HOW TO FIX THE ECONOMY: INVEST IN THE MIDDLE CLASS

Nobody makes economics more accessible to the layman and makes more sense on the subject than Robert Reich. A simple explanation that clearly lays out the problem and the obvious solutions:

Why The Economy Can’t Get Out of First Gear

by Robert Reich/ RobertReich.org/ June 12, 2012

Rarely in history has the cause of a major economic problem been so clear yet have so few been willing to see it.

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.

If you have any doubt, just take a look at the Survey of Consumer Finances, released Monday by the Federal Reserve. Median family income was $49,600 in 2007. By 2010 it was $45,800 – a drop of 7.7%.

All of the gains from economic growth have been going to the richest 1 percent – who, because they’re so rich, spend no more than half what they take in.

Can I say this any more simply? The earnings of the great American middle class fueled the great American expansion for three decades after World War II. Their relative lack of earnings in more recent years set us up for the great American bust.

Starting around 1980, globalization and automation began exerting downward pressure on median wages. Employers began busting unions in order to make more profits. And increasingly deregulated financial markets began taking over the real economy.

The result was slower wage growth for most households. Women surged into paid work in order to prop up family incomes – which helped for a time. But the median wage kept flattening, and then, after 2001, began to decline.

Households tried to keep up by going deeply into debt, using the rising values of their homes as collateral. This also helped – for a time. But then the housing bubble popped.

The Fed’s latest report shows how loud that pop was. Between 2007 and 2010 (the latest data available) American families’ median net worth fell almost 40 percent – down to levels last seen in 1992. The typical family’s wealth is their home, not their stock portfolio – and housing values have dropped by a third since 2006.

Families have also become less confident about how much income they can expect in the future. In 2010, over 35% of American families said they did not “have a good idea of what their income would be for the next year.” That’s up from 31.4% in 2007.

But because their incomes and their net worth have both dropped, families are saving less. The proportion of families that said they had saved in the preceding year fell from 56.4% in 2007 to 52% in 2010, the lowest level since the Fed began collecting that information in 1992.

Bottom line: The American economy is still struggling because the vast American middle class can’t spend more to get it out of first gear.   (Continued Here)

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2 Responses to HOW TO FIX THE ECONOMY: INVEST IN THE MIDDLE CLASS

  1. Those interested in Gary’s work fighting the “Corpocracy” should access http://www.uschamberofdemocracy.com/index.html, where he has all kinds of excellent information and strategies for reclaiming democracy from our corporate masters.

  2. Subject: My post mortem of why “Economic Katrina” happened vs Robert Reich.

    In my book, The Devil’s Marriage: Break Up the Corpocracy or Leave Democracy in the Lurch I give a short post mortem of the 2n Great Depression, or what I call Economic Katrina for two reasons; it left Wall St high and dry and innundated Main Street, and the free-market ideologue’s deciples swooped into New Orle4ans following Hurricane Katrina to apply what Friedman called the “shock doctrine.”

    My postmortem is this: “—the meltdown was caused by a conflation of factors that included: casino banks, Friedman’s free-market ideology; a hands-off government; predatory lenders; gullible borrowers; the repackaging and selling of shaky loans as securities; the heady times of easy money and overspending; and incredible booty (astronomical salaries/bonuses) for the masterminds and deal makers on Wall Street even as Main Street was going broke.”

    Reich served under Clinton who had a big hand in letting Main Street drown.

    Reich’s remedy of more money for the middle class is much too insufficient a solution because it doesn’t get at all the causes. I’m not going to take time here to quote my entire chapter, Ending Undemocratic Capitalism, but ending it is exactly a big part of the solution.

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