Sunday, January 9, 2011

Wisdom from our Favorite Guest Blogger Steven Head

The holidays are over and even though the news says American's set a record for holiday spending, it does not feel like the good times are back. Friends without jobs, others with a mortgage for more than the house is worth, and even reports the Wall Street financial houses are not giving bonuses as big as last year. Where did economic normal go and when will it come back?

Robert Reich, University of Berkley political economist and Secretary of Labor under Bill Clinton, has taken a look at where we are and how we got there in a book titled After Shock. This is a compact volume written in easy to digest big picture terms about the recession. Starting with insights from the Great Depression, late 1920's and 1930's for those with a puzzled expression, the Great Prosperity, up to today, and thoughts about tomorrow.

To put it simply, Reich points out in both the Great Depression and the 2007 financial collapse, the fruits of productivity were disproportionately going to a small group of people, the top 2% of earners, while earnings for others were standing still or going backwards. He reviews the history of income tax rates which should astonish. And he explains how many of us have maintained our lifestyle despite static real earnings and how those techniques no longer work.

Reich paints a picture of a possible future where the tea party, or similar movement, pushes the dominant political parties to the sidelines and an independent party takes over the Presidency and both houses of Congress. The predicted results are not favorable but the dynamics as to how it happened are very logical.

The one place in the book where he lost me was his solutions to our situation which were very wonky and overly detailed. Reich finishes on a hopeful note, believing elected officials will make the necessary adjustments to keep the economy functioning and the US part of the global economy. Although I wonder what he would think of the recent ransom demand that the two 2% be extended lavish tax breaks so families hit by the 8.5 million lost jobs can continue to get unemployment subsistence, 9/11 workers be given health benefits, and a small increase in the federal deficit to finance the government to around April Fools day. Coincidence?

This is not a feel good book but one filled with fact and information necessary to talk intelligently about the economy and where the country is headed. I read another article recently that mentioned how in Europe it is hard to be wealthy since the average person views the rich with anger and resentment. But in the US most people admire the super rich, believing they will one day be among that class. After Reich's book, a reader might come to a different conclusion.
*****Thanks Steve. And thanks for the updated photo!

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