Robert Reich: Totally Spent

WE’RE sliding into recession, or worse, and Washington is turning to the normal remedies for economic downturns. But the normal remedies are not likely to work this time, because this isn’t a normal downturn.

The problem lies deeper. It is the culmination of three decades during which American consumers have spent beyond their means. That era is now coming to an end. Consumers have run out of ways to keep the spending binge going.

The only lasting remedy, other than for Americans to accept a lower standard of living and for businesses to adjust to a smaller economy, is to give middle- and lower-income Americans more buying power ”” and not just temporarily.

Much of the current debate is irrelevant. Even with more tax breaks for business like accelerated depreciation, companies won’t invest in more factories or equipment when demand is dropping for products and services across the board, as it is now. And temporary fixes like a stimulus package that would give households a one-time cash infusion won’t get consumers back to the malls, because consumers know the assistance is temporary. The problems most consumers face are permanent, so they are likely to pocket the extra money instead of spending it.

Read it all.

Posted in * Economics, Politics, Economy

12 comments on “Robert Reich: Totally Spent

  1. Wilfred says:

    So our wages haven’t gone up, we can’t work longer hours, we can’t send our wives to work because we already have (which is the main reason our wages haven’t gone up, why does Mr Reich ignore this?), and we can’t borrow any more. Could it be, [i] could it be, [/i] that Robert Reich is calling for a [b] tax cut [/b] ?

    No! He wants higher taxes! And more labor unions, to drive more jobs overseas! He will not rest until every worker who earns less than median wage is given a government hand-out to raise him to the median, and everyone who earns more than median is taxed at 100%, to lower his take-home wage to the median.

    This idea, coming right after Zacchaeus Sunday, should be given a short shrift.

  2. Andrew717 says:

    But Wilfred, don’t you know the answer to everything is increasing the power of the All Holy State?

  3. Chris Jones says:

    Mr Reich’s analysis is remarkably shallow. It seems that no matter what the economic situation is, the underlying problem which folks like Reich identify is always the same: income inequality. That is not because income inequality actually is the root of the problems it is being blamed for; it is because, for Reich, income inequality is evil in and of itself. Thus the current economic difficulties are only an excuse for Reich to trot out his usual hobby-horse, which amounts simply to Soak the Rich.

    The solution is not, as Reich says, to give middle- and lower-income Americans more buying power. If that extra “buying power” (i.e. money) comes from simply transferring the money from someone else, then it does not represent actual newly-created wealth. And it is just going to go overseas to purchase goods from economies where productive capacity is actually increasing, and new wealth is actually being created.

    Simply moving the money from one part of the population to another, without addressing the actual productive capacity of the domestic economy, is just a shell game. Robert Reich is an intelligent man; he should be ashamed of trying to sell this bill of goods.

  4. Cole says:

    Another article from a Berkeley Academic. I laughed earlier this week when I saw a reprinted article in our campus student newspaper stating that “Conservatives are more strict with their children.” And of course that is a bad thing! You guessed it. From UC, Berkeley.

    One reason we had a higher standard of living back before the seventies was that we were able to exploit more domestic and foreign resources, and especially oil. How does the lower income sector spend their money? Sure a lot are just trying to provide for their family. Others are spending it on lottery tickets and addictive consumables. How is that going to jump start the economy? I think we need a more focused stimulus rather than unrestricted low income pork. One that empowers the lower income class with skills in the market place rather than with electing pandering politicians. Give power to the service unions? Sure…, no competition. Let’s drive up the cost of health care, social services and other less elastic markets even more. The thing that expanded our economy in the last twenty years was “high tech”. Those who participated in that market were the winners. This article is just a left-wing socialist opinion.

  5. TWilson says:

    Mr. Reich says, “Most of what’s been earned in America since then has gone to the richest 5 percent. Yet the rich devote a smaller percentage of their earnings to buying things than [b]the rest of us [/b]because, after all, they’re rich.” How disingenuous. If the top 5% are the richest, in 2007 that would have been anyone making over $120,212. The average Harvard full professorship salary in 2006 was $169K – presumably Reich endured something close to that in his named professorship, and has continued to earn well at Berkeley in a similar position. Add on the speaking fees, book royalties, writing gigs, small incremental compensation from the American Prospect…. When he left his job as Secretary of Labor in 1997, the pay for non-appointee senior execs was $115,7000, so that’s what his Level 1 comp would have been at a minimum. “The rich” isn’t a “they” to Robert Reich, but a “we.” His point on the stimulus being the wrong sort of fix is right, but the tone is enough to make one sick.

