Why economic recovery isn’t happening

Good old Robert Reich apparently still thinks Americans are able and willing to learn the lessons of history:

The major reason this recovery has been so anemic is not Europe’s debt crisis. It’s not Japan’s tsumami. It’s not Wall Street’s continuing excesses. It’s not, as right-wing economists tell us, because taxes are too high on corporations and the rich, and safety nets are too generous to the needy. It’s not even, as some liberals contend, because the Obama administration hasn’t spent enough on a temporary Keynesian stimulus.

The answer is in front of our faces. It’s because American consumers, whose spending is 70 percent of economic activity, don’t have the dough to buy enough to boost the economy – and they can no longer borrow like they could before the crash of 2008…

…What to do? There’s no simple answer in the short term except to hope we stay in first gear and don’t slide backwards. Rarely in history has the cause of a major economic problem been so clear yet have so few been willing to see it.

Over the longer term the answer is to make sure the middle class gets far more of the gains from economic growth.

How? We might learn something from history. During the 1920s, income concentrated at the top. By 1928, the top 1 percent was raking in an astounding 23.94 percent of the total (close to the 23.5 percent the top 1 percent got in 2007) according to analyses of tax records by my colleague Emmanuel Saez and Thomas Piketty. At that point the bubble popped and we fell into the Great Depression.

But then came the Wagner Act, requiring employers to bargain in good faith with organized labor. Social Security and unemployment insurance. The Works Projects Administration and Civilian Conservation Corps. A national minimum wage. And to contain Wall Street: The Securities Act and Glass-Steagall Act…

2 Responses to Why economic recovery isn’t happening

  1. Adams June 14, 2012 at 3:48 pm #

    Reich is right, and does a nice job of explaining the obvious. If people don’t have jobs, or are insecure about their income, and if their assets have dwindled, and volitility in markets makes them fear further losses, they won’t spend.

    No middle class, no consumer driven economy. No other country strong, no export driven economy. No faith in stability of assets, no wealth driven consumption.

    His big point is that FDR’s fed legislation and regulation empowered the labor movement and (along with a few other minor factors like WWII, and major fiscal policy infrastructure job growth)redistributed income and political power to create a huge consumer driven boom.

    He believes we can go down that road again. Right. Anyone heard the administration mention EFCA lately. How about card check. Did you happen to read Pearlstein’s analysis of how the Dem Party establishment took the incredible uprising of populist energy in Wisc and channelled it back into the same old Dem Party establishment loser mentality?

    My belief is that only FDR could do it. That is, only someone from the ruling elite who is declasse’. Someone who really understands the arrogance, venality, and stupidity of the 1% from the inside, and doesn’t really need to be invited to join the club. It can never happen with the leadership of social climbers like Clinton and Obama. Short of revolution, which, of course, I would never advocate.

    How’s that Sedition Act coming Barry. Oh, I forgot, you can just assassinate anyone you deem a “terrorist.” We don’t need no stinking badges.

  2. odd man out June 14, 2012 at 4:30 pm #

    Yes, I did see Perlstein’s analysis of how the Dem establishment botched the Wisconsin recall. What a depressing outcome, and what a betrayal of all the people who braved the cold for months to fight the billionaires’ takeover of government… Obama is the anti-FDR, and Clinton was even worse. We will need revolution, or something just short of it, to make the Dem Party relevant again, or to create a viable third party.

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