How to Improve the Economy

What Can Be Done To Improve the U.S. Economy?

Listen to Robert Reich. He's a cat with great ideas on the economy... Photo credit: I am King by Rusty Boxcars on flickr cc

In searching for answers I came across Robert Reich’s recent blog post on 9/3/2010: The Real Lesson of Labor Day. He claims there is something wrong with the structure of our economy.

Reich stated:

… the real problem has to do with the structure of the economy, not the business cycle.

Reich traces the Origins of  the Current Economic Crisis

He said:

Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.

Also in an earlier posting Reich claimed that “Americans are keeping their jobs or finding new ones only by accepting lower wages.“

Reich continues:

Meanwhile, a much smaller group of Americans’ earnings are back in the stratosphere: Wall Street traders and executives, hedge-fund and private-equity fund managers, and top corporate executives.

According to Reich, when a smaller segment of the U.S. population (1%) have more of the money, that means the majority of Americans, 99%, have less purchasing power. Also, Reich says the people with the most wealth don’t always spend their money in the U.S., they send it offshore and invest in commodities and other securities. These investments do not necessarily lead directly to a better economy and more jobs.

Reich wrote that between 2000-2007 median wage earnings adjusted for inflation remained practically the same. That’s not good because the only way the middle class could pay for things was to borrow like crazy including home equity loans.

Reich stated:

The problem isn’t that typical Americans have spent beyond their means. It’s that their means haven’t kept up with what the growing economy could and should have been able to provide them.

So what is the solution?

Reich offers some suggestions in multiple blog postings:

• Governments give employees more bargaining power to increase wages
• Increase Safety Nets regarding Job loss or Reduced Pay:
  • Offer unemployment insurance to part-time workers
  • Wage insurance if salaries drop
  • Transition assistance for people to relocate to new areas for jobs
• Prevent large profitable corporations from laying off large amounts of people simultaneously.
• Require profitable companies to pay severance – perhaps a year’s worth of wages to anyone they lay off.
• Require companies subsidized (i.e., for research) by the U.S. government to create jobs in the U.S.
• Link minimum wages to inflation.
• Things the Government can to do relieve financial stressors:
  • Medicare for all
  • Better public education
  • early childhood education
  • more affordable public universities
  • more extensive public transportation

Reich stated that starting in the late 1970s economic safety nets for most Americans were shredded in large part due to deregulation and privatization. Also higher education became more expensive and public transportation was cut.

Good Education for Students More Important Than Wall Street

Robert Reich: Why We Need to Save Our Schools Now

We need to insure that our current and future generations are equipped to meet challenges that will confront them. We especially need young people well-educated in the fields of science, engineering, technology and math (STEM).

And, it is important that students not just run off to Wall Street to be the latest quants because the salaries are astronomical. We need engineers who can help us solve our technological issues for the 21st century and beyond.

Improving the Economy Now and for the Long Term

Improving the economy for the short and long term requires creative thinking and bold action.

Robert Reich offers additional suggestions to improve the economy and create more jobs:

• Massive public spending on infrastructure: jobs, schools, parks, a new WPA
• Exempting the first $20,000 of income from payroll taxes and applying the payroll tax to incomes over $250,000

The Challenge

Congress needs more political backbone – on both sides of the aisle – instead of relying on misleading hot button talking points that only create hardened partisan divisions.

Americans need to educate themselves about these issues from independent sources and ignore the politicians who only want to scare them into voting for them. Any politician who uses tired rhetoric and scare tactics to get elected doesn’t belong in office. One has to ask why they are running for office in the first place.