202 of 217 people found the following review helpful
"History does not repeat itself, but it sometimes rhymes" Mark Twain,
This review is from: Aftershock: The Next Economy and America's Future (Hardcover)
Every middle class American should read this book. Many observations about income disparities have been written up lately but Reich pulls the important points together in a powerful and accessible way.
Reich's main thesis is that the current transition the US economy is under is misunderstood. Many of the policy elite (Geithner, Volcker) have repeated the familiar claim that Americans are living beyond their means. Personally I don't discount that completely but Reich's insight goes much deeper and rings truer: "The problem was not that American spent beyond their means but that their means had not kept up with what the larger economy could and should have been able to provide them."
"We cannot have a sustained recovery until we address it. ... Until this transformation is made, our economy will continue to experience phantom recoveries and speculative bubbles, each more distressing than the one before."
Anyone looking at the unemployment data since WWII has to wonder why the unemployment component of the last three recessions is so prolonged. Instead of a sharp trend up, there are long slopes of delayed returns to peak employment. (Google "calculated risk blog" and look at Dec. 2010 articles.) I believe Reich has demonstrated the main culprit this. To be clear, he is not describing the detailed mechanics of what triggered the Great Recession. (Nouriel Roubini has a good book that I would recommend for more on the financial fraud, leverage and credit risks involved - Crisis Economics: A Crash Course in the Future of Finance. ) But Reich is taking a long term view and exposes a dysfunctional trait of the US economy that no one can afford to ignore. It is this weakness that will delay the current recovery and continue to create greater risks in the future.
Reich draws the parallels between the Great Depression and the Great Recession, particularly the imbalance of wealth concentrated in fewer hands and middle class workers with less income to convert into consumer demand. One of the fascinating devices he found to do this was the writings of Marriner Eccles (Fed chair between '34 to '48):
"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth - not of existing wealth, but of wealth as it is currently produced - to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."
Reich also shares a couple of powerful and disturbing graphs that show how the middle class has been squeezed and also how since the late 70s, hourly wages have not only not kept up with the rise in productivity but have remained essentially flat.
Another driving theme Reich presents is the "basic bargain" and he evokes Henry Ford, the man that took mass production to new heights and paid his workers well:
"[Henry] Ford understood the basic enconomic 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."
I was concerned early in the book that Reich would leave out some of the important complexities of the topic but he covered related finances, politics and even consumer/voter psychology in a succinct yet informative way. His summary of changes to the labor market in the last 30+ years was very good.
His ideas for correcting this were interesting if perhaps difficult to implement politically. My take away however was that this is a strong indicator of how bad he thinks the situation really is. Many Americans may be yearning to return to "normal". Reich is the first to thoroughly convince me that it is not going to happen.
This is a very quick read of 144 pages and is well worth the time.
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Showing 1-10 of 13 posts in this discussion
Initial post: Sep 28, 2010 12:24:32 PM PDT
>> Reich is the first to thoroughly convince me that it is not going to happen.
The logic he offers is concrete. The world has changed, and the US cannot hide its head on the sand like we are pre-Civil War. The speculation about China and it's alternatives explains why the US will either get what is going on here and respond to it, or languish in the doldrums and fade to a second rate power in denial.
Posted on Sep 30, 2010 5:33:41 PM PDT
In reply to an earlier post on Sep 30, 2010 5:46:42 PM PDT
Why are you wasting your time trying to psychoanalyze Henry Ford, long dead, to prove a point that is minor, and incidental to the book. If you are trying to say that left wing sound bytes are somehow qualitatively different than the hundreds or right wing sound bytes we hear every day from media "echo chambers" that you apparently prefer.
Going on with your quote: ( which you never end-quoted)
"In 1913, Ford had an employee turnover rate of 380%, which required hiring 52,000 workers annually to maintain a work force of 13,600. In addition to the cost of replacing workers, productivity suffered from a 10% absentee rate, and the workers who showed up were inexperienced and commonly shirked as much as they worked."
