Why Our Economy is Struggling

Review of Robert Reich’s 2013 Documentary “Inequality for All” – Part 1 of 4

“You can’t step twice into the same river” (Heraclitus, ancient Greek philosopher)

“Inequality for All” (available on YouTube) is an auto-biography {at one point literally :-)} of the life and career of economist Robert Reich along with Reich’s take on the rise and decline of ‘income inequality’ in the US over the past 100 years

Early on we see TV commentator, Jon Stewart quipping that the US ranks as the 64th highest country in terms of ‘economic fairness’—we’re just under Cameroon and above Uruguay, Jamaica, and Uganda. Robert Reich adds: Of all the developed countries in the world, the US has the most income inequality.

Reich says the question isn’t income inequality so much as, “When does income inequality become a problem?”

To answer this question, Reich introduces two economists, Thomas Piketty and Emmanuel Saez.

These two professors published several studies of US federal income tax rates from 1913, when that tax began, to 2003 and beyond. Their graph of rates of income inequality over these years looks like the San Francisco Golden Gate Bridge:

The two peaks of highest US income inequality between the rich and middle class on the graph occurred in 1928 and 2007. Thus, Reich, concludes:

Income inequality appears to be a harbinger of oncoming economic depressions – the ones we had in 1929 and 2008.

Causes of 2008 peak in income inequality

Reich deems 1947-77 the golden age in US for the middle class—because income inequality was very low. This, he says was due to better education, strong labor unions, and construction of infrastructure to support manufacturing and commerce.

Then, in the mid-1970s inflation-adjusted or “real” wages flattened out. The decline of labor unions after the 1970s echoed the decline of ‘real wages’. i.e., wages in terms of the amount of goods and services that can be bought.

The decline of unions started in to the 1980s when President Ronald Reagan fired all the air traffic controllers. In the 1980s, a ‘Great Recession’ began. Real wages kept declining. Education and infrastructure spending began to lag behind that of other countries. Deregulation of the finance industry was a further incentive towards increasing wealth inequality.

Income inequality increased because productivity of US workers kept going up—even as wages went down. Corporate profits soared. By the 21st century corporate CEOs came to be paid 350% more than their workers.

In the 1990s President Clinton attempted to limit tax deductions for the wealthy to no more than one million dollars. But the Treasury Department thwarted the President, saying that as long as CEO salaries were linked to company performance, CEOs could deduct any any amount of money from their taxes.

As a result stock options for CEOs boomed: top American CEOs were making nearly $10 million a year by 2013.

Financiers also made it rich. By 2009 the top ten hedge fund managers each made between $1 and $4 billion from investing money made by the the wealthiest 400 Americans.

These 400 Americans earn as much wealth as one-half of the US population.

On the other hand by 2010 male workers were making lower real wages than they did in back 1978. Piketty and Saez’ study of US taxes found that:

Income inequality correlates directly with the distance between earnings of top earners and their workers

Based on this evidence, Robert Reich would make the economy great again by returning the economy to the golden age of the 1950s. But is that possible?

My comments

Long ago, when I went to summer camp every June, I learned one can’t go back to the past. Life is always in flux.

Robert Reich and I are the same age. We were born in the same state in the US—he in my parents’ hometown. And we are both short people. I’ve seen all the things he talks about in his autobiographical history of the US, but not being a white male back then, I didn’t see the 1950’s as a “golden age”.

Unlike Robert Reich, my self-consciousness about being different, and judged inferior, didn’t come from being short – it came from being born female.

My best friend’s mother had a copy of Betty Friedan’s infamous book, The Feminine Mystique, on a table in her art studio. Women didn’t work back then, but they weren’t free either. When my friend’s mother wanted to study painting in Italy her husband wouldn’t let her go.

My father’s favorite means of control also was “no money”.  He vigorously resisted my efforts to go to college. So, I signed up for a night shift job in an electronics factory.

My job paid nearly twice as much as a day job as a typist in an office. But it was far less pay than the day shift got. They were all men, many married to women who worked the night shift. The night shift was all women.

When the International Brotherhood of Electrical Workers union organized the night shift, our chief grievance was two-minute bathroom breaks. Our bathroom was located a city block away from where we worked.

We won the battle, but management won the war. They took away our Saturday overtime pay. Our total pay was cut.

The Taft-Hartley bill of 1947, passed at at the beginning of Reich’s ‘golden age,’ crippled labor unions. For women and minority men, there was and still is no equal pay for equal work.

Thanks to the battles against white male privilege by the civil rights and feminist movements that began in the 1950s and continued through the 1980s, doors opened for women and minorities to compete for more varied kinds of jobs.

For some that brought equal pay, but not for others.

Also, the middle class aren’t the only ones struggling today. 40 million Americans now live in poverty. That is one out of every eight. Many are children.

Next time: Why High Income Inequality Heralds Economic Crises