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Reich writes: "There are two views about the relationship between economic growth and good wages - one incorrect and Republican, the other correct and commonsensical. You need to know the difference."

Robert Reich. (photo: Richard Morgenstein)
Robert Reich. (photo: Richard Morgenstein)

'Good Jobs and Wages Fuel Growth'

By Robert Reich, Robert Reich's Facebook Page

15 August 15


here are two views about the relationship between economic growth and good wages -- one incorrect and Republican, the other correct and commonsensical. You need to know the difference.

  1. The incorrect Republican view is growth creates good jobs and wages. That’s what Jeb Bush, Rand Paul, and the other Republican hopefuls say. This is a variant on trickle-down economics, which has been tried since Ronald Reagan was in the White House. But it’s failed miserably. We’ve had some growth, but none of that growth has trickled down to most people. Almost all gains have gone to the top.

  2. The correct view is good jobs and wages fuel growth. That’s because businesses won’t expand unless they have enough customers to justify expansion. And since the poor and middle class spend a larger portion of their income than the rich, growth occurs when the poor and middle class receive a substantial portion of its gains. The current “recovery” has been one of the most anemic on record because the poor and middle class don’t have the purchasing power to keep it going.

(By the way, economic growth itself is neither good nor bad. It depends on what that growth is used for. It's bad if it just uses up scarce resources and pollutes the environment; it's good if it's used for education, health, and environmental protection, for example. How we use growth is a political decision.)

Your view?

There are two views about the relationship between economic growth and good wages -- one incorrect and Republican, the...

Posted by Robert Reich on Wednesday, August 12, 2015 your social media marketing partner


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+33 # REDPILLED 2015-08-15 13:11
Unending growth now threatens the sustainablility of life on this planet.

Time to question growth itself, and what kind of growth this planet can sustain.
+20 # acomfort 2015-08-15 13:40
Think about this.
The tax code can change incentives. Tax codes are social engineering they encourage some things and discourage other things.

In many cases we raise taxes on things that we think are socially destructive (cigarettes and alcohol) and we remove taxes from things we think are good for society (churches and charitable organizations.) Jobs are good for society but we tax them heavily. We should try to remove all of the economic penalties (taxes) from labor.

On the other hand:

If a person does work, they and their employer pay several taxes. If a machine does the work it
pays none. When a machine does the work of 10 people then it could be taxed at
the same amount that 10 people would be taxed. That would be fair . . . right?

With this system The tax rate could be much lower and I don’t think we would be lacking for jobs. If we have enough "people jobs" available, then the discrepancy in income should be less.

Workers were responsible for making these labor saving devices (machines).
These devices will replace workers forever. Shouldn't there be some compensation that the machines and their owners, pay back to the workers.

Wouldn't it be reasonable for the machines to at least pay the taxes that would have paid by the workers and employers.
-23 # economagic 2015-08-15 13:57
Oh geez, another Commie. Tax capital? How could anyone even think about such a foolish idea!

Kurt Vonnegut's first novel, titled "Player Piano," was a dark, Luddite tale of a different way the replacement of labor by capital (machinery of production) might play out. The problem, of course, is political, although the damage is economic and social.
+7 # economagic 2015-08-15 20:09
Get a grip, people! The first line is pure sarcasm! We actually DID tax the pea-woddy out of capital between Pearl Harbor and Reagan, and even most mainstream economists today look at that period as a golden age. Or perhaps everyone in this thread is a newbie, having read none of my other posts.

And read Vonnegut -- especially "Player Piano." There is a dark side to all of his works, but even in that one, perhaps his darkest, there is enough of the trademark deadpan absurdity that he later honed to a very sharp edge to keep you in stitches most of the night.
+5 # ericlipps 2015-08-15 17:30
Of course machines can't pay taxes. Their owners can, though, and should--at, say, half the rate an equivalent number of full-time workers doing what the machine is doing.

Why half and not the full amount? Well, we don't want to put too stiff a penalty on using machines, for they can boost productivity. But we do want to penalize employers for dumping human workers into the streets. Half-rate taxation is a compromise between these competing priorities.
+20 # economagic 2015-08-15 13:44
Damn Commie Keynesian.

Because this IS, after all, Keynes' basic insight from the 1930s, which one could I suppose forgive the "great" political economists of the 18th and 19th century for not recognizing. One might excuse even Alfred Marshall, who claimed in 1890 to have taken the "political" out of what he proposed to be a "hard science" similar to physics by pasting a thin veneer of mathematics onto 200 years of speculative philosophy, much of which was simply wrong, yielding equations that sort of resemble those of Newton's Laws if one has never actually seen those laws in their mathematical form.

The hubris of the High Victorians of the late 19th century has only been exceeded by that of the American oligarchs of the late 20th and early 21st centuries.

That the classical dogma, essentially the "trickle-down" Belief System, was simply wrong was "obvious" to Keynes, who did not see himself as overthrowing the entire classical orthodoxy. His insights were given solid empirical foundations over the next 60-70 years, and had the classicals accepted the evidence, which is almost beyond question, classical economics might now be beginning to become a science.

But they didn't, and it isn't.

