Magazine article The Futurist

Surviving the Great Recession's Aftershocks: Too Much Wealth in the Hands of Too Few Will Result in Less for All, Warns a Former U.S. Labor Secretary, Who Offers a Prescription for Rebalancing Wealth

Magazine article The Futurist

Surviving the Great Recession's Aftershocks: Too Much Wealth in the Hands of Too Few Will Result in Less for All, Warns a Former U.S. Labor Secretary, Who Offers a Prescription for Rebalancing Wealth

Article excerpt

Aftershock: The Next Economy and America's Future by Robert B. Reich. Knopf. 2010. 192 pages. $25.

The inequality of wealth in the United States will result in a stagnant economy and political turmoil by the year 2020, argues public-policy scholar and former U.S. Labor Secretary Robert B. Reich in Aftershock. Millions of deeply indebted Americans will embrace isolationism, reject both big government and big business, and sever America's ties with the rest of the world, he predicts.

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To illustrate the size and scope of this disaster, Reich sets up a credible and horrifying scenario: The year is 2020. The recently elected president, Margaret Jones of the Independence Party, is about to set forth on a legislative agenda reflecting the frustrations of the broad, outsider constituency that elected her. Her objectives: a freeze on legal immigration and the swift deportation of all illegal immigrants; increased tariffs on foreign goods; prohibition against foreign investment; withdrawal from the World Bank, the United Nations, and other international organizations; and a default on the U.S. debt to China.

The results are immediate.

"On November 4, the day after Election Day, the Dow Jones Industrial Average drops 50 percent in an unprecedented volume of trading," writes Reich. "The dollar plummets 30 percent against a weighted average of other currencies. Wall Street is in a panic. Banks close. Business leaders predict economic calamity. Mainstream pollsters, pundits, and political consultants fill the airwaves with expressions of shock and horror. Over and over again, they ask: How could this have happened?"

This aftershock, says Reich, is a direct result of Americans failing to learn the lessons of the Great Depression, thus setting the country up on a course for yet another economic crisis. The most important of these lessons is that too much money resting in the hands of too few people cannot grow an economy. What's needed is an orderly division of income spread across lower, middle, and upper classes, he argues. When income (hence, wealth) is too concentrated among elites, the economy atrophies and declines.

It's a classic Keynesian argument that would ring shrill and tinny if we didn't live in such Dickensian times. Consider that, prior to the Great Recession of 2008, income and wealth inequality in the United States were higher than they had been any time in the recent past other than just before the Great Depression, with the top 1%--those with incomes more than $380,000 per year--owning roughly 23% of the assets. Median wages for workers have been stagnant since the 1970s, at about $45,000 a year, despite the fact that the economy itself is much larger than it was three decades ago. Those gains mostly went to those at the top.

This present situation is, of course, not without historic precedent. In the 1700s, wealth inequality in the American colonies was similar to that of the United States today. The situation was particularly dire in Boston, where the top 5% of the population controlled 25% of the wealth in the 1720s (this would become 50% by 1770). Too often we forget that the decades leading up to the American Revolution were marked by the burning of rich merchants' shops, occasional riots, and massive resentment over the issue of debt and wealth inequality, as chronicled by the late historian Howard Zinn in A People's History of the United States: 1492-Present.

Today's wealth inequality is a moral failing, says Reich, but it's also an operational malfunction at the root of many of America's other problems. An economy that is growing across all income levels encourages people to buy more things like new cars, consumer electronics, bachelor's degrees, bigger houses, and the like. Instead, over the last two decades, a larger portion of the wealth went to a smaller group; as a result, Americans were forced to resort to a number of coping mechanisms to continue to consume at ever higher levels. …

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