Inequality

Last night we watched Robert Reich's film Inequality for All. Inequality has recently become a buzzword in Washington, and I'll discuss this today.

Reich is probably the most effective communicator in the liberal camp, and he makes a convincing case, comparing the Great Recession to the Great Depression. When taxes on the rich go down, they become excessively wealthy and create financial bubbles, while the income of ordinary workers stagnates or falls. Since 70% of economic activity is consumer spending, when the middle class stops spending, economic growth slows. The rich perpetuate this cycle by manipulating the political system in order to maintain their wealth. The explanation isn't causal, but it does show the elements of a repeating pattern. The presentation is simple, like An Inconvenient Truth, in order to give it broad appeal.

There were two things in the film that I particularly liked. Reich recruited liberal billionaire Nick Hanauer to bolster some of his points. To counter the popular Republican myth that the rich should not be taxed heavily because they are "wealth creators," and taxing them more would entail "class warfare," Hanauer says that it is impossible for him to simulate consumer spending proportionately to his income because he could never spend that much on personal consumption. He has more money than he knows what to do with and lets hedge funds handle it with investments all over the world. He advocates higher taxes on the rich so that their money can be put to better use in the economy. The other thing I liked was Reich's appearance at an anti-union meeting. There is nothing special about it, but I think it shows an example of how American workers vote against their own best interests by supporting Republican policies that hurt them. Many low income pro-Republican voters appear to be victims of brainwashing.

In the context of my earlier posts, I have issues with some of Reich's views. At heart he is a traditional liberal who accepts the economic system we have and only wants to restore balance to it. I think at some point this system will have to be abandoned. I believe that the key concept is equality, and this takes precedence over capitalism and democracy, because of the three it is the one most deeply rooted in our evolutionary past as eusocial creatures. We are not essentially capitalistic or democratic creatures, and these are relatively new inventions in our history. Reich comes from a traditional background and does not question its assumptions.

Almost all economists, including Reich, think that the current model, with economic growth through consumer spending, can continue indefinitely. That seems unlikely to me. The model doesn't work unless a country is continuously infused with young, energetic workers who are seeking to advance financially. Countries with older populations face a disadvantage because they can't generate enough economic activity. Furthermore, it seems that equilibrium can never be reached if there must always be more poor people seeking to become wealthier. The model ignores the possibility of overpopulation and environmental damage. There is no consideration of the scenario in which all of society is wealthy and economic growth is unnecessary. As a practical matter, perhaps the greatest threat to this model is corporate efficiency. Technology and outsourcing to other countries have been eliminating jobs for decades and will continue to do so. This model cannot possibly work if there are no jobs, and it looks as if at some point even the best educated won't be able to find them. Robotics and artificial intelligence are in their infancy.

I am also critical of democracy because in practice it doesn't work. You can blame it on campaign finance, talk radio, Citizens United, a poorly educated electorate, or anything you like, but the fact is that people vote irrationally all the time. This ties in with what I wrote earlier about an automated system of government that would remove politics as a factor and eliminate poor voting choices.

Notwithstanding these criticisms, I think Reich is one of the best things going in American public awareness, and my favorite senator, Bernie Sanders, is sponsoring a free public showing of the film throughout Vermont.