After-Shock

Robert B. Reich's book After-Shock is a well-written and provocative analysis (published in 2010) of the US economic crisis by a former Secretary of Labor and professor of public policy. Reich argues that income distribution went badly askew in the late 1920's, and again in the past few decades:

... The share of total income going to the richest 1 percent of Americans peaked in both 1928 and 2007, at over 23 percent (see Figure 1, facing page). The same pattern held for the richest one-tenth of 1 percent (representing about 150,000 households in 2007): Their share of total income also peaked in 1928 and 2007, at over 11 percent. And the same pattern applies for the richest 10 percent, who in each of these peak years received almost half the total.

Income distribution was much less skewed in the years between 1940 and the mid-1980s, when the top 1 percent got 8-15% of national income. Reich analyzes these and other factors (e.g., growing debt and speculation), and concludes that they caused the Great Depression of the 1930s and the current Great Recession. He suggests that what has happened is not only immoral and unfair — it's also economically inefficient and likely to result in political instability, the rise of demagogues, and major social malfunctions. His proposed solutions, in brief:

• Reverse income tax: a major supplement to workers making less than $50k (in 2009 dollars) — and lower tax rates for families with incomes below $160k. The cost would be a bit over $600G.
• Carbon tax: $35 per metric ton of carbon dioxide or equivalent, rising to $115/MT. This would yield ~$600G/year when fully implemented, and would add ~$1/gallon to gasoline prices and ~6¢/kWh to the price of electricity.
• Higher marginal tax rates on the wealthy: rising from 40% on the top 5% of incomes (>$160k) to 55% on the top 1% (incomes >$400k). This would raise ~$200G and more than pay for the tax cuts on lower earners.
• Reform of the unemployment system: changes to encourage people who lose their jobs to learn new skills and find new jobs more quickly.
• School vouchers: a program focused on low-income families to help their children get better educations and do better when they grow up.
• College loans linked to subsequent earnings: essentially free higher education, paid for by taxing a percentage of the income earned by graduates in their first 10 years of employment, so that those who go into high-income occupations pay more and those who do social work, teaching, etc. pay less.
• Medicare for all: efficient high-quality national health care.
• More "Public Goods": "... a sizable increase in public goods such as public transportation, public parks and recreational facilities, and public museums and libraries. And they should be free of charge to users ...".
• "Money out of politics": "require that all political contributions go through 'blind trusts' so that no candidate can know who contributed what", along with tougher campaign-financing laws and limitations on partisan advertising.

Reich concludes his book:

... America has an enormous reservoir of resilience and common sense. Whenever we have faced a palpable crisis—a depression, an enveloping war, a profound threat to our civil liberties—we have put partisan politics and abstract ideology aside and gotten on with what needed to be done. Whenever we have faced the moral urgency of living up to our ideals—to recognize the rights of blacks, women, and the disabled, for example—we have risen to the occasion.

None of us can thrive in a nation divided between a small number of people receiving an ever larger share of the nation's income and wealth, and everyone else receiving a declining share. The lopsidedness not only diminishes economic growth but also tears at the fabric of our society. America cannot succeed if the basic bargain at the heart of our economy remains broken. The most fortunate among us who have reached the pinnacles of power and success depend on a stable economic and political system.. That stability rests on the public's trust that the system operates in the interest of us all. Any loss of such trust threatens the well-being of everyone. We will choose reform, I believe, because we are a sensible nation, and reform is the only sensible option we have.

(cf. BasementWorries (2002-06-15), SocialWealth (2005-05-18), ...) - ^z - 2011-03-30