Why does economic equality matter? Robert Reich, former Secretary of Labor and current professor, addresses three questions in a Berkeley class he teaches. What is happening in terms of the distribution of income and wealth, why, and is this a problem?
The answer to the last question is a resounding yes. Income inequality definitely does matter. It erodes our economy and jeopardizes democracy through social instability.
What makes an economy stable? A middle class.
What sustains an economy? Consumer spending. Seventy percent of the US economy is made up of consumer spending.
Who spends? The wealthy? Well, yes, but they can only spend (and consume) so much. The real engine of consumer spending—and the US economy—is the middle class.
And what has been happening to the middle class? It has been disappearing.
Reich maps the forces that lead to a middle class, consumption, and a strong economy: higher wages, increased consumption, increased employment, increased tax revenue, increased investment in education, better jobs. This virtuous cycle existed from 1947 through 1977. But then went off the rails.
What changed? Several things. Manufacturing moved abroad, which decreased the number of jobs and the wages of those jobs. The technical revolution meant that any good jobs required higher education. Financial deregulation revealed that the rules on which the market operated had changed.
Wages flatlined in the late ’70s. How have people coped with flattening wages? How have they tried to maintain the middle class standing of living? We tried three strategies. Women went to work. People worked more hours. People borrowed, often against their homes. But the number of women who can enter the workforce, the number of hours one can work, and the amount of debt one can accrue is finite.
The result? People are sliding out of the middle class into poverty.
Along with the flattening of wages since the late ’70s, costs—housing, health care, childcare, collage—have skyrocketed. Suddenly the chance to make it and move upward economically was no longer viable.
Forty percent of children born in poverty will not get out of poverty.
(The optimist in me cheers the sixty percent that escape.) What lifts people out of poverty? Higher education. Investing in people and investing in the workforce is crucial for a healthy economy.
But we stopped investing. In fact, we divested. Decreased taxes meant less revenue to put towards places of higher education. Individual people could not afford the increases in higher education or went into massive debt to acquire it.
So what is there to do? As Reich points out, the “free” market is actually run by rules. The government sets these rules. Recently the government has been deciding on rules that deregulate the financial sector, that recognize corporations as people and thereby allow massive amounts of money in politics, and that divest in people—the economic engine.
Does this mean that government is bad as we have been led to believe? No. It just means government needs to change the rules by which the market functions. As one wealthy entrepreneur in the movie mentioned, government needs to do this through “middle class economics” (i.e., economics focused on enabling the middle class), not “trickle down economics”.
Is Inequality for All an informative movie? Yes. Will it get you thinking about issues that helped lead to the crisis of 2008? Yes. Will it help change things? Maybe. First you need to recognize and understand the problem before solving it. Robert Reich in Inequality for All seeks to inform and get you thinking, whatever your political persuasion.