Robert B. Reich -- Aftershock: the next economy and America's future
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Reforms or crisis; take your pick.

Reich's explanation of where we are, how we got here, and the
effects and consequences of our current economic situation is good. 
His list of economic reforms are good ones.  But, his advice on how
to get there is weak, though admittedly the required fixes may not
be possible in our country through any means.

Reich's central thesis is that prosperity in a capitalist system is
built on a basic bargain: (1) if you work hard the nation will
provide what you and your family need; (2) the nation will see to
it that economic wealth is shared broadly enough (though not
necessarily evenly) so that a wide section of the population will
be able to afford the goods and services they need.  He claims
that, if we do not ensure this broad distribution of wealth, our
population will not be able to consume the goods and services
produced by an expanding economy and will not be able to create the
demand necessary to keep that economy going.  The system will be
broken.

Reich uses Marriner Eccles, who worked in the Treasury department
and then as the governor of the Federal Reserve Board during the
Franklin D. Roosevelt administration, as as an example of someone
who understood the necessity of satisfying this basic bargain and
who guided our government into following it to spread income and
more wealth more broadly in order to bring the nation out of the
Great Depression.  Reich claims that this policy direction is
similar to that promoted by John Maynard Keynesm and that our
recovery from the Great Depression proves the utility of these
policies.

One force that exacerbates the problem is that there are firms and
operators in the financial industry who make huge profits when some
in our society have large excess savings and must find a place to
invest it.  Especially when interest rates are low or are perceived
to be below the inflation rate, those with savings feel pressured
to find higher rates of return for their investments.  That
pressure encourages risky investing behavior (AKA speculation),
from which the investment banks, and increasingly deposit banks
too, can make large profits.  So, there is a large incentive in the
financial industry both (1) to continue the unequal distribution of
wealth toward the already wealthy and (2) to continue the weak
regulation and oversight that enables those in investment and
banking companies to profit from it.

An important insight provided by Reich is that not all countries
and economies can run an export led economy all the time.  Why? 
Because someone has to buy those exported goods.  Now, one of the
major consuming countries, the U.S., has shifted more and more
wealth to the upper tier, which reduces the ability of the great
middle class to consume.  Production and export only work when
someone can consume those goods.  We've broken that system and that
virtuous cycle.

There is an explanation within this book for how we arrived at the
crisis or near crisis condition we are in, through both good means
and bad:

- The good -- We spread the wealth widely through Social Security,
  the interstate highway system, unemployment insurance, the G.I. 
  bill and access to higher education, university research funded
  by the Federal government, and other policies whose benefits were
  distributed broadly across social and economic classes.

- The bad -- We pressured people to work longer hours for little or
  no increase in pay; we encouraged more women to move into the
  work force even when that was less fulfilling than staying in the
  home; and we provided the credit that enabled people to continue
  to live at a given standard of living even when they could no
  longer earn the income needed to do so.

Reich describes some fixes, but he is also aware of some of the
reasons why making those fixes will be difficult.  He should be: he
has struggled for years to convince people of the importance of
those fixes, both through his work within the Clinton
administration and through his articles and books.  Two reasons he
gives for the difficulty of making the changes we need are: (1) the
prevalence of Wall St. personnel within our Federal government and
(2) the amount of money used to finance the election campaigns of
federal officers and to influence those officials.  Both of these
push the U.S. federal government toward more favorable policies
for the financial industry.

So, moving toward possible fixes, here is what, Reich believes, the
U.S.  government has not done, but should do in order to reinstate
the basic bargain: (1) expand access to public (higher) education;
(2) institute Medicare for all; (3) move toward more progressive
taxation; and (4) require a minimum wage for our foreign trading
partners.  And here are the policies that Reich is promoting: (1) a
reverse income tax (and a negative tax for the middle and lower
classes); (2) a carbon tax; (3) higher marginal tax rates for those
in upper income brackets (effectively a more progressive tax rate);
(4) a *re*-employment system (one that provides not just financial
support for the unemployed but also services such are re-training);
(5) school vouchers based on family income (we must rebuild the
financial mobility within our society); (6) Medicare for all; (7) a
greater emphasis on and support for public goods; (8) serious
attempts to squeeze the money out of politics and political
campaigns.  By the way, that re-employment system will not work
unless we also implement policies that encourage the creation of
jobs and discourage the movement of jobs to countries of the lowest
wages.

Reich argues that we will inevitably arrive at these fixes and that
the only question is whether we will but *how* we will get there:
through orderly reforms or through demagoguery and crisis.  Well,
which do you prefer?  Reich worries about the possibility of a time
when, rather than helping those in need within our country, instead
we try to bring down those who have more.

We had an economic crisis (in 2008) and a reasonably liberal
President, yet all we did was to patch up the existing system, the
one that Reich criticizes for favoring the rich, and to keep that
system in place where it still prejudices the rich.  If the
economic crash of 2008 could produce the changes we need, then I'm
guessing that we have to wait for an even worse and more
destructive crisis than the one we've just been through.

12/30/2010

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