Friday, October 8, 2010

Aftershock: The Next Economy and America’s Future

Many years ago when I was in college (back when dinosaurs roamed the earth), there were no required courses other than the ones for your major. You better believe I didn’t crack a math or science text for four years. But, once I graduated and entered the real world, I discovered that there is a reason why those courses are taught. Contrary to what many disgruntled students will tell you, that knowledge is relevant to everyday life.

Take economics, for instance. I didn’t take it in school, but I started reading up on it afterwards. It was the era of WIN (Whip Inflation Now) and the Laffer Curve and waiting breathlessly for the money supply number. What did all of this mean? I slogged through economics tomes written for a popular audience, reading and re-reading the dense prose only to come away with a vague notion of the concepts that the authors were trying to convey.

I don’t know if some of that knowledge finally began to sink in or if economists are dumbing down their books but lately I seem to be able to finally grasp economic theories. And they are all theories. Back in the Reagan years, Keynesian economics was declared dead. In the aftermath of The Great Recession, Keynes is looking pretty prescient.

In his book, Aftershock, Robert B. Reich offers his own theory as to the cause of the Great Recession. He lays out the evidence that the concentration of wealth in the hands of the top one percent of the population, leaving the middle class with stagnant or falling incomes forcing Americans to pile on debt just to stay even, was the root cause of the debacle that is still affecting our economy today. He points out that the same conditions existed prior to the Great Depression.

Everyone seems to be able to agree that the only way to get the economy moving again is if the middle class starts borrowing and spending again. The only way that that is going to happen is if we can put everyone back to work. Reich disagrees, pointing out that full employment didn’t help the middle class before the Great Recession because the jobs that were available didn’t pay as much as the jobs that had been outsourced. The same is true today. Many people who have found work, are working part-time or working at jobs that pay significantly less than the jobs they lost. He devotes his last chapter of Aftershock to his suggestions for fixing the structural problems of our economy.

Like the old Chinese curse, we live in interesting times. As we struggle to find a way to kick-start our economy, we would do well to remember that the Great Depression dragged on for years until the government was willing to go deeply into debt to fund the wartime economy which offered many good paying middle class jobs and launched decades of prosperity.

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