completely ignores the fact that if Lewis were to have the money individually, the government would get a fat check to the tune of 40-45 million dollars in taxes. If you give 200 people 50k…the tax revenue would be severely undercut. This means a reduction in the tax-dollar programs that are created to help the very people Reich advocates more. Finally, capital investments go a lot further for sustaining the viability of america’s large companies that employ so many of middle class citizens, and such investments would be much greater if made by one individual, rather than 200 who are likely to use almost all of the money to meet bills. Not saying there is something wrong with this, but economically, there is certainly a difference.
Someone needs to come right out and point to the pink elephant in the room. You hear a lot of Republicans(and I’m one) and rich people on TV and in magazines talk about how the current administration is trying to re-distribute the wealth. What you don’t hear the media say is that THERE WAS A MAJOR REDISTRIBUTION DURING THE BUSH YEARS, and maybe under Clinton as well. The gap grew enormously aided by such tools as hedge funds and equity funds.
I was saying this in the early 90’s and I failed math in high school and am certainly not an economist. With that said, kudos to Mr. Reich for telling it like it is. It used to be that money came from the bottom up and then went back down again. Somewhere in the 90’s someone put a check valve on that pipeline and now the money only goes up and never comes back down. Corporations are ruining the ecology of our economy with greed. As Mr. Reich states, what is needed is to get money into the hands of people who will spend it, spread it around, vs buying a Ferrari for $340k and then we’ll have a chance for recovery.
Totally ridiculous to say that someone’s pay should be limited and the rest given to people who have not earned it. Why did he not apply the same analogy to a basketball player making 20 mil a year? One should be able to earn whatever the market will bear or his company is willing to pay per the stockholders. It’s easy to say that wealth should be spread among the “people”, try Cuba if you want to see how that is working.
There is absolutely no defense for the deregulated economic mess we face. It started with Reagan, continued with Clinton, and realized its full, ugly potential with G.W.Bush. The greedy few (and you know who you are) are shameful, yet utterly shameless. What you have done to this country may be completely in line with historic human behavior, but it’s disgusting and demoralizing, and somehow I expected better of this nation’s people. But that is our particular conceit; that somehow we Americans are better, are a more spiritually and morally evolved people than all of the rest of the world and its history. I don’t want to see what happens next.
There is a balance between investment (money coming from savings or profits) and spending (money coming from income or taxation or borrowing based on future prospects).
When there is opportunity to invest abroad how money can be raised by investors?
Hugh Campbell misses the point. The owners and the CEOs who earn 300 times what the average worker in their company earns are getting the productivity gains produced by those average workers. The workers are getting none of those gains that they have produced. In essence, American workers’ just compensation has been stolen in this country by managers and owners of businesses, and they’ve been able to do that because, as highly influential donors to campaigns and founders/contributors to right-wing “think” tanks, they have been able to influence public perceptions and legislation to discourage unionization–the primary means of ensuring that workers are paid fairly.
Because the wealthy got all the gains under reaganommics, the rest of us ordinary Americans had to rely on debt financing to manage. That is one of the primary reasons for the Great Recession, and a preventable reason.
“alex says:
September 23, 2010 at 1:05 pm
the argue about Lewis completely ignores the fact that if Lewis were to have the money individually, the government would get a fat check to the tune of 40-45 million dollars in taxes. If you give 200 people 50k…the tax revenue would be severely undercut.”
To clarify: Wouldn’t $100M to Mr. Lewis pay 2000 people $50K ea,?. And even if Mr. Lewis had an enormous tax bill (doubtful given the available loopholes), the 2000 people with 50K ea. would possibly generate less tax but they’d generate more production and therefore, create more jobs which would also generate more taxes because they’d be spending their earnings for housing, autos, food, clothes and such. And their spending would generate more jobs and so on. Mr. Lewis isn’t likely to generate as much productivity with his consumption and would generate less income and less taxes (cap gains rates) while doing less for productivity – because how many pairs of shoes can one guy buy? And even his invested dollars would not generate as much as he’d hope since the rest of the population wouldn’t have income to be able to buy the things that Mr. Lewis invested in.
So, it seems the choice is between the top few with of the wealth invested but generating little income while those below are having to get basic subsistence from the gov’t or the charity of those at the top vs those at the top with a little less so that those below can produce and consume the goods that will generate income for those who invested (those at the top). It’s all interconnected.
I recently attended presentation by an economist at the Atlanta Fed, who drew an interesting comparison with where the U.S. in a period of deflation with where Japan was at about the same time its spiral downwards began. And guess what? Theirs began about 17 years ago. If Obama can’t chart a course for the Congress to follow to stave off continued deflation, the Fed may be our last, best chance to maintain our financial leadership in the world. Or at least keep China in our line of vision, as she continues to prosper. It’s in her best interest that we do.
Robert Reich, now outside of the inner circle of power in D.C., is living proof that the best and the brightest are no longer in top policymaking positions in our nation’s capital.
Men like Robert Reich can only look in from the outside and comment on the decline in the country’s leadership and future. The issue is not that the super-rich are getting richer, it is that the rest of society is completely powerless and clueless. A thousand times more Americans will buy Lady Gaga’s next cd than will purchase or read Professor Reich’s book.
Brings to mind the curse of Cassandra.
I just wanted to add that one problem we have in the US whenever we attempt discussing the conditions of the country is that we are limited to having to always say the most wonderful things, we are never free to point out the errors, the imperfections of our system and many other things. We should perhaps have the courage to set up a commission, a very high-level and serious minded one that would explain to people why we must see ourselves more realistically and more truthfully. Just patting ourselves on the back will not do… it never worked… and it has even fewer chances of succeeding today to put us on a better course.