Aftershock(Inequality for All--Movie Tie-in Edition): The Next Economy and America's Future

“As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth... Instead of achieving that kind of distribution, a giant suction pump had... drawn into a few hands an increasing portion of currently produced wealth. ...In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”This is from Robert Reich’s book Aftershock. It is a very good summary of what happened in 2008. Except that it isn’t Reich himself and it isn’t about 2008. Reich is quoting long-ago Fed chairman Marriner Eccles. And Eccles was writing not about 2008 but about 1929 and the Great Depression that followed.Reich was Labor Secretary in Clinton’s first administration and is now Professor of Public Policy at Berkeley. His diagnosis, as set out in Aftershock, is simple; it is that the concentration of wealth in the hands of a few will make everyone poorer, because the rich don’t spend anything like enough to generate employment – that needs a mass market, with everyone participating. In fact, the process of wealth concentration had been going on for years before 2008. “The wages of the typical American hardly increased in the three decades leading up to the Crash of 2008, considering inflation. In the 2000s, they actually dropped,” says Reich, and goes on to explain that the economy has grown so much over that period that, had the benefits been divided equally, the typical person would be 60% better off.If that’s the case, how come no-one seemed to notice this was happening for 30 years? Reich argues that the relative decline in income for most people was masked by longer hours; the participation of women as well as men in the workforce, generating dual incomes; and, most dangerously, by an explosion of credit. A quick look at house prices over the last 30 years suggests where much of that credit went. When the property bubble burst, the game, indeed, stopped.This is a lucid and persuasive book. Reich writes well; his talent is to explicate and illuminate, rather than lecture. The same can be seen in the film Inequality for All, which arose from the book and sets out the same ideas; Reich comes across as a man of some warmth and humour and a natural communicator.This book isn’t just a diagnosis, however; it’s a prognosis and prescription as well. And it’s on these two latter that the book does come unstuck a little.The prognosis, Reich warns, is that if we’re unlucky Americans will at last say “Hell, we were screwed” but then draw quite the wrong conclusion from that, electing a right-wing, isolationist, populist and frightening President. (He is wise enough to make this a fictional character, though she slightly resembles a sort of Palin-Thatcher cross.) Losers of rigged games, as Reich rightly says, tend to get angry. His scenario may come true, but it is just as likely that Americans, and Brits, will vote for governments who see the need for greater equality, but that those governments will be hamstrung by markets, trade treaties and, in the US, legislative stasis. In that case people will, quietly first and then in greater numbers, drift away from the system, and society will lose its cohesion; government will become ineffective; and the Western world will slide into senescence and irrelevance.Prof Reich also suggests a number of measures to address inequality. One is a “reverse income tax” that will subsidise the middle class (why does the US not appear to have a working class, one wonders?). The money would be added to paychecks. This reminds one of the system of poor relief devised by magistrates at Speenhamland in Berkshire at the end of the 18th century. “Speenhamland” was, when I was young, always taught as an example of the road to hell being paved with good intentions. It simply allowed employers to lower wages, thus accumulating wealth for themselves while making the public pay their wage bill. In fact, recent research has suggested that Speenhamland’s outcomes were not so clear-cut. Still, with many lower-paid workers in Western countries now drawing welfare to supplement their wages, one wonders whether we already have Speenhamland writ large. Wouldn’t we be better off having a much higher, and strongly enforced, minimum wage? Far from bankrupting employers, it’ll make us all richer in the end.Reich also proposes a carbon tax to fund this wage subsidy. He suggests an indirect tax set at $35 a ton. In suggesting this, he is rather going where angels fear to tread. The whole argument of carbon tax vs. carbon market is a big messy one, and governments have so far had a hard time applying either. The price of carbon on the open market is nothing like $35; moreover permission to emit it is effectively a raw material for industry. Taxing what is, in effect, a raw material at way above its market value may not be a good idea; you wouldn't do it with steel. It's far better to offset emissions with credits bought on the market, as this means positive as well as negative credits can be accrued, giving a much bigger incentive to reduce emissions. I’d argue that the carbon question shouldn't get mixed up with wages; it needs its own solution, and is best left in the separate box where it belongs.The author also does not really address the whole question of governance. True, he clearly perceives poor governance as a driver of inequity; many of the evils of the last 30-odd years would not have arisen if the privileged hadn’t been able to buy power and influence through lobbyists, or hold politicians in thrall through campaign contributions. Reich therefore suggests measures to get money out of politics, and he is clearly right. What he does not discuss is the weakness of electoral systems that give voters a limited choice between at most two candidates, both of which will in effect be part of the system he deprecates. You want to throw the bums out? Give us a system that allows alternatives.Reich’s prognosis and prescription are incomplete, and are the reason why I give this book four stars and not five. But in a way that is not the point of Aftershock. There can be no prognosis or prescription without diagnosis, and the diagnosis in this book is spot-on. What is more, it is (as in the film) delivered with clarity, warmth and charm. Anyone who wants to know how we got into such a mess in 2008, and 1929, should read this book, then think for themselves – long and hard – about where we go next.

