Saturday, June 3, 2017

Book Review: 'Aftershock: The Next Economy and America's Future' by Robert Reich

Review by Susan Gardner
Aftershock: The Next Economy and America's Future 
By Robert Reich 
Hardcover, 192 pages, $25.00 
September 2010
One way to understand the paradox is loss of generational memory. While the trauma of the Great Depression echoed in the memories of people who came to adulthood in the 1930s (and who carried its lessons into the 1940s and 1950s), their children became adults during the Great Prosperity, and took it for granted. And their grandchildren, born during the Great Prosperity, had no actual, palpable memory of their grandparents' experience of a fallible and unreliable market offset by a strong and reliable government. When this last generation became adults (from around the end of the 1970s onward), all they recalled was the failure of government and the apparent success of the market. This made government seem particularly susceptible to the seductive rants of the free-marketers, who wanted to blame government for the economy's failings. Moreover, they had no clear memory of a society whose members were all in it together. They witnessed instead an economy in which, increasingly, each of us was on his own.

Robert Reich's compact and concise Aftershock takes precise aim at the one overarching, systemic problem that underpins America's woes: the breaking of what he terms "the basic bargain"—that working and middle-class Americans would share with the wealthy in the prosperity created by their own increases in productivity and profits. He summarizes the goals of this "basic bargain" as being designed to:
...maintain aggregate demand so that the productive capacity of an economy doesn't outrun the ability of ordinary people to buy, which would give businesses less incentive to invest. Equally important, enforce a basic bargain giving workers a proportionate share of the fruits of economic growth. The two went hand in glove. When the basic bargain is maintained, the entire economy is balanced. When the basic bargain breaks down, government must step in to reinforce it, or the economy will shrink.
America learned this lesson in the Great Depression. We also learned it in the Great Prosperity that followed. After that, we forgot it. Now and in years to come we must remember it.
The bargain has been steadily eroded over the past few decades, and it is at the heart of our economic failure. If it continues, Reich writes, it will threaten our political stability. And in one of the most intriguing portions of the book, worth quoting at length, he imagines one scenario in which a bleak, stern new party emerges ten years hence, combining desperate remedies across the political spectrum:
The platform of the Independence Party, as well as its message, is clear and uncompromising: zero tolerance of illegal immigrants; a freeze on legal immigration from Latin America, Africa and Asia; increased tariffs on all imports; a ban on American companies moving their operations to another country or outsourcing abroad; a prohibition on "sovereign wealth funds" investing in the United States. America will withdraw from the United Nations, the World Trade Organization, the World Bank, and the International Monetary Fund; end all "involvements" in foreign countries; refuse to pay any more interest on our debt to China, essentially defaulting on it; and stop trading with China until China freely floats its currency.
Profitable companies will be prohibited from laying off workers and cutting payrolls. The federal budget must always be balanced. The Federal Reserve will be abolished.
Banks will be allowed only to take deposits and make loans. Investment banking will be prohibited. Anyone found to have engaged in insider trading, stock manipulation, or securities fraud will face imprisonment for no less than ten years.
The crackdown on corporations in such a scenario would probably garner a lot of support from the left, while the immigration policies would appeal to the right. Whether such a mix of bitter isolationist policies would truly appeal to a broad enough base to establish real power is debatable, but certainly some sort of scorched-earth platform is conceivable in the future if the imbalance between the profits of the super-rich (defined mostly the top tenth of one percent) and the middle and working classes' failure to thrive is not remedied.
Over and over throughout the book, Reich circles and returns to the underlying problem of the entire current financial structure: the wide, glaring disparity of income between the rich and the middle and working classes. While Wall Street wants to blame a reckless, overspending working class (and the poor) for bringing on the recession, the responsibility lies elsewhere.
The problem was not that Americans spent beyond their means but that their means had not kept up with what the larger economy could and should have been able to provide them. The American economy had been growing briskly, and America's middle class naturally expected to share in that growth. But it didn't. A larger and larger portion of the economy's winnings had gone to people at the top.
This is the heart of America's ongoing economic predicament. We cannot have a sustained recovery until we address it. It is also our social and political predicament. We risk upheaval and reactionary politics unless we solve it. The central challenge is not to rebalance the global economy so that Americans save more and borrow less from the rest of the world. It is to rebalance the American economy so that its benefits are shared more widely in America, as they were decades ago. Until this transformation is made, our economy will continue to experience phantom recoveries and speculative bubbles, each more distressing than the one before.
How do we go about this necessary economic transformation to avoid the reign of this fictitious and ominous Independence Party that Reich has postulated? His solution lies in a list of fairly specific prescriptions:
  • A reverse income tax: money added to middle-class paychecks by the government.
  • Higher marginal tax rates on the wealthy, with capital gains income treated no differently than wage income.
  • A re-employment system rather than an unemployment system: wage insurance ("Any job loser who takes a new job that pays less than his or her former job would be eligible for 90 percent of the difference, for up to two years."), income support of 90 percent through job training period, severance tax on profitable corporations that lay off workers.
  • School vouchers based on family income. "Spending on public schools should be replaced by vouchers in amounts inversely related to family income that families can cash in at any school meeting certain minimum standards. For example, the $8,000 now spent per child in a particular state would be turned into $14,000 education vouchers for each school-age child in a poor family, and $2,000 vouchers for each child in a very wealthy family." (Under this system, he foresees wealthy districts competing to get the students from lower and middle-income families because of the value of their vouchers.)
  • College loans linked to subsequent earnings. Free tuition at public universities. Federal loans for private colleges. "Graduates of public colleges and universities, and borrowers of federal loans, should be required to pay a fixed percentage—say, 10 percent—of their taxable earnings for their first ten years of full-time work into a fund that finances public colleges and universities and provides loans to students attending private colleges and universities."
  • Medicare for all.
  • Sizable increase and investment in public goods such as public transportation, parks, museums and libraries.
  • Get money out of politics. Strong campaign finance laws, "generous" public finance matching and an insistence that "all political contributions go through 'blind trusts' so that no candidate can ever know who contributed what."
Some of his suggestions are familiar arrows in the usual liberal policy prescription quiver (Medicare for all, for example), but others are less discussed—weighted school vouchers in favor of lower-income students, for example, and the idea of the blind trusts (interestingly, he envisions a scenario in which a whole scramble of misinformation could result from multiple lobbyists clamoring to candidates they kicked money their way, with no one able to separate false claims from true).
Whether any or all of these policies are practically achievable in the next decade, given the polarized political climate is not at all certain; whether they alone would be enough to remake a more equitable distribution of income is also unclear. Still, Afterschock serves up a savory dish of thoughtful ideas and a spot-on assessment of current conditions, with an optimistic ending as dessert—Reich professes a firm belief that America will come around, embrace common sense and fairness and, in the end, do the right thing by its middle and working classes.
Stuck at the end of a pretty discouraging election season, it's hard to share his belief that voters and policymakers will be providing solutions anytime soon. He provides a road map worth considering, if and when we get into office elected officials with the political will to try following it.

Editor's note: This review was originally published at the Daily Kos, which notes that its "content may be used for any purpose without explicit permission unless otherwise specified." The original page can be found here. Like what you read? Subscribe to the SFRB's free daily email notice so you can be up-to-date on our latest articles. Scroll up this page to the sign-up field on your right. 

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