However, the enduring buoyancy of the great recession of 2007 proved the implausibility of this kind of thinking. Many years have already passed and this recession refuses to subside even long after the government's implementation of the counteractive recovery plan. This provides further proof that government policies may serve the economy nominally especially in short run but they should be supplemented with structural reforms so as to guarantee the long term growth of the economy.
Dr Reich argues that as soon as the peril of an economic calamity was averted, president Obama "missed the key opportunity to expose the long-term trend and its dangers." He believes that public support for structural reforms gradually grew weaker as "Democratic leaders fail to link the reform of health care to long term economic crisis faces by most Americans, and to a broader agenda of getting the nation back to more widely shared prosperity."
Understandably, the temptation to borrow and
spend is strong and irresistible, especially in societies in which keeping-up-with-the-Jones
is the dominant way of thinking. Contrary to the popular view, Reich argues
that excessive debt was a symptom, not the cause, of the great recession.
People would not have had to borrow money if their income had kept pace with
the growth of the economy.
To maintain their standard of living, ordinary
people had no choice but to borrow money and use their homes as collateral. Their
burden of debt forced them to seek additional employment which intensified
competition in the labor market and further reduction in wage rates. Meanwhile, the
affluent American
companies trimmed their workforces by laying off thousands of workers and replacing
them with technology. The consequential cost saving boosted their profit
substantially. Companies that could penetrate into foreign markets did so
successfully.
Many multinational companies earn the major share of their revenues,
hence profit, from overseas markets, for example, Mobile 70%, Intel 85%, and
Coca-Cola 74%, according a report by Wall Street Journal, Sept. 8, 2010. As companies
were trimming their workforces, they also searched for talented managerial gurus
who could maximize their profit.
The news of hefty bonuses and pay to top executives and CEOs of big companies in the past couple of years has caused strong public indignation which may eventually result in a rancorous revolt against the political establishment. According the Oct. 12, 2010 Wall Street Journal, nearly three dozen of top financial firms paid as much as $144 billion in executive compensation so far in 2010, a 4% increase from 2009. Similarly, a survey of 456 business companies by the same newspaper, Nov. 15, 2010, shows that total payments to their CEOs increased by 3% to a whopping average of $7.23 million.
Meanwhile, the majority of Americans, devoid of economic power, struggled to cope by sharpening their skills and coming up with survival strategies such as working a second job, cutting unnecessary expenses, or deflating their standard of living. Those fortunate enough to have savings tapped into their savings, and those who did not have enough saved were forced to borrow more money and spend what they really didn't have in anticipation of a better income in the future. As things got worse, they lost hope as well as their homes. "They could no longer afford to live as they had been living; nor as they thought they should be living relative to the lavish lifestyles of those at or near the top."
Unless this inhuman trajectory
is reversed, we will not see any improvement in the long term performance of
the U.S. economy. Historical evidence shows that "In other nations, at other
times, wide disparities in income and wealth have led to political
instability."
However, there is no stigma attached to being rich and wealthy,
even excessively, in the U.S. Therefore, "This has not been the case in America,
at least not so far. Here, opulence has provoked more ambition than hostility."
Powered
by excessive profit, business firms could afford to buy political favor and further
tilt the playing field to their side. "They generously financed think tanks,
books, media, and ads designed to persuade Americans that the free market
always knows best."
Politicians, in return, have bestowed favors upon powerful firms, creating more public anger and resentment.
One of the visible consequences of this
lopsided income distribution is the division and compartmentalization of society.
To avoid confrontation, the rich tend to isolate themselves from the rest of
society by living in gated communities and other protected environments. Dr.
Reich argues that our nation is becoming more and more polarized, thanks to unjust
income distribution and technologies that have led to undermining human
relations. "Being rich now means having enough money that you don't have to
encounter anyone who isn't." Personal interactions are no longer considered
natural human endeavors and are almost becoming things of the past.
Technology
has overtaken human jobs and hence human interactions. For example, there is
not even a single human attendant in parking garages in the downtowns of most
big cities, only an automated machine that does whatever the live humans used
to do. As a result, jobs are being lost and income is being sucked up to the
top. Similarly, mass production technology has further reinforced the
concentration of wealth and has caused the annihilation of the weakest and
those who cannot afford to acquire such technologies.
The concentration of wealth in the hands of the few has led us to individualism and a pulling the blanket further to my side mentality. We are no longer in this together.
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