Labor Day 2012 and the Election of 2012: It’s the Inequality, Stupid

The most troubling economic trend facing America this Labor Day weekend is the increasing concentration of income, wealth, and political power at the very top – among a handful of extraordinarily wealthy people – and the steady decline of the great American middle class.

Inequality in America is at record levels. The 400 richest Americans now have more wealth than the bottom 150 million of us put together.

Republicans claim the rich are job creators. Nothing could be further from the truth. In order to create jobs, businesses need customers. But the rich spend only a small fraction of what they earn. They park most of it wherever around the world they can get the highest return.

The real job creators are the vast middle class, whose spending drives the economy and creates jobs.

But as the middle class’s share of total income continues to drop, it cannot spend as much as before. Nor can most Americans borrow as they did before the crash of 2008 — borrowing that temporarily masked their declining purchasing power.

As a result, businesses are reluctant to hire. This is the main reason why the recovery has been so anemic.

As wealth and income rise to the top, moreover, so does political power. The rich are able to entrench themselves by lowering their taxes, gaining special tax breaks (such as the “carried interest” loophole allowing private equity and hedge fund managers to treat their incomes as capital gains), and ensuring a steady flow of corporate welfare to their businesses (special breaks for oil and gas, big agriculture, big insurance, Big Pharma, and, of course, Wall Street).

All of this squeezes public budgets, corrupts government, and undermines our democracy. The issue isn’t the size of our government; it’s who our government is for. It has become less responsive to the needs of most citizens and more to the demands of a comparative few.

The Republican response – as we saw dramatically articulated this past week in Tampa – is to further reduce taxes on the rich, defund programs for the poor, fight unions, allow the median wage to continue to fall, and oppose any limits on campaign contributions or spending.

It does not take a great deal of brainpower to understand this strategy will lead to an even more lopsided economy, more entrenched wealth, and more corrupt democracy.

The question of the moment is whether next week President Obama will make a bold and powerful rejoinder. If he and the Democratic Party stand for anything, it must be to reverse this disastrous trend.

 This post was originally published at RobertReich.org and is reproduced here with permission.

19 Responses to "Labor Day 2012 and the Election of 2012: It’s the Inequality, Stupid"

  1. Edward Stevens   August 31, 2012 at 8:44 am

    To be employed, you have to have an employer– seems simple enough.
    The job creators are the individuals who (a) take the risk with their own time and resources to start an entity that employs people — call it an association, partnership, or company; (b) reinvest their return from that time and effort that they can retain — called profit or free cash flow; need additional resources because they can't do it all themselves; and (c) at the end of their time on this earth, get to realize the economic benefit that they have created for others. Those are not IMO large corp execs but the startups that succeed and prosper.
    We need more people who will take the risk to create something (off of which others can obtain a living by selling their labor) and an environemnt where those who do something that others value can be encouraged.
    I hope poeple will always view this country as a place to come and create

  2. CWH   August 31, 2012 at 9:19 am

    This problem is over 100 years old. It has only become worse since Theodore Roosevelt complained about corporatism in his 1910 "New Nationalism" speech.

  3. Edward Stevens   August 31, 2012 at 9:49 am

    Should have added that the first person I heard talking about the world we are living in was J.K. Galbreath, whom I am sure most of you here admire, who talked about the coming technocracy and the consequences that would come from that.
    He was right– at least so far.
    Read the FT 8.29 Luke Johnson column.

  4. ThomasGrennes   August 31, 2012 at 10:18 am

    Is the distribution of income much more important than the total size of the economy
    and the income per person? If so, would people prefer a much lower income if it were
    more evenly distributed? The Great Recession was the greatest shock to the U.S. economy since the Great Depression, and total income per person (real GDP per capita)
    fell continuously from 2007 through 2011. Total employment has not returned to its previous peak, and unemployment remains far above the long-run average. An alternative interpretation of the current economic malaise is that if we returned to the economy's long-run growth path, resentment about the size of a neighbors's income would diminish.
    If so, positive sum policies that raise total income would be more productive than policies designed to redistribute the wealth.

    • Robert P. Coutinho   August 31, 2012 at 9:40 pm

      Did you bother to even read the article (as opposed to just looking at some words)? In order to get the economy to long-run growth (as you put it), we need people to buy stuff. They can't do that if they don't have money. They don't get money if most of the available money is going to the uber-wealthy who park it in tax havens and off-shore accounts.

    • BillyT2   September 4, 2012 at 5:17 pm

      The answer is most likely yes to both of your rhetorical questions. Evidence is that people are happier when incomes are more equally shared. Especially when more people have gainful jobs. And people's perception of how well-off they are is mostly about how they compare with others. So yes most people would be happier if they had an income that was relatively bigger, in comparison with the 1% who set the "wealth" standard.

  5. spider   September 1, 2012 at 10:37 am

    Once again, Reich demonstrates a prescient, nuanced, insightful and stunningly brilliant critique of modern American economics.

  6. spider   September 1, 2012 at 11:12 am

    The above was just a test to see whether I was on an "automatic remove" list.

    Reich demonstrates nothing of the sort. Those adjectives are used by every lefty hack pedant to describe the works of others of his kind.

    Reich is right that gross inequality is the enemy of democracy. But unlimited growth is the enemy of the environment, of Mother Earth, which sustains us all. So growth cannot be used, as it has been in the past, to conceal all sins.

    Money flows to enterprises which offer the best returns. That cannot be stopped. Republicans want to return us to one of our periods of economic dominance – the late 1800s – when land and labor were dirt cheap. Impossible. Land can never again be cheap, and labor will revolt before it allows plutocrats to return it to the level of peasants.
    Nor can whites resume their former dominance without outright genocide. But Democrats are not sane either – they want to return us our our other period of dominance -the middle years of the last century. We are no longer the only survivors of WWII. 16 million returning soldiers no longer must be paid as promised. Nor can technology be repealed even though it has rendered most forms of unskilled labor superfluous. This cannot be countered by education. Dummies cannot be educated…nor can all people be made equal when nature has made them grossly unequal.

    We are in for a very rough time and no government policies can change that. The world must be seriously depopulated. The only questions are how, who survives, and what remains.

    • Valli Genevieve   September 2, 2012 at 10:01 am

      Dear Spider, what makes me a democrat or at least a progressive is not that I want to return to a magical time when growth was rapid, I share your deep concern about growth and its effect on the earth – that time is over. I also share your belief that we are in for a very rough time, we can produce more than we need with fewer people than need work. My desire to be a progressive means that given the world as you describe: What is our response? A kind of dog eat dog, "Soylent Green" world where we are scavenge or work till we fall away from exhaustion, illness or old age, with our place taken by the next or do we work together to manage a new paradigm, one that relies on measures other than growth.

      I agree it won't be easy. There are too many people, the earth is warming too fast and the elite who should be using their position, their brains and their education and wealth to guide the ship to a soft landing are instead amassing huge amounts of wealth and toys in a game of who is king of the mountain.

      • spider   September 2, 2012 at 12:45 pm

        "the elite … are amassing huge amounts of wealth and toys in a game of who is king of the mountain." That's what elites usually do.
        "we scavenge or work till we fall away from exhaustion, illness or old age, with our place taken by the next". That's what the rest usually do.

        Human beings are capable of better (at least most are). When faced with mutual threat, or motivated by recognizable common interest of sentiment, they will work together for the common good.

        But at present that is not our situation. The rich are convinced that environmentalism is just a ploy by jealous hippies and commies to allow them to take by force what they cannot get in free competition. Paul Ehrlich did the movement an enormous disservice by being so wrong in his predictions, losing his bets egregiously to Julian Simon, not ever recognizing his errors.

        So nothing will be done until its too late, until the damage to the environment is enormous.

    • seazen   September 3, 2012 at 7:20 am

      Thanks for adding even broader context to Reich's precise definition of the evidence of a dysfunctional system. Your response, however, is pretty defeatist. To suggest that there is nothing that can be created through a more focused and determined response to the emergent realities is nihilism at its finest. It is what enables existing power elites to remain dominant because it is a white flag from the human spirit.
      I say, screw it, let's get to work – globally. There are literally thousands of people and groups already at work in their own way to move toward a more sustainable set of principles, rules, practices and behaviors across all disciplines. These are the ones we should be looking to both to learn from and to support. And/or we should grab out pitchforks and break a few windows in the palaces around us.

  7. Ben Leet   September 1, 2012 at 1:07 pm

    In 2010 the lower-earning 50% of workers, 75 million workers out of a total of 150 million, earned only 7% of total personal income through their wage earnings which was pretty much their entire income source. The Social Security Administration reports annually on the wage and salary income distribution. The median wage income for 2010 was $26,363, and the average among the lower 50% was well below $11,000 annually. And a comparison of the lower-earning 75% of workers (112 million workers all earning less than $50,000 annually) earned less through wages than the top-earning 1% in total personal income. The system we have creates poor people and deprives too many people of a predictable organized life. The system automatically forces down wages with no countervailing upward pressure. The idea that 93% of personal income is too little for the top-earning 50% is laughable or cry-able. Even after government transfers the lower-income 80% of households receives between 40% and 44% of all income. If the national minimum wage rose to $9.80 an hour, then 39% of the workers in Texas would have a higher income! How many savers do we have in the US? 24% have no assets, 37% have less than $12,500 according to State of Working America's Wealth. Do we wish to subject a near majority of citizens to an unmanageable life-style? My blog has an essay with source reference for this data – http://benl8.blogspot.com/2012/06/half-receive-in… — I think it should be everyday knowledge for every citizen. Why should almost half of adults report they couldn't pay an emergency $2,000 expense within 30 days without selling something or borrowing, according to a NBER survey? Isn't this the wealthiest nation? No, Australia is. Japan is. Look at median wealth.

    • spider   September 3, 2012 at 8:21 am

      The system works very well for those it benefits. So what if its not sustainable? No system ever has been. So what if many species are destroyed? That's the way of the world…and anyway most of us will be dead before that happens (maybe). In sum, you don't have a clue.

      And neither do all the rest. Elites are powerful because they're smarter, more talented, stronger, more imaginative than the untermenchen. Not because the untermenchen are nihilistic. Breaking windows is far more nihilistic than recognizing that truth. There's nothing nihilistic in recognizing the environment is threatened by overpopulation and overdevelopment…or that the elites are much more likely to survive depopulation and much more capable of engineering it in the least destructive way possible.

      • Anna-Marina   September 4, 2012 at 4:48 pm

        Paris Hilton? Progeny of Bush and Cheney? Messieurs Rubin and Summers? "Smarter, more talented, more imagination…" Oh boy. Since when the cutting off the "invisible hand" should be praised as a virtue?
        The true elites would have been working tirelessly and efficiently to save the planet from overpopulation and overheating for the sake of the elites kids.
        The majority of the power brokers in this country are pompous self-admiring fools devoid of moral fiber.
        Gangsters are not known for devotion to altruism.

  8. DenverBCl   September 4, 2012 at 3:30 pm

    Like most complex systems, there are lots of reasons middle class American's incomes and standards of living are declining. That Reich can identify the significant imbalance of wealth does not make it the No. 1 contributor. It is just as likely that the imbalance is the effect rather than the cause. In my mind it's been clear that our middle class would not be able to compete in an inexorably globalizing market. Why should a laborer here make multiples of a laborer in developing countries ? And why should wealth-balancing stop at American borders ? Our middle class incomes are higher by many degrees than those abroad. Is that okay ? I agree with Reich, the wealth imbalance is a bad sign for America. The likely solution, however, is not to tax the wealthy more. That will help a bit at the margins, and may result in progressives gaining votes. The long-term solution is for our middle class to be able to compete. And that, I fear, will take lower standards of living and a generation to work

  9. WhyTea   September 5, 2012 at 8:52 am

    Robert Reich is absolutely right (as always) describing the consequences of the inequality. But what are the causes? One of them has been known from time immemorial (Matthew effect): the more you have, the more you will have, or "the rich get richer and the poor get poorer". What is left from paying for basic needs can be invested, but the Money Making Machines (MMM) are as different as any kind of technology and they range from a bicycle to Lamborghini. Only the rich can afford MMMs of high productivity, such as hedge funds, private equity, high frequency trading, even the Berkshire Hathaway, etc. Therefore, the pool of available money generated by economy is being pumped out at incomparable speeds by the middle class and the rich. To summarize, one of the reasons for the apocalyptic inequality is the new design and technology of expensive and productive MMMs. Not accidentally, the beginning of the inequality rise coincides with the spread of computers since 1970 and the switch from the Gold Standard to digital money, which is pure fiction until it is exchanged for something tangible and not another, larger, exorbitant fiction. Economy is the antithesis of democracy and it cannot be otherwise, unless under totalitarian socialism.