Monday, September 06, 2010

Reich: too much concentration of wealth among too few makes economy unsustainable

September 2, Robert Reich, a secretary of Labor during the Clinton years, aired an op-ed in the New York Times, “How to End the Great Recession.” The link is here.

His explanation is prosaic and telling. Technology has reduced the need for labor intensive jobs in the US and made it cheaper to ship jobs overseas. Wages fall. Families try to maintain their income with two working spouses, which works for a while. But then they go for easy credit. Eventually the credit bubble bursts, and everybody buys less. Hence, business depression, as people cannot afford to buy the goods and services that can be produced. Curiously, there is plenty while people go hungry.

In a way, this is nothing new. It’s not just the lessons of the Great Depression. All civilizations have had business depressions, even in ancient times. Civilizations comparable to ours on other planets in other solar systems will have business depressions.

What’s scary this time is that in other ways we are consuming beyond our means, leading to a world that is not sustainable. That’s particularly true with fossil fuels and with health care and elder care. With population replacement, the picture is mixed; affluent societies are no longer replacing their populations, but the poor are doing so, perhaps providing labor that is subject to abuse, eventually creating political instability and possibly eventually undermining democracy and commitment to individual rights. (This is the “demographic winter” argument.)

Reich is correct that when wealth is too heavily concentrated in a few people, economic mechanisms of recovery don’t work as well. An economic system where most people can earn a reasonable wage is more sustainable. Of course, wealthy people often say they have created new jobs with their own innovations, and in the area of “personal information technology” and social media that’s true, to the point that old mechanisms are seriously challenged further.

Time Magazine, with the September 6 issue, enriches the debate with a cover story issue, “Rethinking home ownership; why owning a home may no longer make economic sense,” by Barabara Kiviat.

But instead of this, I’ll give a reference to a Time essay by Joe Klein, “How can a democracy solve tough problems?”, link here. Hint: the Athenian kleroterion, where citizens are picked at random to make policy decisions every day, a kind of universal and expanded jury duty. What would the rules for Facebook use be in such a system?

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