Read Online Aftershock: The Next Economy and America's Future by Robert B. Reich - Free Book Online Page B
Authors: Robert B. Reich
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American industry—into its master, demanding short-term profits over long-term growth, and raking in an ever-larger portion of the nation’s profits. Between 1997 and 2007, finance became the fastest-growing part of the U.S. economy. The gains reaped by financial executives, traders, and specialists represented almost two-thirds of the growth in the gross national product.By 2007, financial and insurance companies accounted for more than 40 percent of American corporate profits and almost as great a percentage ofpay, up from 10 percent during the Great Prosperity. Before and after the bubble burst, the biggest Wall Street banks awarded tens of billions of dollars in bonuses.In 2009, the twenty-five best-paid hedge-fund managers together earned $25.3 billion, an average of $1 billion each. Henry Ford’s legacy was a company that no longer made its money exclusively from selling cars;in 2007, Ford’s financial division accounted for more than a third of the company’s earnings.
As the financial economy took over the real economy, Treasury and Fed officials grew in importance. The expectations of bond traders dominated public policy. And the stock market became the measure of the economy’s success—just as it had before the Great Depression.
Why did the pendulum swing back? Why didn’t America counteract the market forces that were shrinking the middle class’s share of the American pie? Answers to these questions offer clues about when and how the pendulum will swing in the other direction.
Some argue that there was simply no need for government intervention. The economy did better on its own, those people say, without so much government and with lower taxes on the rich. They point to the great expansion of the 1980s and the long recovery of the 1990s, and to the wildly exuberant bull market of the era. (They blame the Great Recession on the fact that too many people got mortgage loans who had no business getting them, and on too much middle-class debt overall.)
This argument is bunk. It equates the stock market with the economy, and turns a blind eye to the revocation of the basic bargain. The argument does not acknowledge the consequences for an economy when the middle class lacks the means to buy what it produces.
Others see the reversal of the pendulum as the inevitable result of declining confidence in government.In their view, the era that began with the Vietnam War and continued with the Watergate scandal culminated in the tax revolts and double-digit inflation of the late 1970s—which, according to presidential candidate Ronald Reagan, occurred not because Americans were living too well but “because the government [was] living too well.”
Confidence in government did drop, but proponents of this view have cause and effect backward. The tax revolts that thundered across America starting in the late 1970s were not so much ideological revolts against government—Americans still wanted all the government services they had had before, and then some—as against paying more taxes on incomes that had flattened. When government services consequently deteriorated and government deficits exploded, the public’s growing cynicism was confirmed. Furthermore, the inflation of the 1970s wasn’t due to government spending. It was the result of a twelvefold hike in world oil prices (engineered by the oil cartel), and a drop in value of the dollar. When inflation began to accelerate, federal spending was only one percentage point higher as a proportion of gross domestic product than it had been in the first half of the 1960s.
The real reason for the reversal of the pendulum had to do with power. As income and wealth became concentrated in fewer hands, politics reverted to what Marriner Eccles described in the 1920s when people “with great economic power had an undue influence in making the rules of the economic game.” With hefty campaign contributions, and platoons of lobbyists and public relations flacks, the
As the financial economy took over the real economy, Treasury and Fed officials grew in importance. The expectations of bond traders dominated public policy. And the stock market became the measure of the economy’s success—just as it had before the Great Depression.
Why did the pendulum swing back? Why didn’t America counteract the market forces that were shrinking the middle class’s share of the American pie? Answers to these questions offer clues about when and how the pendulum will swing in the other direction.
Some argue that there was simply no need for government intervention. The economy did better on its own, those people say, without so much government and with lower taxes on the rich. They point to the great expansion of the 1980s and the long recovery of the 1990s, and to the wildly exuberant bull market of the era. (They blame the Great Recession on the fact that too many people got mortgage loans who had no business getting them, and on too much middle-class debt overall.)
This argument is bunk. It equates the stock market with the economy, and turns a blind eye to the revocation of the basic bargain. The argument does not acknowledge the consequences for an economy when the middle class lacks the means to buy what it produces.
Others see the reversal of the pendulum as the inevitable result of declining confidence in government.In their view, the era that began with the Vietnam War and continued with the Watergate scandal culminated in the tax revolts and double-digit inflation of the late 1970s—which, according to presidential candidate Ronald Reagan, occurred not because Americans were living too well but “because the government [was] living too well.”
Confidence in government did drop, but proponents of this view have cause and effect backward. The tax revolts that thundered across America starting in the late 1970s were not so much ideological revolts against government—Americans still wanted all the government services they had had before, and then some—as against paying more taxes on incomes that had flattened. When government services consequently deteriorated and government deficits exploded, the public’s growing cynicism was confirmed. Furthermore, the inflation of the 1970s wasn’t due to government spending. It was the result of a twelvefold hike in world oil prices (engineered by the oil cartel), and a drop in value of the dollar. When inflation began to accelerate, federal spending was only one percentage point higher as a proportion of gross domestic product than it had been in the first half of the 1960s.
The real reason for the reversal of the pendulum had to do with power. As income and wealth became concentrated in fewer hands, politics reverted to what Marriner Eccles described in the 1920s when people “with great economic power had an undue influence in making the rules of the economic game.” With hefty campaign contributions, and platoons of lobbyists and public relations flacks, the
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