By ROBERT B. REICH Published: September 2, 2010
THIS promises to be the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor — most of the rest of us — are unemployed, underemployed or underwater. The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, while at least 125,000 are needed to keep up with the growth of the potential work force.
The national economy isn’t escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working: near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package and tax credits for small businesses that hire the long-term unemployed have all failed to do enough.
That’s because the real problem has to do with the structure of the economy, not the business cycle. . .But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven’t kept up with what the growing economy could and should have been able to provide them.
This crisis began decades ago when a new wave of technology — things like satellite communications, container ships, computers and eventually the Internet — made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.
But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).
Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.
When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless — as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.
Eventually, of course, the debt bubble burst . . . Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing.
Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.
It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.
The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.
What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns . . .
Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone . . . But because this situation can’t be sustained, at some point . . . the bill comes due.
This time around, policymakers had knowledge their counterparts didn’t have in 1929; they knew they could avoid immediate financial calamity by flooding the economy with money. But, paradoxically, averting another Great Depression . . . We’re left instead with a long and seemingly endless Great Jobs Recession.
THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity.
In the 1930s, the American economy was completely restructured. New Deal measures — Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage — leveled the playing field.
In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes.
. . . America’s middle class shared more of the economy’s gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.
By contrast, little has been done since 2008 to widen the circle of prosperity. Health-care reform is an important step forward but it’s not nearly enough . . .
Reich describes a variety of taxes that could pull us out of the Great Recession. Of course, the GOP has thrived with its anti-tax rhetoric to protect it base, the have mores. It knows what happened to it base during the Great Depression with its 90 and 70 per cent per cent income tax on the highest income earners.
Obama did. in fact spend money in a classic Keynesian economic fashion. but he wanted bi-partisanship and left the Bush tax cuts alone. These tax cuts contributed to 48 per cent of the deficit. Increased spending without a commensurate increase in government revenues is pointless.
The economy is now compromised and unemployment is at 9.5 per cent. The unemployment figure does not include the long term unemployed who drop out of the equation after couple of years. To make matters worse, the GOP is likely to take the House in December and any change for recovering the economy will be dashed for at least two years.
The GOP will insist that the Bush tax cuts be extended and also probably try to cut the FICA payroll tax which funds social Security and Medicare. This would destabilize both Federal programs. the FICA that funds Social Security has a $108,500 cap and has turned Social Security into a political football.
The Social Security tax has been paid for by the Middle Class since its inception in the 1930s and the affluent will have to pay more into FICA to keep Social Security solvent.
One of the Obama promises was to reform Social Security to the tax was distributed more equitably which will also improve the social Security's trust fund solvency. This promise has not yet been kept.
The creation of the conservative Catfood Commission and GOP rhetoric makes it clear that Republicans want to privatize part of Social Security. This will weaken the overall program and affect the solvency of the Social Security Trust Fund.
Bad economic periods are not the time to experiment with the welfare of the next generation of seniors. Such experiments have failed in other countries such as the UK and Chile.
The best thing Democrats can do is build a firewall in the Senate to stop reactionary GOP legislation. It is probable that the fickle Blue Dog Democrats will work with the GOP and its their corporate masters like they have always done.
This is why helping Democratic House candidates should only be done by exception. Democrats should help loyal Yellow Dog Democrats. In the case of Blue Dogs, whether a Republican or Democrat is in office will make a little difference.
Robert B. Reich, a secretary of labor in the Clinton administration, is a professor of public policy at the University of California, Berkeley, and the author of the forthcoming “Aftershock: The Next Economy and America’s Future.”
source: http://www.nytimes.com/2010/09/03/opinion/03reich.html
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The national economy isn’t escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working: near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package and tax credits for small businesses that hire the long-term unemployed have all failed to do enough.
That’s because the real problem has to do with the structure of the economy, not the business cycle. . .But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven’t kept up with what the growing economy could and should have been able to provide them.
This crisis began decades ago when a new wave of technology — things like satellite communications, container ships, computers and eventually the Internet — made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.
Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.
When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless — as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.
Eventually, of course, the debt bubble burst . . . Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing.
Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.
It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.
The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.
What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns . . .
Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone . . . But because this situation can’t be sustained, at some point . . . the bill comes due.
This time around, policymakers had knowledge their counterparts didn’t have in 1929; they knew they could avoid immediate financial calamity by flooding the economy with money. But, paradoxically, averting another Great Depression . . . We’re left instead with a long and seemingly endless Great Jobs Recession.
THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity.
In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes.
. . . America’s middle class shared more of the economy’s gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.
By contrast, little has been done since 2008 to widen the circle of prosperity. Health-care reform is an important step forward but it’s not nearly enough . . .
Reich describes a variety of taxes that could pull us out of the Great Recession. Of course, the GOP has thrived with its anti-tax rhetoric to protect it base, the have mores. It knows what happened to it base during the Great Depression with its 90 and 70 per cent per cent income tax on the highest income earners.
Obama did. in fact spend money in a classic Keynesian economic fashion. but he wanted bi-partisanship and left the Bush tax cuts alone. These tax cuts contributed to 48 per cent of the deficit. Increased spending without a commensurate increase in government revenues is pointless.
The economy is now compromised and unemployment is at 9.5 per cent. The unemployment figure does not include the long term unemployed who drop out of the equation after couple of years. To make matters worse, the GOP is likely to take the House in December and any change for recovering the economy will be dashed for at least two years.
The GOP will insist that the Bush tax cuts be extended and also probably try to cut the FICA payroll tax which funds social Security and Medicare. This would destabilize both Federal programs. the FICA that funds Social Security has a $108,500 cap and has turned Social Security into a political football.
The Social Security tax has been paid for by the Middle Class since its inception in the 1930s and the affluent will have to pay more into FICA to keep Social Security solvent.
One of the Obama promises was to reform Social Security to the tax was distributed more equitably which will also improve the social Security's trust fund solvency. This promise has not yet been kept.
The creation of the conservative Catfood Commission and GOP rhetoric makes it clear that Republicans want to privatize part of Social Security. This will weaken the overall program and affect the solvency of the Social Security Trust Fund.
Bad economic periods are not the time to experiment with the welfare of the next generation of seniors. Such experiments have failed in other countries such as the UK and Chile.
The best thing Democrats can do is build a firewall in the Senate to stop reactionary GOP legislation. It is probable that the fickle Blue Dog Democrats will work with the GOP and its their corporate masters like they have always done.
This is why helping Democratic House candidates should only be done by exception. Democrats should help loyal Yellow Dog Democrats. In the case of Blue Dogs, whether a Republican or Democrat is in office will make a little difference.
Robert B. Reich, a secretary of labor in the Clinton administration, is a professor of public policy at the University of California, Berkeley, and the author of the forthcoming “Aftershock: The Next Economy and America’s Future.”
source: http://www.nytimes.com/2010/09/03/opinion/03reich.html
Subscribe to the Rightardia feed: feeds.feedburner.com/blogspot/IGiu
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