Tuesday, June 21, 2011

(VIDEO) Robert Reich explains the economy and why the recovery is slow in two minutes


Below is an important video I encourage everyone to watch…conservatives and liberals alike.  This short, two-minute video contains an analysis of the economy and why the recovery has been so weak.   It was made by world-renowned economist Robert Reich, who has served three presidents, including serving as President Bill Clinton’s Secretary of Labor.  He is currently the Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California, Berkeley.

Analysis after the break...

 You don’t get much more accredited than Robert Reich.  

Reich attributes the weak economy to a weak middle class.   There hasn’t been healthy income growth in 30 years for the middle class. 

Hmmm…early 1980s…Reaganomics anyone?

Instead, the increased wealth has went to the “super-rich,” which has resulted in high unemployment and a weak recovery.

Point #1 – Since 1980 the United States economy has doubled in size, but adjusting for inflation most people's wages have barely increased 

Examiner.com points out that in 1980, the GDP was $5.908 trillion.  Currently, our GDP is approximately $13.441 trillion. 

Reich informs that these gains have not been spread out evenly.  Most workers incomes have remained stagnant relative to inflation...along with American’s purchasing power.

Point #2 – Almost all the gains have gone to the super rich

The top 1% of income earners now take home 20% of the overall income.  This leads to the fact that 40% of the wealth in America now belongs to the top 1%.  The top 20% owns 85% while earning 60% of the income in America.

Point #3 – The rich use their wealth to gain political power

The top tax rate on the richest American’s has gone down from 70% in 1980 to its current rate of 35%...and this does not even include the loopholes corporations love to exploit.  Some Republicans, including presidential hopeful Tim Pawlenty, would like to see the top rate decreased to 25%!  Examiner notes that, overall, the richest 1% of Americans pay an average tax rate of 17%.

And he didn’t even mention the Citizen’s United case.

 Point #4 – The lower tax rates lead to higher budget deficits


“As a result of lower tax rates the government revenue is now down to 15% of the overall GDP in America.  In 1980 taxes accounted for 19% of the overall GDP in America.  Budget shortfalls are causing cuts to programs which tend to benefit the poor and middle class including education and welfare programs The United States infrastructure system has been decaying due to a lack of funding.”

Point #5 – The middle class is divided because of scarcity

Reich points out that as scarcity becomes more prevalent, groups tend to compete over the limited resources -- which leads to people blaming labor unions and such for the poor economic situation as opposed to the tax system or income inequality -- even though as union membership declines, so does middle-class income. 

Which brings us back to an old graph:

I say stop complaining about unions getting better wages and benefits and join one!  Why blame the people fighting for better wages and benefits instead of the people who actually control them?

Which leads us to Point #6

Point #6 – The middle class no longer has the purchasing power to fuel the economy

Consumer spending, along with investment, is a major factor in what drives the economy.  Many leading economists believe that it accounts for 70% of the overall economic activity.  Middle-class citizens do not have the disposable income to help drive an economy, which leads to less production, which leads to layoffs because of the lack of demand. 

It’s pretty simple if you just think about it.  

This then creates a cycle, as laid off workers have less disposable income, thus leading to more of a reduction in demand.

So there you have it:  World-Class analysis from a World-Class Economist.  These are the guys we should be listening too, because, you know, they actually know what they are talking about…not Glen Beck and the likes with their “divine inspiration.”

Like they say, the facts have a liberal bias.