Aftershock

by Robert B. Reich

  2 Coping mechanism #2: See U.S. Bureau of Labor Statistics, 2008 American Time Use Survey, “Working and Work Related Activities Tables,” 2008 (http://www.bls.gov/tus/current/work.htm).

  3 Coping mechanism #3: See Bureau of Economic Analysis, National Income and Product Accounts Table 2.1, “Personal Income and Its Distribution,” January 29, 2010 (http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=58&Freq=Qtr&FirstYear=2007&LastYear=2009).

  4 in 1980 the average home: See U.S. Census Bureau, “Median and Average Home Sales Prices, Annual Historical Data,” December 2, 2004.

  9. THE FUTURE WITHOUT COPING MECHANISMS

  1 In 2009, some 50 million workers: See A. Munnell, J. P. Aubrey, and D. Muldoon, The Financial Crisis and Private Defined Benefit Plans, Center for Retirement Research at Boston College, November 8, 2008.

  2 “should have enough spending power”: See Bank of America Merrill Lynch, The Myth of the Overleveraged Consumer, August 14, 2009.

  10. WHY CHINA WON’T SAVE US

  1 “We cannot go back”: Barack Obama, “G-20 Summit in Pittsburgh: Obama’s First UN Address, HIV Vaccine in the Works,” transcript provided by CNN, September 24, 2009.

  2 By 2009, China was second only to the United States: See Bank of America Merrill Lynch, US Economics Weekly, Merrill Lynch Global Research, Products and Reports, October 2009.

  3 But the benefits of China’s growth: See Barry Ritholtz, “China Consumer Spending vs. Saving,” May 8, 2009 (http://www.ritholtz.com/blog/2009/05/china-consumer-spending-vs-savings/). Data sources: Bank of America Merrill Lynch, “United States Economics, 2009.”

  4 In 2009, other American firms: See General Motors, Evergreen Solar, and General Electric press releases, 2008 to 2010.

  PART II. Backlash

  2. THE POLITICS OF ECONOMICS, 2010–2020

  1 Just before the Great Recession: See Bureau of Economic Analysis, National Income and Product Accounts Tables, Table 1.5.5: Gross Domestic Product, Expanded Detail. Last revised: January 29, 2010.

  2 Personal consumption did not always constitute 70 percent: See Bureau of Economic Analysis, National Income and Product Accounts Tables, Table 1.5.5.

  3. WHY CAN’T WE BE CONTENT WITH LESS?

  1 “Many of the so-called comforts of life”: Henry David Thoreau, Walden; or, Life in the Woods (Boston: Ticknor and Fields, 1854), p. 15.

  2 “The people of this country need”: John S. Ellsworth, Jr., “The Depression Generation,” The North American Review 234 (October 1932).

  3 University of Michigan researcher Ronald Inglehart: See Ronald Inglehart, Christian Welzel, and Roberto Foa, World Values Survey: Happiness Trends in 24 Countries, 1946–2006, January 2008.

  4 In 1943, behavioral scientist Abraham Maslow: The original article appeared in Psychological Review 50, no. 4 (1943): 370–96. See also Janet Simons, Donald Irwin, and Beverly Drinnien, Psychology: The Search for Understanding (New York: West Publishing Company, 1987).

  5 Before the Great Recession: See press release: Annals of Internal Medicine, University of Chicago Medical School Press, December 6, 2004.

  6 In 2007, Americans spent a whopping $23.9 billion: J. LaRosa, “U.S. Sleep Aids Market Now Worth $23 Billion as Americans Battle Insomnia, Sleep Disorders,” Marketdata Enterprises press release, June 2008.

  7 In mid-2009, the Archives of General Psychiatry: See Mark Olfson and Steven C. Marcus, “National Patterns in Antidepressant Medication Treatment,” Archives of General Psychiatry, 66, no. 8 (August 2009): 848–56.

  8 “through the whole of his life”: Adam Smith, Theory of Moral Sentiments (London: A. Millar Publishing, 1790), pp. 261–63.

  9 Almost 10 percent fewer people were killed: See National Highway Traffic Safety Administration Fatality Analysis Reporting System Encyclopedia (http://www-fars.nhtsa.dot.gov/Main/index.aspx).

  10 deaths and serious injuries dropped: See U.S. Bureau of Labor Statistics, economic news release: “Workplace Injury and Illness Summary,” October 29, 2009.

  4. THE PAIN OF ECONOMIC LOSS

  1 Princeton psychologist Daniel Kahneman: See D. Kahneman, J. L. Knetch, and R. H. Thaler, “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias,” Journal of Economic Perspectives, 5, no. 1 (Winter 1991): 193–206.

