Web Letters | The Nation

Unequal distribution of wealth

The article by Robert Reich on the unequal distribution of wealth in the US is profoundly correct and on target. It is strongly supported by data in a recent book by Richard Wilkinson and Kate Pickett, The Spirit Level: Why Greater Equality Makes Societies Stronger. If you examine differences in average income between the rich and the poor in the United States and other countries throughout the world, there is a striking correlation between differences in average income and mental health and drug use, obesity, educational performance, teenage births, violence and respect for authority, crime and imprisonment, social mobility and confidence in government and social institutions. Clearly, the outcome for each of these parameters worsens in a manner that is directly related to difference in average income. Changes in that respect accelerated during the 1980s, and have continued to increase progressively from then to the present.

Purchasing power

This article is probably the clearest narrative of the underlying problem plaguing the US economy. The crux the of the matter is that corporates have the responsibility of creating consumable products/services but at the same time they also have the responsibility of creating purchasing power to buy those products. Unfortunately, that is not the view most organizations take. Their ownership structure is primed to maximize the gains to the shareholder rather than the society overall (all other stakeholders).

This in some ways is justified if we have to avoid the trap that communism leads us to. However, what it also does is to put the responsibility on the government to control this tendency and not allow it to become a destructive power. One huge problem that I see in the unfolding debate in the United States is the constant tussle between socialism and capitalism. In my view both must co-exist and balance each other. I fail to understand why is there is for one to win over the other.

Maybe a starting point to monitor progress is to create a ratio which measures the value of goods produced against the value of purchasing power an organization creates. The definition of purchasing power should be both in terms of absolute quantity of wages and its distribution over the organizational pyramid. This could then be used as a metric for regulating organizations. I do hope that this article gets the attention that it deserves.

NAFTA and the Clinton administration

The reasons we are in this economic mess is "free trade" legislation such as NAFTA, which forced American workers to compete with low-wage countries for jobs. American industries and the jobs they produced were shipped overseas to drive down wages. It was those wages and the disposable income they produced, that supported 70 percent of the American economy. You have no market without the income of ordinary wage earners.

The austerity budgets are a further attempt by the economic elites to drive down wages and attack pensions under the guise of fiscal restraint. We did not and could not have build our industrial base and the jobs they supported based on "free trade." Using Alexander Hamilton's "Report on Manufactures," trade barriers were enacted behind which our industrial base and the jobs they supported were created.

If you are serious about rebuilding that market, you will have get to get rid of this "free trade" nonsense and indulge in some governmental Keynesian spending. The financial markets are run by "clever" people who chase quick money with financial bubbles. They could not run a Main Street business that requires strategic planning!

Outsourcing and austerity polices are intended to create a two-class economic system consisting of the very rich and the working poor. These idiots have a "plan,"and, they will follow that plan even if it destroys the Main Street markets that support their wealth. Do American economists know anything about the economic history of their own country?

Reich doesn't understand

The basic facts of how technology change creates dislocations is pretty well on target. But this is just one of a series of this same process repeating yet again. Equivalents include that the 1880 to 1900 farming crisis (politically, the Populist Revolt,) was part of the basic foundation of the growth of manufacturing in the 1920s. Also, the migration of textile and shoe jobs from New England in the 1920s was a basis of the huge growth of electronics firms in the exact same towns like Nashua. Reich's fatal flaw is that he is looking at a time frame that is unrealistically far too short. Relatively soon, say, in fifteen to twenty years, the normal cycle is likely to bid up wages from labor shortages as new skills are required.