Robert Reich provides a compelling argument that more equality is better for the economy. Two of the greatest economic crises in American history came after peaks in income inequality in 1928 and 2008. By contrast, when marginal tax rates on the very rich were higher and they had less of the national income, there was a greater prosperity, between the years of 1945 and 1974. Using some of the advice and perspective of former Fed Chairman and Mormon Marriner Eccles, Reich argues for a more equal economic standard, noting that some inequality is inevitable and in fact desirable. It is difficult to refute his point, from my perspective. Setting moral arguments aside (yet one can tell Reich feels some moral outrage), he argues from a political and economic standpoint that our freedom and our prosperity are simply more robust and thriving in an economy where there is significant taxation of the wealth, and some redistributive welfare measure to take the hard edges off the capitalist economy, which can come under too much control of the very rich.

The original book had almost no graphs and table so I assumed the revised book would have many, if not all the graphs and tables used in the movie. It had a few, but only a few. Better than the original book but far short of my expectations. Probably would not buy the Tie-in Edition if I already had the original book but would recommend it over the original book since it does have some tables and graphs. Both editions are good books and worth reading and need to be widely read and discussed.

The Great Recession has forced Americans to confront political and economic issues that have been ignored for decades. Since around 1980, middle class real wages have stagnated, both personal and government debt have increased to unsustainable levels, infrastructure and education have declined--and both Democrats and Republicans are to blame. The optimism, pragmatism, "can-do" attitude, and belief in continual progress that characterized America for most of its history (with some notable exceptions, including the Civil War and Great Depression) have been shattered. Americans have grown increasingly pessimistic that their children and grandchildren can achieve the "American Dream."Robert B. Reich, former secretary of labor under Bill Clinton, writes about the causes of America's economic problems in his book. His central message is that the concentration of wealth at the top of the income ladder results in insufficient domestic demand for products and services, which leads to economic stagnation, anemic recoveries, and deep recessions.There's no question that income has become more concentrated the last 30 years. In the late 1970's, the richest 1% of the country took in less than 9% of the nation's total income. By 2007, the richest 1% took in 23.5% of the nation's income, or more than double what it was before. Real wages of a typical American worker, however, stagnated during the same time period. If the gains of the American economy had been more equally distributed during the last 30 years, a typical person would be making 60% more now than he did then.The problem with the rich becoming too wealthy is that they don't spend enough. They live too modestly compared to what they can afford. The overall demand for goods and services shrinks because the rich invest most of their income. If more of the nation's wealth went to the middle class, who spend a greater percentage of their income than the wealthy do, demand would increase, businesses would expand and hire more, and the economy would grow.Reich writes approvingly of the period of the "Great Prosperity", the years 1947 through 1975, in which American implemented a "basic bargain": workers made enough to buy what was produced, resulting in complementary mass production and mass consumption. Wages of lower-income Americans grew faster than those at or near the top, doubling over these years. Productivity also doubled, giving the lie to those who argued that large inequality was needed for economic growth. It's true that high income and wealth is an incentive for entrepreneurial and executive achievement, but how high does this income and wealth have to be? Even though CEO's made only 30 times the typical worker salaries during the Great Prosperity (as opposed to 300 times today), they seemed motivated enough back then to do their jobs well.After the late 1970's, the Great Prosperity ended and America began a period of increasing inequality. Reich recognizes that both globalization and automation led to the loss of high-paying manufacturing jobs. New jobs that were created, mainly in the service sector, didn't pay as well as the jobs lost. At the same time that the middle and working classes had to accept lower wages, however, business executives and Wall Street traders saw their incomes skyrocket.Middle class Americans developed three "coping mechanisms" to help mitigate the effects of their declining economic status. These mechanisms included women moving into paid word, people working longer hours, and people saving less and borrowing more. While these coping mechanisms worked for a while, they have been "maxed out" and are no longer useful.After the Great Recession that began in 2007, the U.S. government kept interests rates near-zero, bailed out the banks, and printed a great deal of money. This helped avert a second Great Depression, but left the federal government with vastly increased debt and deficits. Unlike during the Great Depression, in which the Roosevelt administration created a new economic order through its New Deal policies, the post-Great Recession Obama administration has done very little fundamental reform. The problem of widening inequality will likely continue. Reich predicts many years of high unemployment, middle class economic insecurity, and economic stagnation. From this Great Recession "aftershock", we'll see either a major political backlash against both big business and government, or large-scale reforms.Some reforms that Reich would like to see implemented to restore the "basic bargain" include:--A reverse income tax that supplements the wages of the middle class.--Higher marginal tax rates on the wealthy.--A carbon tax.--Making tuition free in all public colleges and universities.--An expansion of Medicare to all Americans.--Strengthening campaign-finance laws, funding elections publically, and limiting issue advertising.Reich's agenda for change makes sense in a nation in which there's a consensus for government activism, high taxation, and social programs, in which people respect and admire politicians and bureaucrats, and are confident in the competence and ability of government to follow through on its promises. Such a nation doesn't have anything in common with contemporary America. Reich's laundry list for change has no chance for passage.Was the Great Recession caused by too much wealth possessed by the rich? The speculative real-estate boom that led to the Great Recession was a world-wide phenomenon. Lax regulation certainly contributed to it. I'm not sure that American wealth inequality was a direct cause, although it may also have contributed to it. European countries have much less wealth inequality than America, yet they also suffered from the recession. The fact that the rich invest most of their money has led to more speculation and greater influence and power of Wall Street.In conclusion, this book has some good examples of how our country has become more economically unequal in the last 30 years. Due to both gridlock and hostility to government among a sizable percentage of voters, Reich's agenda for restoring the "basic bargain" has no chance for passage.

