10
Who's got the right plan to boost growth?
Neither the Democrat's Keynesian economics nor the Republican's trickle-down theory will work on a recession that's just too abnormal for normal methods.
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
It's fewer than eight weeks to Election Day and neither party has put forward a truly convincing plan for reviving job growth. That's largely because neither of the standard remedies our parties cling to -- Keynesian fiscal stimulus by the Democrats or supply-side tax cuts by the Republicans -- will work.
This isn't your normal recovery because what we've experienced hasn't been your normal up-and-down swing of the business cycle. The fundamental structure of our economy has changed.
For 30 years, median real wages have barely increased, and over the last decade they've dropped -- even though the productive capacity of the economy has soared. And that disconnect -- between what the economy can produce at full employment and what people can spend without going into unsustainable debt -- is the core problem. Since the debt bubble burst in 2008, that problem can no longer be avoided or wished away.
Keynesian pump-priming assumes that at some point consumers will take over. Once the government has spent enough, consumer spending will then keep the economy going. But the middle class doesn't have enough money to take over where the government leaves off because its share of total income keeps shrinking.
For their part, supply-siders assume business leaders and entrepreneurs will create more jobs if they're adequately rewarded with tax cuts. But they won't create more jobs without more customers. And as real wages continue to drop, most people can't and won't buy more.
We're caught in a trap of our own making that defies the standard remedies. Neither Keynesian stimulus nor supply-side tax cuts -- nor even the Fed keeping interest rates near zero -- will restore buoyant job growth.
The fact is that unless we can get the economy back to the balance it achieved 30 years ago, when the middle class and those aspiring to join it received a much larger share of the economy's gain, we simply can't get back on track.
Both are free-market politicians and free-market is dead, so the answer is neither. Holding the domestic economy hostage to stagnation in order to extract all public assets and wealth is a game plan for corporate profit-maximizers.....which both politicians are. Given that the US is losing all their trading partners.....forget the hopes for Japan as they won't fight back Chinese power. So what Obama is in office to do for corporations is create such a level of wealth for the shareholders as to allow them to continue their hold on US society for the coming decades.
If you call this successful......and as Wall Street representatives you would......the 95% of Americans know differently.
Well DUH. But you know what else was 30 years ago? Pensions were more universal; people got the heck of the workforce at 55 with full benefits (and many are STILL living comfortably on those pensions and SS and medicare); religion wasn't a dirty word; greed wasn't a religion; keeping up with the Joneses didn't mean living on credit cards; employers cared about employees (0r at least didn't use the "you should be grateful to have a job" nonsense as frequently); college was either free or affordable for average middle-class families; teachers were allowed to discipline students (now those same brats are treated like adults at 8 years old and the "self esteem movement" has replaced common sense); electronics/cars/houses were built to last (and not required to break/be updated in order to keep a company profitable--yes, Apple, I'm talking to you); you were happy to get underwear for a Christmas present (now it's $1000 spent on kids for ONE holiday); bills were housing, car, gas, and food (now it's all that plus trendy clothing, cell phone plans, out of control property taxes, gas that has exceeded inflation by 1000%, Internet, cable, vacations...); public servants (politicians, police officers, teachers) were low paid and had nice pensions but now have very, very nice pay and great pensions (unsustainable and affects us all); frivilous lawsuits; and, most importantly, our politicians weren't treated like rock stars. There's a LOT that needs to be fixed, and the economy is just one piece of this American dream that has become the nightmare.
Great commentary. Seems obvious. Three questions for Mr. Reich:
1. Why isn't this rather obvious analysis essentially a consensus among thoughtful economists. Jeez, this isn't really rocket science, is it?
2. Why did everyone (media, Democrats, democrats, etc...) allow the right to rename the wealthy " job creators?" Doesn't seem like anyone is calling them on this. I can't understand why.
3. And most importantly, what an be done about this problem GIVEN CURRENT POLITICAL REALITIES? Everyone acknowledges increasing wealth disparity, few identify it as the root cause of our current economic stagnation, basically no one is proposing any realistic solution option (including you Prof. Reich). Increased income tax rates for upper brackets, elimination of the carried interest rule, etc... make sense in terms of fairness and justice but won't make much of a dent in the wealth problem.
I agree completely, couldn't have said it better myself. Your economy has to use everything it makes or else it shrinks. Shrinking middle class wages thus force the wealthy (or the poor thru transfer payments) to take up the slack, which they cannot reasonably do. One other point: I argue that a country with a more equitable distribution of wealth is actually a richer and more powerful country. We all know that economic utility is not the same as money, money may be the best way we have to measure utility, but it still isn't the same thing. We also know that the utility of money is greater for people who have less of it. $1000 means a lot more to a middle class household than to a rich household. So a country where 1000 people have $1000 has more total utility that a country where 1 person has $1,000,000 (even though the total money is the same). A country that can create 1000 washing machines is more powerful than a country that can create one yacht. I not suggesting some kind of socialist redistribution scheme (really), and I don't know what the solution is, but this is what I see.
I agree completely, couldn't have said it better myself. Your economy has to use everything it makes or else it shrinks. Shrinking middle class wages thus force the wealthy (or the poor thru transfer payments) to take up the slack, which they cannot reasonably do. One other point: I argue that a country with a more equitable distribution of wealth is actually a richer and more powerful country. We all know that economic utility is not the same as money, money may be the best way we have to measure utility, but it still isn't the same thing. We also know that the utility of money is greater for people who have less of it. $1000 means a lot more to a middle class household than to a rich household. So a country where 1000 people have $1000 has more total utility that a country where 1 person has $1,000,000 (even though the total money is the same). A country that can create 1000 washing machines is more powerful than a country that can create one yacht. I not suggesting some kind of socialist redistribution scheme (really), and I don't know what the solution is, but this is what I see.
No doubt about it, I'm working harder and smarter, and getting a lot more done, for less pay, relatively speaking. Puts me in mind of this little ditty...
"We the Willing, led by the Unknowing, are doing the Impossible for the Ungrateful.
We have been doing so much, with so little, for so long, we are now qualified to do Anything, with Nothing."
I take issue with this commentary. Robert Reich suggested that neither political Party has an, "idea" to get the economy going again. Idea? Like the bailouts that started with a Republican in power, oh but that's not Keynesian because a Republican did it? I thought almost every economist was advocating for the bailouts.
He suggests that wages are in fact the problem, but fails to mention that there is only one political party willing to address this directly with wage controls such as minimum wages, or organizing labor force with unionization or giving tax cuts to the people who need them most; The Democrats.
There is a political Party in our country who would fight tooth and nail the organizing of labor and minimum wage hikes and all the while advocating for tax cuts for people who don't need them; The Republican Party.
I swear sometimes that a desire to seem independent comes with a loss of the truth. I'll set aside Robert Reich's unwillingness to be thoughtful, in order to seem apolitical, to ask a question he did not answer.
What specific policies would he recommend that neither political Party represents?
I think that Mr. Reich is dead-on in his assessment on the current economy and lack of serious remedies offered by the candidates.
Unlike "The World is Flat" crowd, I could never figure out how all the people who were "liberated" from the factory floor would actually fit into the upper levels of the corporate pyramid.
That's all fine and dandy, but where is the prescription to get there?? I can see many different policy ideas that will get us there......eventually. Training, investment is science and technology, even protectionist strategies of some sort(see: American School of Economics) might do it, but what about NOW? What do we do in the short term??
