Former U.S. Labor Secretary Robert Reich, one of a handful of U.S. political figures with a high profile, including on social media, who is focused on the nation’s desperate crisis of growing income inequality, said it succinctly in a blog post last weekend following his appearance on one of the Sunday morning “talking heads” shows. He wrote:
“Just did ‘ABC This Week,’ and I’m struck once again by how focused TV news is on the political game – who’s up, who’s down – rather than the underlying substance. Everyone wanted to talk about Romney versus Jeb Bush for the Republican nomination. But the real issue is both men are the picks of the Republican establishment – just as Hillary Clinton is the pick of the Democratic establishment. And both parties’ establishments are centered in many of the same corporate boardrooms and big Wall Street banks – at the very time in the nation’s history when big corporations and Wall Street have more political power than ever, and when inequality of income, wealth, and opportunity continue to widen notwithstanding an improved jobs market.
“So the big question that ought be discussed is whether Jeb or Hillary will respond to the deep frustrations of the middle class and the poor with real proposals and genuine mobilization and – if they don’t – who or what will fill the growing political vacuum?”
The issue of income inequality is not just that the rich are getting richer, but that the vast majority of Americans are struggling with just getting by far more than has been true in a very long time. The consequences of the Great Recession of 2007-8 are far from behind us, and are now visibly threatening the nation and its middle class with the worst economic scenario: deflation.
Low gas prices are just one indicator that this is the direction in which the nation is headed, and once the momentum of deflation sets in, it is almost impossible to stop, no matter how proactive the Federal Reserve. To see where it could likely end, just look at the deepest days of the Great Depression of the 1930s.
The lack of a robust consuming public in the U.S., strapped since the Great Recession with lower paying jobs, fewer benefits, and enormous burdens such as student loans and on-going mortgage pressures, is leading to a chronic and systematic decline in the demand for basic goods.
Of course, the nasty truth is that, just as today’s growing “income inequality” is no accident, neither is the push from the top of the income heap for deflation.
As the value of everything nosedives, those with access to liquidity (the wealthiest) get to snatch up everything for a dime, or less, on the dollar. They use the government to protect against deflationary impacts on their own investments.
When prices drop below certain levels, companies can no longer afford to maintain production, resulting in deep wage cuts and mass layoffs, triggering a vicious downward spiral where scaled back consumption contributes to a declining ability of the basic economy to produce even its basic goods.
The only way to break the cycle is with a massive infusion of new capital into the consuming public so it can buy things and stimulate production. This was the Keynesian approach taken in the 1930s with partial success.
Its shortcoming, however, lies in its inability to provide a net increase in the generation of real wealth, defined as the capacity for second and third generations of net increases in the “freedom of action” (standards of living) of individuals and societies as a whole.
In the 1930s, despite some meritorious steps in that regard through public works programs, sadly it took the mobilization to fight World War II to get America out of the Great Depression completely.
But in reality, war production is a dead end industry, too, in these terms.
Only massive infusions of new capital targeted into job-creating cutting edge infrastructure recovery, innovation and expansion and 21st century public education will achieve the needed result, needed to be done on a scale dwarfing the moderately successful “stimulus” efforts of President Obama’s first years.