Robert Reich explains what went wrong with our economy in just over two minutes:
Reich was Secretary of Labor under Bill Clinton, when the economy was booming and the deficit was eliminated. He also served in the administration of Republican President Ford. And you know what? Despite all the misinformation being thrown around right now, what he says makes a lot of sense. Will we listen?
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Reich’s “points” are really just symptoms of a larger, more systemic problem. One of the best articulations of the system that is designed to enrich the elites and push everyone else into poverty (i.e. wipe out the middle class) is contained in a series of videos put together by Damon Vrabel (on his youtube channel found via csper.wordpress.com or http://www.csper.org) entitled Renaissance 2.0.
And for an even deeper look (admittedly kind of conspiracy theory oriented) check out the series Eric deCarbonnel (www.marketskeptics.com) put together on the ESF (Exchange Stabilization Fund).
The beginnings of the current train wreck in the US (and world) economy were initiated quite a while ago.
I’ve been waiting for something like this! A quick and easily understood summation of how the upper class is monetarily starving the middle and lower classes into poverty.
But this video has a couple of flaws. First, there aren’t any citations for Reich’s statistics. If they could put some graphical citations on the screen, the video would have more credibility. Second, the video is from Moveon.org, which is a red flag for a lot of people.
I know what he’s saying is true, though, and his message needs to be spread around as much as possible. Wake up, Middle America! These hard times are not your fault, and they’re not just some random act of fate that will just go away if we wait!
Unfortunately this video is not a sufficient explanation on several counts.
1) It suggest this is an explanation about the economy, but it is mostly an explanation of the federal budget deficit and suggests (I am paraphrasing and summarizing) that if the super rich were properly taxed the middle class would have more money, which is not logically correct. Yes, you could lower taxes on the middle class if you raised them on the rich, but because there are so many people in the middle class the actual impact on their individual monthly income would be relatively small – and still does not address Medicare/Medicaid and Social Security which, even with proper tax rates, will eventually bust the bank anyway.
2) If the real message is that as the overall economy grew it didn’t benefit the middle class and we need to directly move the money back there, that IS a socialist re-distribution of income argument. And while it may be a good argument, it will never get passed in the US as such.
3) Having people have more money does not lead to dramatic economic growth on its own. What drives economic growth is the creation of NEW wealth, not the re-distribution of existing wealth. Yes, taking money from the rich and giving it to the poor(er) will stimulate some economic activity, but it’s by no means enough on its own to generate robust growth.
4) Generating new wealth does require investment in potentially risky areas, and there has to be a reasonable return possible to have that happen. While I am a strong believer that returning taxes on the rich to historically average levels will not hurt the economy, providing tax incentives to invest in the creation of new wealth is a good idea.
5) A major impact on the current economy has nothing to do with the tax rates – it has to do with the availability of credit, and the confidence to take on debt, both of which have been substantially reduced. Increasing taxes on the rich won’t help with those problems at all.
So, in a nutshell, while I agree that proper revenue generation and changing rules and incentives to provide a fairer distribution of income across the spectrum, I disagree that this is simple or that just doing that will “fix” the economy. Great economic growth happens when there is a driving force that requires people to spend money, both end-users and companies. Just having more disposable income is not a driving force. If I was a betting man (and I am) I would put my money on something from Green tech, Nano tech, or Bio tech arising that will be such a driving force, but what it is we just don’t know yet.
The most striking quote, IMO, from the article below
“In world rankings of income inequality, the United States now falls among some of the world’s less-developed economies.
According to the CIA’s World Factbook, which uses the so-called “Gini coefficient,” a common economic indicator of inequality, the United States ranks as far more unequal than the European Union and the United Kingdom. The United States is in the company of developing countries — just behind Cameroon and Ivory Coast and just ahead of Uganda and Jamaica.”
http://www.washingtonpost.com/business/economy/with-executive-pay-rich-pull-away-from-rest-of-america/2011/06/13/AGKG9jaH_story.html
Jason, you are missing the point if you think anyone is suggesting that taking money away from the rich and giving it to the poor is the goal. The real point is to invest in America’s infrastructure and education.
In addition, when tax rates for the rich are higher, then there is much more incentive for companies to reinvest their profits, rather than distribute it to people who will invest it in a speculative bubble (like real estate).
IK – so noted, but investing in education and infrastructure does not “fix the economy”. It is desirable but that’s different. I fully agree that appropriate taxes on the super rich to pay for these things, rather than cut them, is the right thing to do.
I also agree that appropriate tax incentives drive companies and people to invest in things that are beneficial – in fact that is exactly my point #4.
So we agree that higher taxes on the rich are needed and reasonable, and they will not damage the economic recovery. That said, they won’t in and of themselves spur the economic recovery either, so I still think Reich’s explanation is too simplistic and not really the best explanation of how to “fix” the economy.
I think we are in violent agreement about the good points he makes 🙂
Reich has to be simplistic, funding for education keeps getting cut and fewer can now actually read and understand his book, let alone afford it. Reich was always big on human capital.
I am looking for answers too and I will accept whatever the real truth is. My concerns are infrastructure and the notion that the super rich have all this gain because of their political clout. Personally I believe that clout is based upon your profession and your control of the situation. Clout in most cases involves votes and that means the house or the senate. The latest statistic I could find shows that 44% of the house and senate combined have law degrees. Now look at where our issues are and where they are headed. How do you like our healthcare situation in America? Could healthcare be better if there were fewer legal costs associated with the industry? What about manufacturing? Could we produce goods if there were fewer dollars associated with legal concerns? name the industry and you will find a string of legal actions against that industry. Now, I am a fan of fairness, but since the jury system has seemed to fail on several fronts during the past 2 decades, why should I feel that the decisions regarding lawsuits are proper? Lawyers are part of the super rich…and they control our house and senate.
Flat tax is fine by me.