Former Sec'y of Labor Reich: Don't Listen to the Cheerleaders, Main Street Economy Isn't Improving

[Amerigo Vespucci]

Robert Reich
Former Secretary of Labor, Professor at Berkeley
Posted: June 10, 2010 02:33 PM

Don't Listen to the Cheerleaders, the Main Street Economy Isn't Improving

http://www.huffingtonpost.com/robert-reich/dont-listen-to-the-cheerl_b_607854.html

Today's most important economic news: U.S. household debt fell for the seventh straight quarter in the first three months of 2010 as Americans continued to respond to the recession's fallout.

But like all economic news, its significance depends on where you're standing -- whether you're a typical American or someone at the top.

The common wisdom is that excessive debt-financed spending was one of the causes of the recent recession, so the news that household debt is dropping is being celebrated by business cheerleaders as reason to believe we're on the mend.

Baloney. The reason so many Americans went into such deep debt was because their wages didn't keep up. The median wage (adjusted for inflation) dropped between 2001 and 2007, the last so-called economic expansion. So the only way typical Americans could keep spending at the rate necessary to keep themselves -- and the economy -- going was to borrow, especially against the value of their homes. But that borrowing ended when the housing bubble burst.

So now Americans have no choice but to pare back their debt. That's bad news because consumer spending is 70 percent of the economy. It helps explain why we so few jobs are being created, and why we can't escape the gravitational pull of the Great Recession without far more government spending.

It's also a bad omen for the future. The cheerleaders are saying that for too long American consumers lived beyond their means, so the retrenchment in consumer spending is good for the long-term health of the economy. Wrong again. The problem wasn't that consumers lived beyond their means. It was that their means didn't keep up with what the growing economy was capable of producing at or near full-employment. A larger and larger share of total income went to people at the top.

[yourout]

1. the 1st KnR.

[jwirr]

2. He is right about personal debt. I am unfortunately a prime example. nt

[JBoy]

3. Time to increase taxes at the top.

The votes are there. The wealthy should be terrified at the untapped power of the middle and lower income electorate.

[Traveling_Home]

9. and pass a law that the wealthy can't move!! nt

[OhioChick]

4. K&R n/t

[Mojambo]

5. Reich nails it BIG TIME

"The problem wasn't that consumers lived beyond their means. It was that their means didn't keep up with what the growing economy was capable of producing at or near full-employment."

Wages, wages, WAGES!

[Amerigo Vespucci]

10. Exactly

A percentage of consumers have always lived beyond their means. That's not news, that's just life..

When the wealth was shifted to the top, jobs sent overseas, wages dropped, "productivity gains" were touted (one person doing the job of two people for one salaray while CEOs collected 7-figure bonuses) etc, the majority...decent, hard-working people who have always managed to stay out in front of their debt...got kneecapped.

[Catherina]

6. No worries Robert. Nobody with a brain cell takes the cheerleaders seriously n/t

[amborin]

7. K&R

[Tansy_Gold]

8. Reich is wrong on one point at least

Job aren't being created in the U.S. because they're being moved to cheap labor markets. And they're being moved to cheap labor markets so the upper-income, non-working elite class can make more money without lifting a finger. it's not enough just to tax the wealthy on their unearned incomes; the only "cure" for the economy is to tax the companies that move manufacturing jobs into cheap labor markets.

It's all about jobs. It always has been, and it always will be.




Tansy Gold

[KonaKane]

11. Ours is.

I can't speak for mainstreet everywhere, but about a year ago this month we had a business closing here in town or in South Kona every few days. A lot of empty, boarded up shops and restaurants were appearing along Alii (the main drag). Starting a few months ago, I noticed new businesses popping up for the first time in a long time. They keep coming, too.

This sure isn't a bellweather for the whole nation, but I'm just telling you what's happening in my neck of the reef.

[Amerigo Vespucci]

13. That's half the issue right there...

...there are pockets where things are improving, pockets where they're getting worse, and pockets where things are stable.

When the media reports on the "getting worse" stories, they're accused of "Chicken Little" reporting.

But by the same token, "pockets" don't represent a nation, whether they are "good" or "bad" pockets.

I'm all over Silicon Valley and with a few exceptions, even my clients who have been fortunate enough to remain stable have that look on their face like someone just took them out back and beat their ass.

I have one client who was forced to decalre bankruptcy late last year. She got to keep her home and car and is grateful for that, but everything else? Gone, baby.

And at the other end of the scale, I have one client who has been on THREE two-week vacations to Maui this year alone and is planning his FOURTH next month.

All of the other clients in the middle are grateful for what they're earning while looking back to a time when they had a lot more money and a lot more freedom to live their lives the way they wanted to live them.

From the Silicon Valley point of view, I'm with Reich on this one.

[pipoman]

12. Robert Reich

lost me years ago while Sec. of Labor, fully pimping NAFTA and GATT/WTO as great for US labor...what a fraud...what a corporate lap dog....don't give a shit what he has to say or whether I agree or disagree with him..his policies contributed to the condition of main street today..