This is exactly Reich's point, that it makes good business sense to not monopolize all capital, and in fact we've proven the experiment now twice in a century as he also goes on to prove in the book, if you would read the book yourself and not leach off other people's editorials.
In reply to an earlier post on Oct 1, 2010 5:43:39 PM PDT
B Kline - Not withstanding your your many flaws, there is one area in which you have demonstrated unrelenting success - your dogged failure to comprehend nearly every possible nuance. Let me humbly try to assist:
1) Reich's central thesis is that income disparity curbs economic growth in large part because consumption is essential for growth.
2) The liberal echo chamber loves to distort Henry's Ford's wage hike by saying that it was done so that his workers would be able to buy more of his cars - notice how this would, if true, support Reich's central thesis.
3) In reality, this explanation of Henry Ford's wage hike is obviously false and would have been a horribly inefficient way to encourage the purchase of more cars as most of the extra wages would invariably been spent on other things.
4) The actual truth is that Henry Ford paid higher wages to attract the best talent and ensure its loyalty, something that we as a country used to do but have recently been failing at due to high levels of corporate and personal income tax, an oppressive regulatory regime and most recently a nonstop blunderbuss firing away from the bully pulpit.
Simple, right? And both highly relevant and central to Reich's thesis! In fact, I'll take the liberty of constructing Reich's internal monologue while contemplating these points:
Reich: "Hmm, I see that income disparity was high just before the crash of 1929 and the crash of 2008. Well! Now that I've demonstrated that income disparity causes crashes it's clear that greater consumption across the board must be the real reason countries get wealthy! Perfect. Let's just ignore the inconvenient fact that China, the biggest growth story in the last 20 years, has both higher income disparity than the US and very muted domestic consumption. No need to confuse the issue after all! Hey - do I see that tiresome B Kline coming down the walk to bring me flowers again? I just remembered there's someplace else I urgently have to leave for!"
In reply to an earlier post on Oct 1, 2010 9:42:59 PM PDT
> B Kline - Not withstanding your your many flaws
Don't you get tired of this kind of childishness?
Firstly, I think you could read and re-read Reich's book and never really quite get it, because
there is a moral component that just goes against your basic character. Like you think it is
fine to assume the mantle of authority based on lightweight silly single variable models of
an economy and then from there insult people who try in good faith to engage you. I just
think you miss the whole point of everything you are wound up so tight.
Whatever Ford said or did not say, or how you or others interpret or spin it really is not at
issue. What is at issue is the reality that Ford sold cars the middle class that if it did not exist
would not have been able to buy them and build out America.
Additionally, all the marketing gimmicks mentioned as better ways for Ford to hawk his cars
are really just smart assed irrelevancies because the advertising industry we nowhere near
what we have today and that technology simply did not exist.
> Ford paid higher wages to attract the best talent and ensure its loyalty
And what do you think is being talked about here? Only flip it around and you see that
paying people who do not work for their money does not ensure any loyalty to the country
or the economy. The United States will have much more loyal citizens and be that much
more cohesive with a strong working/middle class.
I mean, you are saying the words, but you don't even seem to realize the meaning of what
you are saying you are so desperate to be anti-Liberal.
Again, you are taking some snippets from just the first chapter, and ignoring the other
arguments based on an incomplete and simplistic review you read somewhere else. I
looked it up. It was already mentioned on anther thread how the most sustained growth
and innovation occurred in American historically with very high marginal tax rates that
gave the chance for more people to contribute and engage in the economy.
Reich also does not ignore China, he covers China clearly. But China does not have the
history, culture and people that the United States has, and as Reich says, we are killing
the goose that laid the golden egg by strangling the middle class in America.
Try actually reading the book this time.
