America unequal

Reich, a labour secretary in the Clinton administration, explains how rising income inequality and the demise of the middle class is causing so many Americans to suffer.
President Barack Obama recently took up some of these themes in his second inaugural address. It is worthwhile to examine the message of Inequality for All more closely. The film’s charts are not boring, but actual show-stoppers: Reich makes the point that the mid-1940s to the mid-1970s were decades of relative income equality, which corresponded with overall affluence. (The last time that income inequality in the United States was as deep as it is now was immediately before the 1929 stock-market crash).
But the last 20 years have witnessed a spike in the difference between the top earners and the middle class: the “one percent” really are living in a stratospheric bubble. As the journalist Chrystia Freeland has recently argued, a meta-class of global “plutocrats” is emerging – people who have little in common with the rest of us.
Inequality for all makes the case that the wealthiest one percent simply cannot consume enough, no matter how hard they try, to generate the revenue that an affluent middle class could. The secret to a strong economy is to invest in education, strengthen household incomes with a decent minimum wage and strong unions, and raise skills levels, thereby generating sustained consumer demand. This, Reich argues, is the “virtuous cycle” that we see in strong economies such as Germany, in which workers are highly skilled and educated, unions are protected, and the middle class has leisure and money to spend.
Reich also persuasively describes the “vicious circle” – with falling wages undermining consumer demand and leading, in turn, to shrinking output – that has made the US economy fragile and boosted social instability. He analyzes a middle class that is skating on the thinnest of ice, with employment coming at the price of lower wages and benefits. Moreover, millions of middle-class American homes are “underwater” (the mortgage is more than the home’s underlying value).
The film interviews one of the rich, a charming millionaire who owns a pillow company and points out that he and his fellow rich guys and their families simply cannot spend enough to offset the lost demand of a strong middle class. In fact, the richest save rather than spend their dollars, and send them around the globe in transnational hedge funds rather than using them to create more jobs at home.
So, the “trickle-down” story that the middle and working class are told every election cycle in America – that cutting wealthy people’s taxes means more job creation in America – is simply not true. Those wealthy people’s untaxed dollars stay in hedge funds and out of the revenue stream. The cost to social programmes, infrastructure, and public schools intensifies stress on the middle class, who end up poorly educated, work long hours in dual-career ill-paid jobs, lack leisure time and money to spend, and so on.
Are we stuck with this vicious circle, which advocates of laissez-faire globalisation have told us for 15 years is an inevitable consequence of the “invisible hand”? Or could Reich’s retro prescriptions, which he has affirmed for decades, be taken up again? Could they bring back the affluent years of the early Clinton era, when it seemed as if domestic policies could actually influence and even benefit the US economy?
I asked Reich what three policy prescriptions he would give to an American president and Congress today, especially drawing on the lessons of other countries. “I’d like to see what we did so successfully in the first three decades after World War II, when prosperity was widely shared.”
That means large investments in public education, including higher education; substantial investments in infrastructure, funded by a highly progressive tax whose top marginal effective rate never fell below 50 percent; and strong labour unions.