  2 Societies whose living standards drop: Ibid.

  3 Behavioral economist Christopher Ruhm: See C. J. Ruhm, Are Recessions Good for Your Health?, National Bureau of Economic Research, March 2006.

  4 The stock market crash of 1929: See Leonardo Tondo and Ross J. Baldessarini, Suicides: Causes and Clinical Management, Medscape Medical News (http://cme.medscape.com/viewarticle/413195_2).

  5 “the crisis quality of a serious illness”: Robert S. Lynd and Helen Merrell Lynd, Middletown in Transition: A Study in Cultural Conflicts (New York: Harcourt Brace, 1937), p. 489.

  5. ADDING INSULT TO INJURY

  1 The median pay of CEOs: See American Federation of Labor and Congress of Industrial Organizations, Executive Paywatch Database, “CEO Pay Rates,” 2008.

  2 According to The New York Times: See Graham Bowley, “Strong Year for Goldman as It Trims Bonus Pool,” New York Times, January 21, 2010.

  3 “In a poor society a man proves”: See R. Layard, “Human Satisfactions and Public Policy,” Economic Journal 90, no. 360 (December 1980): 737–50.

  4 Adam Smith defined necessities: See Adam Smith, An Enquiry into the Nature and Causes of Wealth and Nations (London: Methuen, 1776), Book 5, Chapter 2.

  5 In 1899, the economist-sociologist Thorstein Veblen: Thorstein Veblen, The Theory of the Leisure Class (New York: Macmillan, 1899). See Ken McCormick, “Veblen and Duesenberry: The Demonstration Effect Revisited,” Journal of Economic Issues 17, no. 4 (December 1983): 1125–29.

  6 More than a half century later: James Duesenberry, Income, Saving and the Theory of Consumer Behavior, Harvard Economic Studies, 1967. For a highly pertinent and thoughtful treatment of this subject, see Robert H. Frank, Falling Behind: How Rising Inequality Harms the Middle Class (Berkeley: University of California Press, 2007).

  7 “Wealth … is any income at least $100 more a year”: H. L. Mencken, A Book of Burlesques, (New York: Alfred A. Knopf, 1916), p. 310.

  8 the typical new home built in the United States in 2007: See Gopal Ahluwahlia, National Association of Home Builders: Consumer Preferences, February 14, 2008.

  9 The Daily Beast reported that Kathleen Fuld: See “What the Rich Don’t Want You to Know About the Way They Spend Their Money,” Daily Beast, December 5, 2008.

  10 Prestigious universities have only a limited number: Pell Grants, available only to students whose families are relatively poor, offer one measure. In 2006 (the most recent year for which data is available), just one in ten Harvard students received a Pell Grant. Other of America’s elite universities have similar percentages. See http://www.jbhe.com/features/57_pellgrants.html. By way of comparison, at most campuses of the University of California, a public institution, approximately 30 percent of students are eligible for Pell Grants.

  11 economists Roberto Perotti and Alberto Alesina have found: A. Alesina and R. Perotti, “Income Distribution, Political Instability, and Investment,” European Economic Review 40 (June, 1996): 1202–29.

  6. OUTRAGE AT A RIGGED GAME

  1 But when the San Francisco Chronicle reported: Nanette Asimov, “Execs Still Get Raises as UC Cuts Staffing Pay,” San Francisco Chronicle, August 7, 2009.

  2 in a poll taken by Hart Associates: Hart Associates poll of 802 voters taken September 21–23, 2009, http://epi.3cdn.net/e5566d3b8ac34f6079_yym6bxts7.pdf).

  3 The inspector general concluded: “Factors Affecting Efforts to Limit Payments to AIG Counterparties,” Office of the Special Inspector General for the Troubled Asset Relief Program, November 17, 2009 (http://www.sigtarp.gov/reports/audit/2009/Factors_Affecting_Efforts

  _to_Limit_Payments_to_AIG_Counterparties.pdf).

  4 “If banks had cut mortgage rates”: Peter Eavis, �
��U.S. Aids Benefits Banks, Not Homeowners,” Wall Street Journal, January 19, 2010.

  5 During the 2008 elections: Data on lobbying expenditures and campaign contributions are available at the industry-specific level from OpenSecrets.org. The data for “Finance/Insurance/Real Estate,” for example, is available at http://www.opensecrets.org/industries/indus.php?ind=F.

  6 According to the Center for Public Integrity: “More Than 2,000 Spin Through Revolving Door,” LobbyWatch, Center for Public Integrity, May 2, 2006 (http://projects.publicintegrity.org/lobby/report.aspx?aid=678).

