Book Notes: After Shock

Robert Reich's latest book, After Shock: The Next Economy and America's Future is a chilling assessment of America's economy today, and a succinct and accurate account of how we got to where we are. In essence, America's middle class is the victim of a broken contract:

"The fundamental problem is that Americans no longer have the purchasing power to buy what the U.S. economy is capable of producing. The reason is that a larger and larger portion of total income is going to the top. What's broken is the basic bargain linking pay to production. The solution is to remake the bargain.

"President Obama brought the economy back from the brink. His bank rescue and stimulus packages, combined with the Fed's low interest rates, prevented the Great Recession from turning into another Great Depression. But the nation has not recommitted itself to the basic bargain. The 2010 health reform legislation was a step in the right direction but small in relation to the overall challenge. Consequently, most Americans will continue to experience relatively high unemployment and flat or declining real wages. Economic growth will be hampered.

"Growth, it should be noted, is not an end in itself. It is a means to better lives for all, generating not only higher incomes but also making room for the consumption of public improvements that benefit all -- an atmosphere less polluted by carbon, good schools, better health care. Rapid growth also smooths the way toward the basic bargain: When the economy is growing nicely, the wealthy more easily accept a smaller share of its gains because they can still come out ahead of where they were before. Simultaneously, when everyone else enjoys a larger share, they more willingly pay taxes to support public improvements. It is a virtuous cycle. (emphasis mine)

"Slow or no growth has the reverse effect. Economic gains are so meager that the wealthy fight harder to maintain their share. The middle class, already burdened by high unemployment and flat or dropping wages, fights ever more furiously against any additional burdens, such as tax increases to support public schools or price increases resulting from regulations limiting carbon emissions. It is a vicious cycle."

Does this seem familiar? Consider this: after the Crash of 2008, the total wealth of America's four hundred wealthiest people remained at $1.27 trillion. This represents more than the estimated cost of achieving universal health care for the entire nation for the next decade.

Or this: In 2009, America's top 25 hedge fund managers raked in an average of $1 billion each!

Professor Reich goes on to describe alternative scenarios, including the possibility of restoring the "basic bargain." The question is, will we have the courage to remake the bargain?