Robert Reich has produced another highly relevant study of the world economy that really explains what's gone wrong and how the problems should be addressed. He de-bunks the whole myth about why the economic crisis happened, and explains why austerity won't work. It undermines all the current beliefs about overspending causing the crisis, and highlights the new directions that world governments should be taking if they really want to get out of this mess (do they?). After reading this you will be older, wiser and very angry! A great read.

Refreshingly honest- shows that "we are NOT all in this together". Data is from USA published sources but the analysis is valid for the UK also.

One only wonder why these obvious conclusions never reached the highest political levels in the US and Europe. Maybe that's the reason Robert Reich only served in Bill Clinton's first term?

brilliant read!

I loved Robert Reich's previous book "Supercapitalism" and this book, written in our more troubled times, continues the same trail of thought, and pushes on further with some quite radical proposals.The main theme of this book is that in the US, growing income inequality and the relatively lower purchasing power of the middle classes is the major factor contributing to America's economic problems. It is quite a strongly Keynesian viewpoint, which stresses the difference between middle class consumers who spend and therefore re-circulate a high proportion of their income, and the very wealthy who do not have consumption habits so widely beneficial to their fellow countrymen, and who instead speculate, and invest / spend abroad.The quality of Reich's writing and the historical and anecdotal insights are as satisfying to read as ever, but to me some of the final analysis and proposals are too brutally socialist to be widely accepted or effective. For example, the case for making the tax system in the US much more progressive in response to widening inequality is a good one, but going beyond that and topping up middle class wages by substantial transfer payments is very radical.Middle class Americans nostalgic for a time when their country's technological lead meant that their low and medium skilled workers could command high wages may love this book, and find Reich a champion of their interests. However trying to reverse or replace this lost comparative advantage of the US worker with large transfer payments from the rich is a very blunt instrument indeed, which may have many side effects. Also there is an implicit assertion running through this book that the standard of living of the American middle class should be maintained and perpetually rise. For me this sits uncomfortably with the future of our world environmental issues.It could be argued that it is international trade, and the catching up of countries like China in their technological ability which has caused both the growing inequality and economic problems in the West. Therefore it could be argued that the solution to the problems of the US and others needs to confront more directly these fundamental international trade issues at the root, rather than using the state to treat the symptoms of the problem. In this book Reich warns against "killing the cow", meaning a reactionary response born out of envy of the rich, which could endanger the wider prosperity of our free market and free trade system. This kind of caution is characteristically wise, but perhaps others may have less worries about the free-trade/free-market cow, and perhaps be happy to see it, if not killed, then penned in and put on a diet.