In reply to an earlier post on Oct 2, 2010 6:21:20 AM PDT
In reply to an earlier post on Oct 4, 2010 10:53:24 AM PDT
Last edited by the author on Oct 4, 2010 11:39:35 AM PDT
Johnny Na says:
When you copy and paste someone else's writing here, I think you should at least give some attribution. Also, I believe Amazon guidelines prohibit the copying of an entire editorial, which is what I believe you have done.
But regarding your (or the editorialist's ?) points, Reich's brief mention of Ford in this small book was obviously to evoke an appreciation for the concept of the "basic bargain" and he writes less than one page about Ford to start his chapter titled "basic bargain". Reich makes a point about a basic concept and the paragraph I reference in my review holds.
It could be said that Reich "erred" in not revealing more about all of Ford's many motives for his shrewd use of higher wages. Most readers will realize the context and limited space here and let it pass. I find it ironic that your mystery reviewer and you not only have written more words than Reich did (on Ford) but have also missed the full view because Ford's motivations were more complex.
After all, Ford was passionate about making cars affordable for all workers, including his own. It was his raison d'être. Ford also fancied himself as a kind of social engineer. At the time he took great interest in improving the lives of his workers and society in general. Profit interest was paramount but he did have social, moral and even scientific motives as well.
Finally, I don't really have time or interest to debate it with you, but buy the book and take a look at the graph on page 52. It shows real wages essentially flat since 1979 while productivity nearly doubles. Wages have not kept up with productivity. Reasons are complex but this is a central point of the book. Trying to ignore this history by quoting lopsided economic theory is a really ridiculous basis for a debate. That is hard data and not a myopic assumption like what your mystery editoralist labors from:
["Increasing productivity is the cause of greater purchasing power and high-paying jobs, not the other way around. This is the supply-side lesson that most politicians have yet to learn from Henry Ford's five-dollar day."]
In reply to an earlier post on Oct 11, 2010 7:38:38 PM PDT
Johnny Na - If I've violated Amazon's guidelines than I apologize.
Before you start romanticizing Ford too much you should understand that Ford was driven by the ambition to be the best car manufacturer in the world, and in his arena "best" was defined by profits and volume. The other goals you state are secondary, as they are for essentially any modern businessman as well. Do you think Steve Jobs would be happy if Apple ran at zero profit but was able to distribute IPods more widely?
The pursuit of profit is actually the most noble profession. It is impossible to profit without providing immense value to other. In fact, those who have gained the greatest riches through business - Ford, Carnegie, JPMorgan, Bill Gates, Steve Jobs, Larry Elison, the Google boys - have provided far more immense riches to society.
I'm not sure what sort of social engineering you have in mind to correct what you perceive to be the deficits of wage evolution but I'd suggest that the way to bring more prosperity to more people is not by increasing taxation, passing stifling regulation and distorting the proper allocation of labor with pointless government spending. My guess is that you would argue based on some other favorite chart that median standard of living has fallen over this time as well. Now ask yourself how you live today and how people lived 50 years ago. Who has it better? Trust less is manipulated statistics and more in common sense.
In reply to an earlier post on Oct 12, 2010 10:27:38 AM PDT
Johnny Na says:
You're not even allowing a discussion here. Your first paragraph is an argument with, well I don't know who. After all, I said, "Profit interest was paramount" for Ford.
As to arguments you advance in your second and third paragraphs, I'm not interested in having those arguments with you. You're getting outside the scope of Reich's book and down to making wild guesses about my thoughts on broader topics. That is a really poor start for a discussion, so I am done.
In reply to an earlier post on Oct 12, 2010 6:03:31 PM PDT
Johnny - You don't even bother to read your own points. Here is what you say before mentioning Ford's interest in profits as an afterthought:
"After all, Ford was passionate about making cars affordable for all workers, including his own. It was his raison d'être. Ford also fancied himself as a kind of social engineer. At the time he took great interest in improving the lives of his workers and society in general."
This is all romantic nonsense that you are projecting onto Ford. Or did you really intend for the reader to ignore 90% of what you wrote?