America's economic Crash of 2008 was directed almost universally at Wall Street. In his September release, entitled, Aftershock: The Next Economy and America's Future, Robert B. Reich argues differently. He believes the real problem is structural: There's an increasing concentration of wealth at the top, while middle class Americans struggle to maintain a decent standard of living.
Reich served in three national administrations, most recently as Secretary of Labor under President Clinton. He's written numerous books, and is a university professor of public policy.
Three stages of modern American capitalism substantiate Reich's message. The first stage (1870-1929) was one of increasing concentration of income and wealth. Stage two (1947-1975), featured more broadly shared prosperity; and stage three (1980-2010) is one of increasing wealth concentration. Reich says it's vital for our future to begin a fourth stage where broad-based prosperity reigns.
Reich profiles Marriner Eccles, a business tycoon during the Great Depression. Largely forgotten today, Reich believes Eccle's analysis of the underlying economic stresses of the Great Depression are relevant to the Crash of 2008. His assumption of a quick national recovery proved wrong, as we know today. President Roosevelt summoned him to Washington DC to share his financial acumen which was based on logic and experience.
Ecclesaired the Federal Reserve Board from 1934 to 1948 (the Eccles Building on Constitution Avenue in Washington DC is his memorandum). History repeats itself today, as there's a vast accumulation of income among the nation's wealthiest people. The result is everyone else experiences reduced purchasing power.
The basic bargain wave workers a proportionate share of the fruits of economic growth. Average workers had enough purchasing power to buy what they produced.
The Great Prosperity years (1947-1975), found America as a whole, implementing the basic bargain. Almost everyone who wanted a job could find one with good wages or at least wages that were trending upward. The US government created the conditions for the middle class to fully share in the nation's prosperity.
Americans developed three coping mechanisms Reich says, to combat the growing concentration of wealth, which today are ineffective. They are:
- Women move into paid work . Starting in the late 1970's, women began working to supplement family incomes and offset stagnant or declining male-earned wages. Today, the point of diminishing returns exists, as the cost of hiring outside help or childcare exceeds the obvious benefits of the additional income.
- Everyone works longer hours . A growing number of people took on two or three jobs, each demanding 20 or more hours. Now, even if they can find more work, they can find no more time.
- We draw down savings and borrow to the hilt. During the Great Prosperity, the American middle class saved about 9 percent of their after-tax income. In 2008, it slid to 2.6 percent. By 2008, the typical American household owed 138 percent of its after-tax income. Middle class consumers took on huge amounts of debt as a last resort. Median wages had stopped growing and the proportion of total income going to the middle class shrank.
The Great Recession officially began in December 2007. The biggest difference between it and the Great Depression is what happened next after the bubbles burst. The Great Depression inspired government policies that led to new economic order. Social insurance, improvements in the nation's infrastructure, schools, public universities, and other initiatives, created a more secure, prosperous and productive America. The Great Recession has produced no new economic order.
"Technically, the Great Recession has ended," says Reich, "But its aftershock has only begun." Reich says jobs will return over time, however they'll provide lower wages than Americans are accredited to.
Globalization and outsourcing of American jobs overseas are often blamed for the nation's high unemployment rate. But, Reich reminds us, those factors do not tell the whole story. Automation is key too, as many service jobs including bank tellers and telephone operators are now extinct.
Based on current national conditions, Reich forecasts Election 2020. The platform of the Independent Party could triumph, with its "clear and uncompromising message." Included are zero tolerance of illegal immigration, increased tariffs on all imports and abolition of the Federal Reserve Board. Its extreme agenda would be detrimental to US interests home and abroad.
Americans will become increasingly outraged if the US economic system appears outrigged to favor the rich. Among them concerns are Wall Street bailouts, hefty political campaign contributions by the wealthy to protect their interests, and elite educational opportunities for privileged children.
Reich proffers nine primary solutions to help restore the basic bargain to middle class Americans. He admits that some of his proposals are initially costly, but, over time, the benefits outweigh financials. Three highlights include:
- A redeployment system vs. an employment system . Today, most job losers never get their jobs back, and long-term unemployment is high. Implement wage insurance. Here, any job loser who accepts employment that pays less than his or her former position would be eligible for 90 percent of the difference for up to two years. By then, many workers would have acquired additional skills, rendering the reward of similar past pay.
- Public goods . Sizably increase public goods such as public transportation, museums, libraries and recreational facilities. Keep them free vs. the trend in "user fees." Public goods improve quality of life and help partly compensate for stagnant or dismantling wages.
- Money out of politics . As inequality has widened, large corporations, Wall Street, and their executives and traders have distorted political decisions with their hefty pledges. Recent Supreme Court decisions protecting campaign contributions as forms of free speech need to be reversed. In the meantime, all political obligations should go through a "blind trust," so that no candidate ever know who contributed what.
These are challenging times for our nation indeed, as we adjust to the growing pains of globalization. Continuous housing foreclosures, continued high unemployment, lower earnings, less economic security, widening inequality and soaring pay on Wall Street, Reich concluding on a voice of optimism.
He emphasizes that America, when faced with a depression, an enveloping war and other moral urgencies, has always risen to the occasion. "We will choose reform, I believe, because we are a sensible nation, and reform is the only sensible option we have."
To learn more about Reich's perspective on restoring the basic bargain to save middle class America, visit his blog at http://robertreich.org .