*This article originally appeared on the Aspen Ideas Festival blog.
The centerpiece of President Barack Obama’s recent State of the Union address was about middle-class economics: how he proposed to strengthen America’s middle class through tax advantages that would help pay for things like child care, health care, and college — and by closing loopholes for the wealthy and large corporations.
In his 2014 Aspen Ideas Festival lecture on the politics and Economics of Inequality, public policy professor Robert Reich, President Bill Clinton’s secretary of labor, discussed why this issue of widening inequality is so critical, and what he thought should be done about it.
Reich, an economist whose 2013 documentary “Inequality for All” examined this topic in depth, explained that the undermining of the middle class has been happening for decades. Wages began leveling off in the late 1970s, but the American consumer — whom Reich calls the “Energizer bunny” of the world economy, has used a number of coping mechanisms to keep up purchasing power. Those include more and more women streaming into the workforce, wage earners working more and more hours starting in the 1990s, and the pre-Great Recession phenomenon of borrowing against one’s home, assuming the value was always going to rise.
Since the Great Recession, however, middle class purchasing power has really dwindled — and it doesn’t bode well for the US economy, Reich explained.
“One reason that inequality, or at least stagnant wages and the question of where is all the money going, has become so salient is because all those coping mechanisms are now exhausted,” said Reich. “If those coping mechanisms are exhausted, the economy is not going to grow, because the middle class and the poor no longer have the purchasing power to keep the economy going.”
Below, Reich explains further why the health of the middle class is not only a fairness issue, but a basic foundation of the American economy.
Reich’s proposed solutions to this fundamental issue, like Obama’s, include fixing the tax code and better regulating Wall Street. Pointing out that the highest marginal income rate used to be over 70 percent in the United States, Reich said he doesn’t see any other alternative than a greater tax burden on the rich to pay for necessary public goods such as a great education system and world-class infrastructure — because the middle class is so stressed. And without a better separation of investment and commercial banking, Reich fears a repetition of the excesses that led to the Great Recession.
But there is one thing that needs to be tackled first in the fight against widening inequality, according to Reich. And it’s something that Obama didn’t talk about. Watch the video clip below for Reich’s take on big money in politics and the danger of political cynicism.
