After-Shock by Robert Reich: a Book Review

After-Shock – The Next Economy and America’s Future is the latest offering by former Labor Secretary Robert B. Reich.  Here, Reich reviews the recent recession and asserts his diagnosis that the cause of the current stagnant economy is that too much national income has gone to the rich in the last 40 years, which has induced the federal government and the middle class to subsist on credit, creating a bubble that will  inevitably burst.  Reich points out that the last time in American history when wealth was so highly concentrated at the top – when the top 1% was paid 23% of the nation’s income – was in 1928, just before the Great Depression.  Such a disparity leads to greater booms followed by ever deeper busts.

One of the basic themes that Reich presents is the “basic bargain,”  a concept with which he says Henry Ford was cunningly cognizant.  Reich says that “Ford understood the basic economic bargain that lay at the heart of a modern, highly productive economy. Workers are also consumers. Their earnings are continuously recycled to buy the goods and services other workers produce. But if earnings are inadequate and this basic bargain is broken, an economy produces more goods and services than its people are capable of purchasing.” (p. 28)  When the productive capacity of an economy outruns the ability of ordinary people to buy, business has less incentive to invest, and we end up in a breakdown of the basic bargain, which leads to the higher unemployment and economic stagnation we are experiencing today.

Reich predicts many years of high unemployment, middle class economic insecurity, and economic stagnation. From this Great Recession “aftershock”, we’ll see either a major political backlash against both big business and government, or large-scale reforms. He does an excellent job of bringing historical perspective and facts into his analysis of the economy and avoids purely theoretical speculation.

Some reforms that Reich would like to see implemented to restore the “basic bargain” include:

–A reverse income tax that supplements the wages of the middle class.
–Higher marginal tax rates on the wealthy.
–A carbon tax.
–Making tuition free in all public colleges and universities.
–An expansion of Medicare to all Americans.
–Strengthening campaign-finance laws, funding elections publicly, and limiting issue advertising.

At 144 pages, the book is a very direct and uncomplicated read.  It is well worth the time to check it out.