Aftershock: The Next Economy and America’s Future by Robert B. Reich

Robert Reich’s Aftershock: The Next Economy and America’s Future is very much like his earlier book Beyond Outrage: What is wrong with our economy and our democracy, and how to fix it.  He sees the problem with our economy as too much of the wealth in the hands of a few.  In 2007 the richest 1% earned 23.5% of all income, the highest since 1928 just prior to the Great Depression and nearly three times the 9% share in 1975.  Middle class real incomes have stagnated since 1975 and to cope, the middle class has worked longer hours, wives have entered the workforce and families have gone further into debt.  Reich contends that these options have been fully exhausted and once the effects of the most recent economic stimulus wear thin our economy is in trouble.  

The problem is that the wealthy don’t spend and consume enough to create demand for goods and services and without that demand, unemployment soars.  Whereas, when money is placed into the hands of the middle class, they spend most of it and create demand and a healthy economy.  Further, he argues with a political system that elects the candidate that can raise the most money, the wealthy end up controlling our political system and everyone in it.

The fix Reich offers involves several redistribution of wealth measures headed primarily by a complete overhaul of our income tax code which taxes the wealthy at a dramatically higher rate.  He also adds government programs for education and job training as well as safety nets for the unemployed (and underemployed) and government run health care for all.  He also proposes a carbon tax to eliminate our dependence on fossil fuel. (He lost me on how this flattens the wealth curve.)

Reich contends that without some type of wealth redistribution, the middle class standard of living will decline and a backlash will ensue.  He hypothesizes the 2020 presidential election being won by the Independence Party.  The platform of the Independence Party is zero tolerance of illegal immigrants; a tightening of global trade policies and a ban on foreign investment; investment banking will be prohibited; and all personal incomes will be capped at $500,000 annually.  Any earnings over that will be taxed at 100%.

Interestingly, Reich wrote this book in 2012 before anyone announced plans to run for the 2016 presidency.  Now in late 2015 the leading Republican candidate, Donald Trump and the second leading Democratic candidate, Bernie Sanders are running on “I’m mad as Hell and I’m not going to take it anymore” rhetoric. Even if neither of these candidates are nominated or elected, the opinions of the people are getting out there and will effect change.  As for Reich, I find his solutions idealistic, simplistic and not original but I thank him for the provocation of thought.

Beyond Outrage by Robert Reich

Robert Reich was Secretary of Labor under President Bill Clinton.  I was first exposed to Reich two years ago by a speech he gave at the St Louis Speaker Series.  In that speech he explained that the average male worker’s salary has not increased in real terms in over 40 years.  Instead to raise our standard of living in our generation, we have done three things: 1) we work longer hours, 2) our wives have gone to work and 3) we have gone deeper into debt. Reich’s observation resonated with me so I decided to give his latest book a try.

In Beyond Outrage: What has gone wrong with our economy and our democracy, and how to fix it, Reich blames the 2008 recession on the fact that there is not enough money in circulation to sustain a healthy economy because too much of our nation’s wealth in concentrated at the top.  He says that 50 years ago, 9 to 10% of the wealth in the U.S. was controlled by the top one percent of the population.  By 2007, that top one percent controlled 23% of the wealth.  This has been caused by two things: 1) stagnation of working class wages while top management salaries have exploded and 2) A series of tax cuts and tax loop holes for the rich that allow them to maintain their wealth.  Reich claims the ultra-rich tend to save their wealth and invest it offshore whereas the working middle class will spend their earnings and stimulate the economy at home.  This thought disclaims the premise that the wealthy create jobs when we tax them less… a notion our politicians recite repeatedly with little objection.

 

Reich also bashes our political election process which basically is ‘the guy with the most money wins.’  When the Supreme Court ruled that money is speech and it can’t be limited under the First Amendment, the amount of money an individual or corporation can give to a candidate became unlimited.  With 23% of the wealth in the hands of one percent of the population, they give massive amounts of money to super PACs to get politicians elected.  Guess who then gets the ear of our politicians?  And this isn’t just at the Federal level… did you know that most states have voted away estate and inheritance taxes in recent years?  How exactly does a politician rationalize that?

Generally, I hate politics and don’t like to hear either side when their views are so extreme… especially when they scream at each other or act so sanctimonious when others disagree.  But I think Reich has a point.  Our system (both political and economic) is broken.  It isn’t the Republicans or Democrats gaining too much power that is the problem.  They both equally have proven they can screw it up when they hold the power.  The problem is that increasingly the vast majority of the population has no voice… that’s not a democracy. As Reich points out, the only way to fix it is for more people to get involved.  That’s good advice regardless of your political persuasion.