It’s Inequality, Stupid

By Robert Reich
RobertReich.org

The most troubling economic trend facing America this Labor Day is the increasing concentration of income, wealth, and political power at the very top – among a handful of extraordinarily wealthy people – and
the steady decline of the great American middle class.

Inequality in America is at record levels.  The 400 richest Americans now have more wealth than the bottom 150 million of us put together.

Republicans claim the rich are job creators.  Nothing could be further from the truth.  In order to create jobs, businesses need customers.  But the rich spend only a small fraction of what they earn.  They park most of it wherever around the world they can get the highest return.

The real job creators are the vast middle class, whose spending drives the economy and creates jobs.

But as the middle class’s share of total income continues to drop, it cannot spend as much as before.  Nor can most Americans borrow as they did before the crash of 2008 — borrowing that temporarily masked their declining purchasing power.

As a result, businesses are reluctant to hire.  This is the main reason why the recovery has been so anemic.

As wealth and income rise to the top, moreover, so does political power.  The rich are able to entrench themselves by lowering their taxes, gaining special tax breaks (such as the “carried interest” loophole allowing private equity and hedge fund managers to treat their incomes as capital gains), and ensuring a steady flow of corporate welfare to their businesses (special breaks for oil and gas, big agriculture, big insurance, Big Pharma, and, of course, Wall Street).

All of this squeezes public budgets, corrupts government, and undermines our democracy.  The issue isn’t the size of our government; it’s who our government is for.  It has become less responsive to the needs of most citizens and more to the demands of a comparative few.

The Republican response – as we saw dramatically articulated this past week in Tampa – is to further reduce taxes on the rich, defund programs for the poor, fight unions, allow the median wage to continue to fall, and oppose any limits on campaign contributions or spending.

It does not take a great deal of brainpower to understand this strategy will lead to an even more lopsided economy, more entrenched wealth, and more corrupt democracy. 

The question of the moment is whether next week President Obama will make a bold and powerful rejoinder.  If he and the Democratic Party stand for anything, it must be to reverse this disastrous trend.

The Jobs Report and the Election

President Obama’s speech to the Democratic National Convention was long on uplifting rhetoric but short on specifics for what he’ll do if reelected to reignite the American economy. 

Yet today’s jobs report provides a troubling reminder that the economy is still in bad shape.  Employers added only 96,000 nonfarm jobs in August.  True, the unemployment rate fell to 8.1% from July’s 8.3%, but the size of the workforce continued to drop according to a Labor Department report Friday.

Unfortunately for the President — and the rest of us — jobs gains have averaged only 94,000 over the last three months.  That’s down from an average of 95,000 in the second quarter.  And well below the average gain of 225,000 in the first quarter of the year.  And compared to last year, the trend is still in the wrong direction: a monthly average gain of 139,000 this year compared to last year’s average monthly gain of 153,000. 

Look, I desperately want Obama to win.  But the one thing his speech lacked was the one thing that was the most important for him to offer — a plan for how to get the economy out of the doldrums.

Last week Mitt Romney offered only the standard Republican bromides: cut taxes on the rich, cut spending on programs everyone else depends on, and deregulate.  They didn’t work for George W. Bush and there’s no reason to expect they’ll work again.

But the President could have offered more than the rejoinder he did — suggesting, even in broad strokes, what he’ll do in his second term to get the economy moving again.  At least he might have identified the scourge of inequality as a culprit, for example, pointing out, as he did last December, that the economy can’t advance when so much income and wealth are concentrated at the top that the vast middle class doesn’t have the purchasing power to get it back on track. 

Undeniably, we have more jobs today than we did at the trough of the Great Recession in 2009.  But the recovery has been anemic — and it appears to be slowing.  We’re better off than we were then, but we’re not as well off as we need to be by a long shot.

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The Humboldt Sentinel greatly appreciates Mr. Reich allowing us to share his column with our readers.  His previous column can be found here.

Mr. Reich is a political economist, professor, author, and political commentator. He served in the administrations of Presidents Gerald Ford, Jimmy Carter, and was Secretary of Labor under President Bill Clinton.

Mr. Reich is currently Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California, Berkeley. He was formerly a professor at Harvard University’s John F. Kennedy School of Government and professor of social and economic policy at Brandeis University.

He has been a contributing editor of The New Republic, The American Prospect (also chairman and founding editor), Harvard Business Review, The Atlantic, The New York Times, and The Wall Street Journal. He is chairman of Common Cause.

Time Magazine named Mr. Reich one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers “Aftershock” and “The Work of Nations.”

His latest e-book, “Beyond Outrage” is now available in paperback.

Please visit Mr. Reich at RobertReich.org to see his other outstanding essays and videos concerning the nation’s economy and politics.

(Images by the Humboldt Sentinel.  Posted by Skippy Massey)