  7 When Dick Gephardt ran for president in 1988: Sebastian Jones, “Dick Gephardt’s Spectacular Sellout,” The Nation, September 30, 2009 (http://www.thenation.com/doc/20091019/jones).

  8 Between 2012 and 2021: “The Estate Tax: Myths and Realities,” Center on Budget and Policy Priorities, February 23, 2009 (http://www.cbpp.org/files/estatetaxmyths.pdf).

  7. THE POLITICS OF ANGER

  1 One, nicknamed “Jackpot Jimmy”: James Barron and Russ Buettner, “Scorn Trails A.I.G. Executives, Even in Their Driveways,” New York Times, March 19, 2009.

  2 In a poll taken in December 2009: “U.S. Seen as Less Important, China as More Powerful,” Survey Reports, Pew Research Center for the People and the Press, December 3, 2009.

  3 Tom Tancredo, a former congressman: Adam Nagourney, “Conservatives Get a Look at Possible Candidates, New York Times, February 20, 2010.

  4 Governor Tim Pawlenty: Quoted in “Scenes from a Counter-Revolution,” The Economist, February 13, 2010, p. 31.

  5 “get rid of the power people”: Kate Zernike, “Paul Vows to Remain True to the Tea Party,” New York Times, May 18, 2010.

  6 when asked by Fox News: Quoted by Scott Lehigh, “How Is Brown Doing?” Boston Globe, February 24, 2010.

  7 “The wizards in Washington”: Chuck Baldwin, “Anger with Government Not Enough,” Independent Political Report, December 18, 2009 (http://www.independentpoliticalreport.com/2009/12/chuck-baldwin-anger-with-federal-government-not-enough/).

  8 It was the bailout of Wall Street: Quoted in Gerald Seib, “No Seat for Wall Street at Tea Party, Wall Street Journal, January 12, 2010.

  9 Historian Richard Hofstadter: Richard Hofstadter, “The Paranoid Style in American Politics,” Harper’s Magazine, November 1964, pp. 77–86.

  10 Father Charles Coughlin of Detroit: A collection of Father Coughlin’s speeches, including the one quoted here, can be found on the Social Security Administration’s Web site: http://www.ssa.gov/history/fcspeech.html.

  11 Senator Huey “the Kingfish” Long of Louisiana: Information about Huey Long and his populist politics is also available on the Social Security Administration’s Web site: http://www.ssa.gov/history/hlong1.html.

  12 A classic sociological study of thirty-five dictatorships: J. O. Hertzler, “Crises and Dictatorships,” American Sociological Review 5 (1940): 157–69.

  PART III. The Bargain Restored

  1. WHAT SHOULD BE DONE: A NEW DEAL FOR THE MIDDLE CLASS

  1 The yearly cost to the federal government: This sum is calculated by multiplying Census data on the number of people in each income category (<$20K, $20K–$30K, etc.) by the average income supplement awarded in that category. We assume an even distribution of incomes in each bracket.

  2 If initially set at $35 per metric ton: See Ian W. H. Parry, “Should the Obama Administration Implement a CO2 Tax?,” Resources for the Future, Issue Brief #09–05, April 2009. Also, “Energy Market Impacts of Alternative Greenhouse Gas Intensity Reduction Goals,” Energy Information Administration, SR/OIAF/2006-01, 2006. Numbers have been adjusted to 2008 dollars and emissions. Note that these estimates are based on an analysis of pricing of safety-valve permits under a cap-and-trade system—which is, in effect, setting a carbon tax at the margin and effectively produces a ceiling on tradable permit prices. Safety-valve prices would also increase 5 percent in nominal terms annually. Also note that this is a comparison to a reference “business-as-usual” case—the analyzed values do not actually reduce emissions below current levels; only the highest-price scenario keeps emissions stable. Thus, an alternate wording for the above scenario would be: “If set initially at $35 per ton of carbon dioxide equivalent, a carbon tax would raise $210 billion in annual revenue at the outset and would put the United States on a path to reduce emissions by 14 percent by 2020 (28 percent in 2030) compared to a business-as-usual scenario.”

  3 By the time it reached $115 per ton: James Hansen, “Cap and Fade,” New York Times, December 6, 2009.

  4 people in the top 1 percent: “Summary of Latest Federal Individual Income Tax Data, 1980–2007,” Tax Data, Tax Foundation, July 30, 2009. Also, “SOI Tax Stats—Individual Statistical Tables by Tax Rate and Income Percentile,” Internal Revenue Service, IRS.gov.

