The chasm of disparity between rich and poor is wider now than ever subjecting our economy to violent swings between boom and bust. The richest 5% of Americans now account for 37% of consumer purchases according to Moody’s Analytics. The solution is not a mere matter of income redistribution but more like tuning up the engine on a car so that it runs on all six cylinders rather than only two.
In a recent article for the New York Times, Robert B. Reich puts our economic situation into focus consistent with what we are hearing and seeing in the news. Mr. Reich, a professor at the University of California, Berkeley, is an oft quoted economist who writes for the New York Times, appears as a guest panelist on numerous political talk shows, and served in the Ford, Carter and Clinton administrations. He has authored several books, most recently “Aftershock: The Next Economy and America’s Future”. His look back at our economic history over the last one hundred years cites the least growth and deepest downturns (1928 and 2007) occurring when the very rich took a very large disproportional amount of disposable income. Our biggest growth cycle between 1947 and 1977 found the middle class growing, producing more jobs and pumping up demand. As more money was needed, women entered the workforce in greater numbers and homes were leveraged. A home was the one asset that always appreciated. What could go wrong? When the American real estate market hit bottom that one reliable asset knocked many people right out of their homes and others into the unemployment line.
So much more could be done by paying attention to the human capital in our society and our aging infrastructure. Germany’s growth during the last 15 years is a testament to continued emphasis on education, reasonable minimum wages escalating with inflation, and opportunities for apprenticeships to train workers. There is less disparity between the richest and the middle to lower class Germans and their unemployment rate has not increased since 2007. Unfortunately, the same cannot be said of their European neighbors or the United States.
The current political drivers of America’s economy aim to continue to make the rich richer with the lowest relative tax rates and the least regulation. These low tax rates initiated by President George W. Bush have yet to stimulate promised job creation. The hue and cry for more corporate tax cuts make no sense in a time when “the ratio of corporate profits to wages is now higher than at any time since just before the Great Depression” according to Reich and verified by the Bureau of Economic Analysis. Less regulation enabled the financial markets to do as they pleased to the detriment of the country. Yet even the richest 5% can benefit from a strong, innovative, and mobile middle class. An economy at a standstill helps no one. Employment is the key to providing the gas (revenues) to fuel the economic engine globally and here at home.
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