Robert Reich’s “Inequality for All”. US richer than ever, but not you.

If you are wondering why your paycheck isn’t going far, and you are blaming yourself for not working harder or earning more, this movie is a real eye opener. There was a lot of surprising information in this film:

1. The US is doing better than ever, just not you personally.
Wealth has continued to grow in America, reaching higher and higher levels. Only thing is, it’s not going to you. While wealth has grown in the US, wages have flatlined since the 1970’s. Your wages have flatlined in an environment of ever increasing costs for housing, healthcare, and education.

If wages for the working stiffs like you and me have flatlined, but wealth is increasing in the country, where is it all going? It is going to the very wealthy. 400 Americans now have the same amount of wealth as the bottom 150 million Americans. 150 million, that’s half the country. How did that happen? It’s because they paid themselves more as their taxes fell, and your wages have not went up.

Reich’s movie reviews how taxes on the wealthy have grown progressively lower and lower as the decades ticked by. As taxes were lowered on the highest income brackets, their compensation increased sky high. It was not unusual to see CEO’s of large firms getting paid $85 million dollars a year, over $100 million dollars a year. People in charge of companies rewarded themselves with higher and higher salaries, cut pensions, and let wages flatline.

There is plenty of wealth in America. The country is doing great. It’s just that you aren’t getting any of it. If you work for a large company, the wealth of your company is going to executive salaries and dividends to shareholders.

Part of the problem is, as America moved off its manufacturing base, organized labor unions didn’t follow workers out of the factories and into the offices. Organized labor was associated with people who worked with their hands for a living. People who worked in offices believed they didn’t need to unionize because they were educated and skilled, they were valued employees. They were wrong.

As taxes were lowered, there was less money available to fund public universities, schools, and other public initiatives that use taxes benefit the greater good. An example of this was in our own recent past, when after going to war in Iraq and Afghanistan, taxes were lowered on the wealthy. Typically, wartime is a time for austerity, when the entire country bands together to pay for the war initiative. Remember the war bonds raised during WWII, and rationing? There were no new cars being built in America during WWII, all the materials went towards the war effort. Cutting taxes during wartime was a very bad move fiscally, as the country went into debt to pay for the war.

2. There is no where left to turn. Wages must go up.

As the big ticket costs of healthcare, education, and housing went up, Americans dealt with this by sending women to work. If you were a kid in the 50’s or 60’s, chances are you were raised in a one income family. Go ahead, ask your parents or grandparents. Ask them how they made ends meet. It is likely only one adult in the household worked. If the family owned the house they lived in, it is also likely the price of the home was similar to the annual salary of the working adult. A new car was around $2,000 to $3,000, much less than a working person’s annual salary.  Nowadays, instead of a house costing as much as an annual salary, a car cost as much as an annual salary.

Sending kids to college in the 50’s and 60’s wasn’t a problem as state college cost a couple hundred bucks a year. Kids could easily earn the cost of a year’s tuition with a summer job and a job during the school year. They graduated with no debt. 

As Helaine Olen wrote in Pound Foolish, “What we considered the halcyon days of financially responsible Americans in the 1950s and 1960s was, in reality, a golden era of corporate and government support, ranging from pensions to the G.I. Bill, which allowed veterans to go to college and buy low-cost housing at fixed and minimal interest rates. As these supports dried up, replaced by more complicated and less effective vehicles like the 401(k), no-money-down mortgages, student loans, and high-interest credit cards, our finances dried up as well.”

It is true. In the 1970’s as prices rose and wages did not also rise, families felt squeezed and two incomes became necessary. The 1990’s saw the end of the pension and the beginning of the 401(k) era. People observed that home prices were rising faster than wages. Many saw home ownership as seen as the ticket to wealth building since their jobs were not paying more and it was so difficult to get a raise. So people stretched and bought homes they actually could not afford. As prices continued to rise without wages rising, people started borrowing against the value of their homes with home equity loans, and starting using credit cards as a means of survival.

There is no where else to go now. We have all adults in a household working and even the kids, we have borrowed against the value of our home, we have maxed out our credit cards. As Robert Reich’s movie so eloquently argues, it is time for wages to go up because there is no where else for households to turn. As households feel squeezed, there is no way to save in a 401(k) or IRA. Wages must go up. Food and shelter and old age have become unaffordable for even middle class americans. Economic fear is pervading the country, all because wages have not risen with the cost of being alive. 

3. Middle class spending creates jobs. The middle class are the true job creators.

The movie shows that 75% of the Gross Domestic Product (GDP), the market value of all the goods and services sold in the United States, is driven by consumer purchases. We are all a part of the economy, and the spending of the entire population of the country drives its growth. If you watch the news around Christmas, the reports from retailers are a vital sign of the health of the American household. If people buy a lot, it suggests household incomes are strong. It’s pretty obvious that 400 rich Americans cannot buy as many holiday presents as 150 million people. There is just no way. A healthy middle class drives the spending that creates the jobs.

The return of the labor union may be one way back. If labor unions can increase wages where they have influence, a rising tide may lift all boats. Companies have got to start paying their employees more and their shareholders less. The federally mandated minimum wage must go up. The minimum wage must be a living wage, and not a salary that has to be augmented with food stamps, housing allowances, and charity.

4. It’s on us.

A stronger America is not going to happen without more participation from the citizens. Occupy Wall Street was an interesting start. It woke people up, but it didn’t change anything. I’m thinking about how to become a better citizen and participate in a country with a strong middle class.

photograph by Celso Flores, taken September 21, 2009.

photograph by Celso Flores, taken September 21, 2009.

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