  5 would raise $600 billion more: The total revenue generated by this formulation of the tax code was calculated using IRS data on the number of taxpayers in each income bracket and the total value of federal income taxes paid by all members of that bracket. Those figures were combined to determine the average salary of each bracket, which was then assessed in a marginal fashion at the rates included herein. The total taxes paid by the average earner in each income bracket was then multiplied by the number of earners in that earner’s respective bracket. Federal income tax revenue generated the following amounts. Among $50–$160K: $199 billion. Among $160–$260K: $254.9 billion. Among $260–$410K: $123.8 billion. Among $410K+: $974.1 billion. (All revenue generated by Americans earning less than $50,00 was removed.) Total generated in federal income taxes: $1,551.8 billion. Total generated under current federal income tax system: $1,115.5 billion. Net: $436.3 billion. A similar analysis was done for capital gains taxes, yielding a net of some $170 billion.

  6 The four hundred highest-income taxpayers in 2007: See David Cay Johnston, Tax Analysts, http://www.tax.com/taxcom/…/oDECoEAA7E4D7A2B852576CD00714692.

  7 from 1936 to 1980, the top marginal tax rate: “U.S. Individual Income Tax: Personal Exemptions and Lowest and Highest Bracket Tax Rates and Tax Base for Regular Tax,” SOI Bulletin Historical Table 23, Internal Revenue Service.

  8 the effective rate, after all deductions and credits: Roberton Williams, “Who Pays Federal Taxes?,” Tax Policy Center, April 2009.

  9 Children in these programs are more likely to graduate: James J. Heckman and Dimitriy V. Masterov, “The Productivity Argument for Investing in Young Children,” T. W. Schultz Award Lecture at the Allied Social Sciences Association annual meeting, Chicago, January 5–7, 2007. See also Janet Currie, “Early Childhood Education Programs,” Journal of Economic Perspectives 15, no. 2 (Spring 2001): 213–38; Ron Haskins and Cecilia Rouse, “Closing Achievement Gaps,” The Future of Children, policy brief, Spring 2005.

  10 A total of $20 billion per year: A recent Brookings Institution study by Julia B. Isaacs (“Supporting Young Children and Families: An Investment Strategy That Pays”) found that full-spectrum early childhood care and education would cost $18 billion per year.

  11 In 2009, about two-thirds of incoming college students: Survey of 220,00 incoming students at 297 campuses, weighed to represent the 1.4 million full-time first-year students who entered colleges and universities in the fall of 2009. The survey was done by the Cooperative Institutional Research Program, University of California at Los Angeles.

  12 The most efficient way: See Sara R. Collins, Jennifer L. Nicholson, and Sheila D. Rustgi, “An Analysis of Leading Congressional Health Care Bills, 2007–2008: Part I, Insurance Coverage,” The Commonwealth Fund, January 9, 2009.

  13 A study by the Harvard Medical School: Steffie Woolhandler et al., “Costs of Health Administration in the United States and Canada,” New England Journal of Medicine 349, no. 8 (August 21, 2003): 768–75.

  14 Medicare’s administrative costs: Cathy Schoen et al., “Building Blocks for Reform: Achieving Universal Coverage with Private and Public Group Health Insurance,” Health Affairs 27, no. 3 (May/June 2008): 6
47.

  15 the Congressional Budget Office has found: Congressional Budget Office, “Designing a Premium Support System for Medicare,” November 2006, p. 12.

  16 In a poll conducted for NBC News: The poll can be found at http://msnbcmedia.msn./i/msnbc/sections/news/090617_NBC-WSJ_poll_Full.pdf.

  17 dramatically reduce traffic congestion: “Assessing the Full Costs of Congestion on Surface Transportation Systems and Reducing Them Through Pricing,” U.S. Department of Transportation, 2009.

  A NOTE ABOUT THE AUTHOR

  Robert B. Reich is Chancellor’s Professor of Public Policy at the Richard and Rhoda Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton, and he served as an advisor to President-elect Barack Obama. He has written twelve books, including The Work of Nations (which has been translated into twenty-two languages), Supercapitalism, and the best sellers The Next American Frontier, The Future of Success, and Locked in the Cabinet. His articles have appeared in The New Yorker, The Atlantic, The New York Times, The Washington Post, and The Wall Street Journal. He is cofounding editor of The American Prospect magazine. His weekly commentaries on public radio’s Marketplace are heard by nearly 5 million people. In 2003 Reich was awarded the prestigious Vaclav Havel Foundation Prize for pioneering work in economic and social thought. In 2008 Time magazine named him one of the ten most successful cabinet secretaries of the twentieth century, and The Wall Street Journal named him one of the nation’s ten most influential business thought-leaders. He blogs at www.robertreich.org.