  6. garyec says:

    It is the wealthy (like Bill Gates) who invest their money in businesses which create jobs for people. Instead of creating more class warfare with the tone of this article, we need to find ways of encouraging business creation here in the United States with wages that are realistic but allow for competition. The wealthy will invest their money to make more, let’s incent them to make that investment here and not overseas. Unfortunately articles like this one from members of academia lack the common sense of everyday realities. Punishing success (the top 5%) by the government inserting itself to evenly distribute the wealth is not the answer, incenting the top 5% to create wealth for other 95% is

  7. Ouroboros says:

    The previous commenters have hit a lot of what I wanted to emphasize, but I will add this.

    Tax cuts are good for all (provided they are coupled with spending cuts) but as long as we have differing incomes, “the rich” will always get a greater tax cut in absolute dollars than “the poor.” This is just a function of math. However, I am always at a loss to understand why it is a bad thing. Tax cuts for “the poor” and “the rich” serve two different but equally excellent functions. If you lower taxes on someone making $25,000 per year such that they save $1,000, that person will likely use that money to pay down debt or start an “emergency fund.” Wonderful. The next time that person’s car breaks, instead of putting the bill on his or her credit card, or missing a house payment, he or she will be prepared. If you give a tax cut to someone making $500,000 a year, such that they save $25,000, that person will likely go out and HIRE someone (a gardener, a house cleaner, a personal assistant), thus creating a job where one didn’t exist before. Both “the rich” and “the poor” will use their tax cuts effectively.

  8. libraryjim says:

    Have y’all seen this one:

    Bar-stool economics

    Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

    The first four men (the poorest) would pay nothing.
    The fifth would pay $1.
    The sixth would pay $3.
    The seventh would pay $7.
    The eighth would pay $12.
    The ninth would pay $18.
    The tenth man (the richest) would pay $59.
    So, that’s what they decided to do.

    The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” Drinks for the ten now cost just $80.

    The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

    The fifth man, like the first four, now paid nothing (100% savings).
    The sixth now paid $2 instead of $3 (33&#xsa;vings).
    The seventh now pay $5 instead of $7 (28&#xsa;vings).
    The eighth now paid $9 instead of $12 (25% savings).
    The ninth now paid $14 instead of $18 (22% savings).
    The tenth now paid $49 instead of $59 (16% savings).

    Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

    “I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man,” but he got $10!”

    “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I!”

    “That’s true!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”

    “Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”

    The nine men surrounded the tenth and beat him up.

    The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

    And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

  9. Bob Lee says:

    …..he he …time for some more “Trickle Down Economics”. Well, it worked!


  10. Little Cabbage says:

    Well, it worked for the wealthiest folks, anyway. They didn’t have to send their wives to work! A better description would be ‘a rising tide floats all yachts.’ It certainly has done that, while the middle class has been sinking.

    As for taxes, please recall that the workers pay close to 1/2 of their pay because of FICA. This deeply recessive tax stops on income above about $90,000….in other words, the wealthiest pay a much smaller percentage of their income in taxes.

  11. Adam 12 says:

    Social Security was designed as a personal-savings insurance and pension program. Taxing folk above $90,000 turns it into even more of an income-redistribution program. That was never its original intention.

  12. Philip Snyder says:

    Little Cabbage,

    How many cell phones did your family (or your father’s family) have in 1983? How big was your house? How many cars did your family drive? How much did a microwave oven cost (in terms of number of hours of work, not actual dollars)? How much time did you spend on the internet in 1983? How many channels did you have on your TV? Did you have a VCR or DVD Player? I’ll bet that you probably had one or two corded phones in the home and didn’t have an answering machine.

    The standard of living for the Middle Class has gone up considerably in the last 25 years (or 100 years or 10 years for that matter). We have a lot of things that we simply did not have then and many of the things we do have cost less (in terms of hours worked to purchase rather than inflation adjusted dollars).

    I recommend this [url=]video[/url] for a more reasoned approach to our standard of living.

    BTW, Social Security was never designed as retirement or pension plan. It was designed to supplement people’s retirement, not be the whole thing. Thus, people with higher incomes were not going to need it as much and their receipts were to be capped, thus their payments are capped.

    Phil Snyder