Tags: robert | Reich | Prosperity | Circle | Cure | Recession

Reich: Widen Prosperity Circle to Cure Recession

Friday, 03 Sep 2010 11:39 AM

Economist Robert Reich says the Great Depression and its aftermath clearly showed that the only way back to a healthy economy is through shared prosperity.

In the late 1970s, Reich notes, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, their share of the pie had grown to 23.5 percent.

“I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines,” Reich writes in The New York Times. “The connection is more subtle.”

The rich, Reich points out, spend a much smaller proportion of their incomes than the rest of us, so when they get more money economic demand decreases.

Moreover, the rich don’t necessarily invest in the American economy, preferring to put their money anywhere around the globe where it gets the highest returns.

“Sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere,” Reich says, adding that rich wealth flows into assets most likely to attract other big investors.

The New Deal measures of the 1930s — Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage — leveled the economic playing field, Reich says, and legislation passed after World War II, further reduced economic inequality.

"Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes," Reich says, which gave America’s middle class more money with which to buy more of the goods and services the economy could provide — which in turn led to rapid growth and more jobs.

This time around, policymakers … knew they could avoid immediate financial calamity by flooding the economy with money, he observes.

“But, paradoxically, averting another Great Depression-like calamity removed political pressure for more fundamental reform. We’re left instead with a long and seemingly endless Great Jobs Recession.”

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Economist Robert Reich says the Great Depression and its aftermath clearly showed that the only way back to a healthy economy is through shared prosperity. In the late 1970s, Reich notes, the richest 1 percent of American families took in about 9 percent of the nation s...
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2010-39-03
Friday, 03 Sep 2010 11:39 AM
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