Title: Aftershock: The Next Economy and America's Future
Author: Robert B. Reich
Publisher: Alfred A. Knopf, 2010
ISBN-13: 978-0307592811, 192 pages
By Thomas Bergen, getAbstract
Politicians and pundits like to blame Americans' excessive debt for plunging the economy into recession in 2008. But middle-class earners had a good reason for borrowing: Their incomes have dropped since 1980, during a period when the U.S. economy's gains increasingly went to the wealthy. According to former U.S. Secretary of Labor Robert B. Reich, the only way out of the doldrums now is to redress that imbalance and help the middle class resume its role powering the economy. In this book, Reich explores the dire consequences of failing to get workers back to work. Without seeming particularly worried about stirring controversy, he offers his suggestions for restoring the "basic bargain" of shared prosperity: People work and the government supports good jobs backed by a "safety net" of public services. getAbstract recommends Reich's sobering review to those studying ideas about what's broken and how to fix it.
The rich got richer...
Excessive consumer borrowing in the U.S. gets the lion's share of the blame for the crash and subsequent recession in 2008. True, massive mortgage lending at low rates did contribute to the speculative bubble in real estate, but "high debt is a symptom rather than the cause" of the recession. The growing income disparity between the rich and the middle class is really at fault. Middle-income wages failed to keep up with a growing economy; in fact, "a larger and larger portion of the economy's winnings had gone to the people at the top." Borrowing became the only way for most Americans to maintain their living standards.
Income levels historically have swung from concentrations of prosperity among the richest to more even distributions among the working and the wealthy. At the beginning of "modern American capitalism" from 1870 to 1929, wealth consolidated at the top. After the Great Depression and, later, after World War II, prosperity spread around to lift almost everyone. But by the late 1970s, incomes began to coalesce again at the peaks, leaving the poor and middle classes with a smaller share. At that point, "the double whammy" of globalization and technological advancement began to cut into U.S. jobs. Rather than secure the working person's "safety nets" of education and unions, politicians removed such safety nets based on their belief in deregulation and in the power of the "free market" to redress the loss of jobs and wages. This increasing income disparity explains the slow recovery following the 2008 recession and presents a "social and political predicament" that augurs "upheaval and reactionary politics" if not addressed.
The "basic bargain"
The U.S. economy needs the purchases generated by a working middle class. The basic bargain is clear: A virtuous financial circle of decently paying jobs leads to demand for goods and services, generating employment and consumerism. When economic problems break that circle, government support should temporarily fund the economy to reinstate jobs and create demand. This would stimulate recovery and maintain the core fact that the U.S. must keep its middle class productive by "giving workers a proportionate share of the fruits of economic growth."
As Mark Twain once quipped, "History does not repeat itself, but it sometimes rhymes." Bear that in mind as you reflect on how policy makers' understanding of the Great Depression enabled them to prevent 2008's "Great Recession" from worsening into a depression. But they ignored the underlying cause of both crises - increased concentrations of wealth in the hands of a few...
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Posted by: humen8r | February 16, 2011 3:14 PM