Wednesday, September 7, 2011

Inequality the real cause of our terrible economy

Here's a post by Robert Reich, formerly Secretary of Labor during the Clinton administration, on "Why Inequality is the Real Cause of Our Ongoing Terrible Economy."

An excerpt:
The 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody’s Analytics. That should come as no surprise. Our society has become more and more unequal.

When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt — which, as we’ve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. ...

Look back over the last hundred years and you’ll see the pattern. During periods when the very rich took home a much smaller proportion of total income — as in the Great Prosperity between 1947 and 1977 — the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats.

During periods when the very rich took home a larger proportion — as between 1918 and 1933, and in the Great Regression from 1981 to the present day — growth slowed, median wages stagnated and we suffered giant downturns. It’s no mere coincidence that over the last century the top earners’ share of the nation’s total income peaked in 1928 and 2007 — the two years just preceding the biggest downturns.

We've been on the wrong path - the wrong economic path, at least - in this country for decades. And as that path has been increasingly disastrous for us, a large part of our population has become even more fanatic about sticking to it - indeed, even stepping on the accelerator.

Well, these people are faith-based. They don't change their minds based on the evidence. Instead, when things begin to go badly, they stick to their beliefs even more firmly, convinced that the problem has been not the wrong direction, but a lack of faith in that wrong direction. The worse things get, the more scared they get and the more fiercely they cling to their existing beliefs.

Right-wing economic beliefs have been dominant in America since Reagan. Even the Democrats, never ones to stand up against something popular, have moved to the right. But it's the Republicans who've really taken it to extremes. Heck, Ronald Reagan would be kicked out of the GOP these days for being too liberal.

It would be one thing if these policies had been a success, but that's hardly the case. Why are people so angry these days if they like the way things have been going? The only people who really like it are the extremely wealthy, and even they won't be better off for long.

As Reich points out, there's a clear alternative:
Some say we couldn’t have reversed the consequences of globalization and technological change. Yet the experiences of other nations, like Germany, suggest otherwise. Germany has grown faster than the United States for the last 15 years, and the gains have been more widely spread. While Americans’ average hourly pay has risen only 6 percent since 1985, adjusted for inflation, German workers’ pay has risen almost 30 percent. At the same time, the top 1 percent of German households now take home about 11 percent of all income — about the same as in 1970. And although in the last months Germany has been hit by the debt crisis of its neighbors, its unemployment is still below where it was when the financial crisis started in 2007.

How has Germany done it? Mainly by focusing like a laser on education (German math scores continue to extend their lead over American), and by maintaining strong labor unions.

But we don't want to take any lessons from Europe, do we? No, we're "exceptional" (which apparently means that we refuse to learn from anyone else). We won't look at Finland for ideas on how to improve our schools, and we won't look at Germany - or any other country - for ideas on how to do well economically in the 21st Century.

Yeah, we'd rather discover our mistakes after we make them, apparently. We don't want to look at the mistakes - and the successes - of other countries, so we might be able to skip all that. Well, since we refuse to admit our mistakes anyway, I suppose that's moot.

We really need to become evidence-based, so that we can actually learn from our mistakes. And we need to be humble enough to admit that we might still be able to learn from someone else. This isn't a matter of pride in country. You can be proud of America while still recognizing that we're not perfect.

We've been on the wrong path in America for thirty years. When will we finally recognize that? And when will we decide to do something about it?

PS. I must again thank Jim Harris for the link.

No comments: