How the Rich Are Destroying the US Economy


By finehoe   Follow   Tue, 29 Jan 2013, 1:10pm   1,216 views   23 comments
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by Robert Reich

As President Obama said in his inaugural address last week, America “cannot succeed when a shrinking few do very well and a growing many barely make it.”

Yet that continues to be the direction we’re heading in.

A newly-released analysis by the Economic Policy Institute shows that the super-rich have done well in the economic recovery while almost everyone else has done badly. The top 1 percent of earners’ real wages grew 8.2 percent from 2009 to 2011, yet the real annual wages of Americans in the bottom 90 percent have continued to decline in the recovery, eroding by 1.2 percent between 2009 and 2011.

In other words, we’re back to the widening inequality we had before the debt bubble burst in 2008 and the economy crashed.

But the President is exactly right. Not even the very wealthy can continue to succeed without a broader-based prosperity. That’s because 70 percent of economic activity in America is consumer spending. If the bottom 90 percent of Americans are becoming poorer, they’re less able to spend. Without their spending, the economy can’t get out of first gear.

That’s a big reason why the recovery continues to be anemic, and why the International Monetary Fund just lowered its estimate for U.S. growth in 2013 to just 2 percent.

Almost a quarter of all jobs in America now pay wages below the poverty line for a family of four. The Bureau of Labor Statistics estimates 7 out of 10 growth occupations over the next decade will be low-wage — like serving customers at big-box retailers and fast-food chains.

It’s not a zero-sum game. Wealthy Americans would do better with smaller shares of a rapidly-growing economy than with the large shares they now possess of an economy that’s barely moving.

At this rate, who’s going to buy all the goods and services America is capable of producing? We can’t return to the kind of debt-financed consumption that caused the bubble in the first place.

Get it? It’s not a zero-sum game. Wealthy Americans would do better with smaller shares of a rapidly-growing economy than with the large shares they now possess of an economy that’s barely moving.

If they were rational, the wealthy would support public investments in education and job-training, a world-class infrastructure (transportation, water and sewage, energy, internet), and basic research – all of which would make the American workforce more productive.

If they were rational they’d even support labor unions – which have proven the best means of giving working people a fair share in the nation’s prosperity.

But labor unions are almost extinct.

The decline of labor unions in America tracks exactly the decline in the bottom 90 percent’s share of total earnings, and shrinkage of the middle class.

In the 1950s, when the U.S. economy was growing faster than 3 percent a year, more than a third of all working people belonged to a union. That gave them enough bargaining clout to get wages that allowed them to buy what the economy was capable of producing.

Since the late 1970s, unions have eroded – as has the purchasing power of most Americans, and not coincidentally, the average annual growth of the economy.

Last week the Bureau of Labor Statistics reported that as of 2012 only 6.6 percent of workers in the private sector were unionized. (That’s down from 6.9 percent in 2011.) That’s the lowest rate of unionization in almost a century.

What’s to blame? Partly globalization and technological change. Globalization sent many unionized manufacturing plants abroad.

Manufacturing is starting to return to America but it’s returning without many jobs. The old assembly line has been replaced by robotics and numerically-controlled machine tools.

Technologies have also replaced many formerly unionized workers in telecommunications (remember telephone operators?) and clerical jobs.

But wait. Other nations subject to the same forces have far higher levels of unionization than America. 28 percent of Canada’s workforce is unionized, as is more than 25 percent of Britain’s, and almost 20 percent of Germany’s.

Unions are almost extinct in America because we’ve chosen to make them extinct.

Unlike other rich nations, our labor laws allow employers to replace striking workers. We’ve also made it exceedingly difficult for workers to organize, and we barely penalized companies that violate labor laws. (A worker who’s illegally fired for trying to organize a union may, if lucky, get the job back along with back pay – after years of legal haggling.)

Republicans, in particular, have set out to kill off unions. Union membership dropped 13 percent last year in Wisconsin, which in 2011 curbed the collective bargaining rights of many public employees. And it fell 18 percent last year in Indiana, which last February enacted a right-to-work law (allowing employees at unionized workplaces to get all the benefits of unionization without paying for them). Last month Michigan enacted a similar law.

Don’t blame globalization and technological change for why employees at Walmart, America’s largest employer, still don’t have a union.

Don’t blame globalization and technological change for why employees at Walmart, America’s largest employer, still don’t have a union. They’re not in global competition and their jobs aren’t directly threatened by technology.

The average pay of a Walmart worker is $8.81 an hour. A third of Walmart’s employees work less than 28 hours per week and don’t qualify for benefits.

Walmart is a microcosm of the American economy. It has brazenly fought off unions. But it could easily afford to pay its workers more. It earned $16 billion last year. Much of that sum went to Walmart’s shareholders, including the family of its founder, Sam Walton.

The wealth of the Walton family now exceeds the wealth of the bottom 40 percent of American families combined, according to an analysis by the Economic Policy Institute.

But how can Walmart expect to continue to show fat profits when most of its customers are on a downward economic escalator?

Walmart should be unionized. So should McDonalds. So should every major big-box retailer and fast-food outlet in the nation. So should every hospital in America.

That way, more Americans would have enough money in their pockets to get the economy moving. And everyone – even the very rich – would benefit.

As Obama said, America cannot succeed when a shrinking few do very well and a growing many barely make it.

http://robertreich.org/post/41745594892

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  1. Dan8267


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    1   2:04pm Tue 29 Jan 2013   Share   Quote   Permalink   Like (7)   Dislike  

    The Walton family did not produce billions of dollars of wealth. The millions of Walmart employees produced billions of dollars of wealth. The Walton family simply siphoned off as much as they could from the productivity of their slaves, aka workers. That is the fundamental problem of capitalism. It does not reward productivity. It does not reward innovation. It does not reward hard work. It does not reward wealth production. It rewards power and control of distribution channels.

    Should the Walton family be millionaires? Sure. Should they be billionaires? Hell no. The cost of the Walton family being mutli-billionaires is for millions of workers to be impoverished. That's the fundamental problem with capitalism.

  2. futuresmc


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    2   2:25pm Tue 29 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    Dan8267 says

    That is the fundamental problem of capitalism. It does not reward productivity. It does not reward innovation. It does not reward hard work. It does not reward wealth production. It rewards power and control of distribution channels.

    What Walmart represents isn't capitalism, it's corporatism and crony capitalism. They and companies like them use their economic power to control the government at every level to gain unfair tax breaks and legislation that stymies both competition within the marketplace and workers trying to negotiate a living wage for their labor.

  3. Mick Russom


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    3   2:32pm Tue 29 Jan 2013   Share   Quote   Permalink   Like (4)   Dislike  

    No, how the banking cabal is using useful idiots to continue to exist.

    The real power brokers are never attacked. Sometimes an Alex Jones type or a Jesse Ventura does a half hearted or rambling drive by, but the middle class of this world has no vote, no representation and none of the things that would benefit the middle class will be implemented. Ever.

    Carlin articulated this is great detail in the 1990s. Others knew before. If you cant tell you're being screwed exactly at the right amount, its the exact amount you were programmed via the media, the TV, School, etc, to tolerate. You are taking it. Like champs, you middle class sheeple.

    The political stuff is simply kabuki theater that lets the 90% of the sheeple believe it means something.

    It doesnt. They distract from the theft that goes on by making sure the middle and lower classes are constantly at each others throats.

    You will not likely rise above, you will likely continue to live in the matrix simply because "its working for you right now". And now you've given into fear.

    Works like a charm.

  4. Mick Russom


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    4   2:34pm Tue 29 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    Dan8267 says

    That's the fundamental problem with capitalism.

    The other problem is that the others systems, besides maybe benign dictator/Good King, produce worse results.

    Pointing out the flaws in capitalism isnt hard. Its coming up with something that works better is.

    The banking cabal and the pesudo market is a large part of why things are messy.

    If your "solutions" works with the banking systems in place today, the middle and working classes will continue to be driven to a lower standard of living.

  5. mell


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    5   2:44pm Tue 29 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    Mick Russom says

    Dan8267 says

    That's the fundamental problem with capitalism.

    The other problem is that the others systems, besides maybe benign dictator/Good King, produce worse results.

    Pointing out the flaws in capitalism isnt hard. Its coming up with something that works better is.

    The banking cabal and the pesudo market is a large part of why things are messy.

    If your "solutions" works with the banking systems in place today, the middle and working classes will continue to be driven to a lower standard of living.

    Exactly. In fact, the only somewhat useful measure I have heard from (some of) those who defend the QE and bailout crap is to raise taxes on the (very) wealthy. I don't have much of a problem with that, before cutting off the banking cabal, QE and Zirp. If you must give money to the poor, raise taxes on the wealthy or impose usage-based fees and use that money, don't print it and/or borrow it from the fed!

  6. dublin hillz


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    6   11:07am Wed 30 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    There are many reasons why I voted for Barack in the election - the key reason is the hostility of reps against unions. I cannot support a party with their anti-labor stance. And I would also add that demolishing union jobs has a zero sum feel to it - for example a company may slash union jobs and hence increase its dividends - in that case, the wealth is "redistributed" from the employees that were laid off to the stockholders. That is also likely to increase share prices because the investors will assess that the company is now "more profitable" and has a more desirable "cost structure" due to loss of jobs. That will likely increase share price whether the company pays dividends or not. So in essence the elimination of uniion jobs is a form of wealth redistributin upwards. But that's not all. As was mentioned, consumer spending accounts for about 67-70% of GDP. Lets say that a unionized member making 60Gs lost their job. That person would have likely spent 50-55Gs at least to stimulate the economy. However the increase in share prices/dividend payout ratios that would have made investors 60K richer is extremely unlikely to result in their spending 50-55Gs in the consumer marketplace. Most likely that money will be still sitting in their investment holdings so that they don't realize a taxable gain when they sell. This is the microcosm of our economic issues.

  7. Dan8267


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    7   1:27pm Wed 30 Jan 2013   Share   Quote   Permalink   Like (4)   Dislike  

    futuresmc says

    What Walmart represents isn't capitalism, it's corporatism and crony capitalism

    Crony capitalism is, by definition, capitalism just like a purple car is, by definition, a car.

    Unfortunately, crony capitalism, American style capitalism, corporatism, or whatever you want to call it, is the ultimate and inevitable end state of any form of capitalism. All forms of capitalism eventually degenerate into what we have. Regulations and laws can, at best, delay the degeneration. They can't change the nature of the beast.

    What we really need is to abandon these analog, hierarchical economic systems and replace them with digital, distributed economic systems. We haven't create any new concepts in economics in thousands of years. All the 19th, 20th, and 21st century philosophies on economics have been refinements of and complexities added to Bronze Age economic models. How the hell we keep viewing economics in Bronze Age terms during the Internet Age is bewildering. If we just took 1% of what we do in software and applied it to economics, we'd come up with a system no economist would even recognize, and that's a good thing.

  8. Dan8267


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    8   1:32pm Wed 30 Jan 2013   Share   Quote   Permalink   Like (3)   Dislike  

    Mick Russom says

    The other problem is that the others systems, besides maybe benign dictator/Good King, produce worse results.

    Do not assume that the only possible alternatives are those that have already been tried. There have only been three, yes fucking three, economic systems ever tried by mankind: traditional, centralized, and market. I can think of an infinite number of other possibilities. Feel free to make a pie graph of the number of systems we've tried out of all the possible ones.

    Mick Russom says

    Pointing out the flaws in capitalism isnt hard. Its coming up with something that works better is.

    Coming up with better systems and ways of transitioning to them may be hard, but I've already done it. The problem is getting the fiat to make the change.

    The parasites benefiting from the inefficiencies built into the current system have too much political power.

    By the way, I do hard things for a living. That's what software developers do. We solve problems when others can't even understand the problem. Economics is just another domain, no different from any other.

  9. Dan8267


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    9   1:32pm Wed 30 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    Dan8267 says

    By the way, I do hard things for a living.

    That's what she said.

  10. Peter P


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    10   2:00pm Wed 30 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    Patrick may want to have a dedicated "TWSS" link next to Like/Dislike. ;-)

  11. Indiana Jones


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    11   5:13pm Wed 30 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    Wealthy Americans have no reason to uplift the lower or shrunken middle class in America. It is a global game and they have the tools to play the global game. If America goes down, the wealthiest are not going to be stuck here on a sinking ship, in fact, they will be the very first ones off the boat. America (the greatest country) is very much headed on a similar course as the Titanic (the greatest ship ever built) sailing right towards that iceberg.

  12. JodyChunder


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    12   5:26pm Wed 30 Jan 2013   Share   Quote   Permalink   Like (5)   Dislike  

    The problem with the Alex Jones types a that they take one ounce worth of a serious issue and then couch it in batshittery.

  13. David Losh


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    13   7:22am Thu 31 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    Dan8267 says

    What we really need is to abandon these analog, hierarchical economic systems and replace them with digital, distributed economic systems.

    That was really well said. I read a book called the Big Store about Sears, years ago. A guy figured out that the Real Estate holdings of Sears was worth more than the retail, manufacuring. So Sears could abandon it's manufacturing in favor of contract ing out the brand name of Sears, and buy where ever they wanted, from the lowest bidder.

    Long story short Sears, the brand of Sears, was worth more than the retailing. We're seeing the same thing today with Twinkies, and Wonder bread, with the Hostess Company.

    In the 1980s when guys would buy companies, take them apart, and sell them off in peices, that was no joke, it changed capitalism.

    WalMart is a great example of a retailer who can shrink spending, sell off brands, do deals, sell for less, and make huge profits. Now they want to do Health Care insurance, because they have a built in demand from the employees they have.

    Business has changed dramatically, and it's ridiculous to try to calibrate the economy in antique ecomic terms.

    I think Real Estate especially shouldn't be looked at in historic slogans of what it might be worth. We are in a global, new paradigm of housing, and how we should be looking at housing.

    The computer changed a lot of things. I can do business almost anywhere from here, in my home, where I used to have an office, and needed a secratary, because until 1994 I saw no reason to type.

    It's a wacky world out there with a lot of cash and unlimited opportunities.

  14. Mick Russom


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    14   7:32am Thu 31 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    David Losh says

    It's a wacky world out there with a lot of cash and unlimited opportunities.

    Its a lot of "cash" printed up by those in control for use by those in control.

    By separating the brand and the holdings from the retail and manufacturing you can basically run a megacorp without needing any employees for much of anything.

    its a bunch of bankers, finance and accounting. No innovation, no creation, nothing. Just holdings and brand. And really no liability, no legal, and none to employees.

    Sounds like a brave new world, only worse.

  15. Mick Russom


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    15   7:34am Thu 31 Jan 2013   Share   Quote   Permalink   Like   Dislike (1)  

    dublin hillz says

    the key reason is the hostility of reps against unions.

    Too bad this is too simple. Labor doesnt represent labor with a little l. They are corrupt quasi-governmental entities and work with and co-opt government to get power.

    The little l little people sheepl get table scraps at best.

    Putting Labor on a pedestal is naive and simplisitc.

  16. Mick Russom


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    16   7:35am Thu 31 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    Dan8267 says

    I can think of an infinite number of other possibilities.

    Despite the problems with the herd, it tends that herds of things, people, animals, etc, tend to group select the best way, or least worse way, of doing things.

    Sure we can imagine other ways of doing things, but until you try them, you dont know if they can work.

  17. Mick Russom


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    17   7:40am Thu 31 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    Dan8267 says

    That's what software developers do.

    I work in the biz. Smart developers rarely run companies due to hubris and underestimating the complexity of the world by believing the complexity of the software is representative. I like the sw-dev mind, but it is a part of a solution, the mindset is probably pretty ineffective in administering society as the software world constantly repeats mistakes and rediscovers things that were learned or solved long ago.

    In fact Linux shows that given a long enough timeline the simplicity of a new paradigm will get even more complex than the one i tried to replace.

    If money was a real thing and not printed up at the whim of a bankrupt government at least the sheeple could save up for the things they need.

    But pretty much everyone but the oligarchs live in a world of quicksand, and I dont see how we are going to wrest control from them without a major conflict, and then as usual, the real snakes take control during a transition, from the bolsheviks to egypt today, a power vacuum brings up the worst.

  18. Mick Russom


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    18   7:41am Thu 31 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    JodyChunder says

    The problem with the Alex Jones types a that they take one ounce worth of a serious issue and then couch it in batshittery.

    My guess is they (Alex Jones, Jesse, etc) are part og the NWO elite, and they are used to pervert the seeds of truth so that the sheeple see this and dismiss it. Eyes wide shut.

    Very clever. Turn truth into a conspiracy. Or do what they did with the kennedy assination - inject mountains of bullcrap to ccover the truth.

  19. finehoe


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    19   7:43am Thu 31 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    Mick Russom says

    They are corrupt quasi-governmental entities and work with and co-opt government to get power.

    This also describes corporations. What is the individual to do?

  20. Dan8267


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    20   11:01am Thu 31 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    Mick Russom says

    Despite the problems with the herd, it tends that herds of things, people, animals, etc, tend to group select the best way, or least worse way, of doing things.

    This is the first time I've heard the hypothesis that group think leads to global maximums. As this hypothesis flies in the face of everything known in game theory and artificial intelligence, please provide a proof or some empirical evidence.

  21. David Losh


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    21   8:04pm Thu 31 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    Mick Russom says

    Its a lot of "cash" printed up by those in control for use by those in control.

    It's fiat currency printed by those that can offer the most security.

    We have China, Germany, France, India, Russia, the United States, and Canada. I could include a few Arab countries to be fair, but that wouldn't be fair, at all. Too many Arab countries have huge reserves of other people's currency, gold, diamonds, and holdings, for safe keeping.

    I left Switzerland out intentionally, because we all trust them.

    Trust is the fiat in fiat currency.

    Where it gets interesting is which government can offer the most for the currency they print.

    We may call it welfare, where other countries call it socialism. The end result is who will benefit the most for the broadest base of taxation support.

    It's a war of economies.

  22. Mick Russom


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    22   4:51am Sat 2 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    dublin hillz says

    he key reason is the hostility of reps against unions

    -- FDR
    In 1937, Franklin Delano Roosevelt who had signed the NLRA into law, in a letter to the National Federation of Federal Employees, wrote

    All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service.... The employer is the whole people, who speak by means of laws enacted by their representatives in Congress.

    In the next paragraph he makes the point that collective action against the state is wholly unacceptable.

    Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees. Upon employees in the Federal service rests the obligation to serve the whole people, whose interests and welfare require orderliness and continuity in the conduct of Government activities. This obligation is paramount....Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable. It is, therefore, with a feeling of gratification that I have noted in the constitution of the National Federation of Federal Employees the provision that "under no circumstances shall this Federation engage in or support strikes against the United States Government.

    -- The AFL-CIO president said in the 50's.
    George Meany in 1955. Even as late as 1959, the AFL-CIO Executive Council was on record as believing that, "in terms of accepted collective bargaining procedures, government workers have no right beyond the authority to petition Congress – a right available to every citizen."

    -- The Socialist mayor of Milwaukee
    Wisconsin Frank Zeidler, former mayor of Milwaukee and noted labor supporter, wrote in 1969 that rise of unions in government work put a competing power in charge of public business next to elected officials and that Government unions, "mean considerable loss of control over the budget, and hence over tax rates".

  23. Mick Russom


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    23   4:52am Sat 2 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    David Losh says

    It's a war of economies.

    yes. And we've all been drafted. Food on the table is in escrow.

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