Instead, it has morphed into an even more dogmatic and draconian version, still proposing 18th-century solutions ("laissez-faire ") to 21st-century problems (a tyranny not of Divinely entitled kings but of monstrous unregulated corporations responsible to no one).
+25 # economagic 2015-08-15 13:53
The result until recently didn't even further enrich the richest to a great degree, but tended only to broaden an existing under-class. But now, with a very few people accumulating money wealth never even imagined, and armies of sycophants scrabbling for crumbs from the oligarchs, the middle class that took hundreds of years to create is quickly being discarded, with the planet as a whole not far behind if we don't find a way to stop them and the harder limits kick in before the softer ones that might put the squeeze on their extractive system.

Perhaps we really should have allowed the banks to fail and started rebuilding society from that point, instead of waiting for a much more comprehensive breakdown.
+3 # Hey There 2015-08-15 14:21

To view link--highlight link, right click, then left click on go to link.

I like your post.
+1 # economagic 2015-08-15 20:26
Thanks -- you are onto the tip of a very large iceberg. Look into Lawrence Summers, who pressed Clinton on CFMA, especially what he and Greenspan did to Brooksley Born, chair of the CFTC 1996-1999, and his departure from Harvard.

But Graham-Leach-Bl iley the year before (repeal of Banking Act of 1934, aka "Glass-Steagall ") was at least as relevant to the Crash of 2008. The S&L collapse, which resembled it closely except in terms of the way the federal government handled it, began in the mid-1980s (not 1980), but culminated in the early 90s. For that one see William Black, "The Best Way To Rob a Bank (Is To Own One)."

Keep on reading!
+8 # Shades of gray matter 2015-08-15 14:20
I love Bob, but he always seems stuck teaching freshmen in a 1980s time warp. I think he is too kind to see all the evil around, including when he was Labor Sec. Growth for growth's sake sure is malignant, speciescidal. Issues now are population & Power>>>>CONTRO L. Orwell. Techknowledgy seems to concentrate power, to the point of control, AI in the lead. Soon elites will be bio-enhanced, with unimagined tools for CONTROLL at their dispersal: massive surveillance of us is their Job#1. Power has to be wrested from GlobalCorps Elites BAMN, ASAP, B4i2L. It is species survival for human beings.
+9 # cavewoman 2015-08-15 16:10
Yes we need a strong middle class! This is vital to our future.

Having said that, I am a donor here. Not much but I am a donor, one of those small donors.
If everyone who reads this page just ponied up for an average of $10 a month, we would not have to put up with the donation emails. Seriously. There is power in the small voice if they are all put together. Just Do It
+5 # MidwestTom 2015-08-15 19:33
The biggest problem we save is the ongoing distortion of Capitalism. Capitalism in it's rawest form is a system where those that produce get rewarded. It worked wonderfully until our government let Wall Street change the system. Under pure Capitalism a company sells stock top raise money business. If the business succeeds the stock rises and the investors make money, if it fails they lose.

Unfortunately our system has evolved to where the big money is made not by investing in a stock and waiting for ti to grow, rather the big money is made by investing for 40 seconds and then selling out for a small profit, but doing this multiple times per day. This pervert system rewards the brokers and those using computers to buy and sell stock held only for a few seconds. Wall Street is not investing,it is a casino in many cases.

This corruption results in those actually working and building playing second fiddle to those manipulating the prices of stocks. A simply cure would be a requirement that any stock purchase must be held five business days before being sold. This would not hurt companies that produce, but it would kill the 20 something millionaires on Wall Street. This eliminating a big piece of income inequality in this country.
+4 # economagic 2015-08-15 19:57
Gee Tom, that makes really good sense. Which period of un-distorted capitalism do you think best: The Gilded Age of the Rockefellers, Morgans, et al? The Roaring Twenties when their sons and others found ways around that pesky "trust-busting" business? How about London in Dickens' time -- or just about any other time between about 1776 (when James Watt's first commercial steam engine went into operation) and perhaps the 1870s or 80s? Or perhaps you would prefer the sweatshops of the late 19th and early 20th centuries in most any industrialized nation?

Just when and where has that pure capitalism existed, and how did people other than the owners of the capital (machinery of production) fare then?
+4 # lewagner 2015-08-15 19:47
It's not only good wages that is needed. What is needed as well is a TRUE free market, where individuals can set up little home businesses without having to jump through hundreds of impossible hoops.
I farmed in the country in Minnesota, and raised a few goats and chickens. One time asked a friend how much he thought it would cost me to get the permits to start up a small meat-processing plant on my property. I threw out the figure of about $10,000.
He laughed. It would be many times that, obviously, and wouldn't be profitable anyway, to compete with the Big Boys who can sell filth by the 100's of tons and get by with it.
Yet we STILL hear empty talk about "competition in a free market". And in the glaring absence of any truly "free market", we hear even more empty talk of "higher wages" for the middling percentage of people who manage to find jobs for the Big Boys' corporations going to be helpful in restoring the middle class.
+2 # economagic 2015-08-16 07:38
That "true free market" is the pipe dream of classical economics. It cannot exist, because it treats "the market" as a simple mechanism with no confounding factors, when in fact it is a complex of human institutions, embedded in other institutions (law/government , society/culture , etc.). Regulations (government) are institutions that humans demand for obvious reasons (e.g., the "filth" that results in their absence). In addition, classical-tradi tion economics downplays the importance of factors it recognizes, such as market power, information asymmetries, and externalities both negative (filth) and positive.

Approaches to economics that don't take classical dogma as a starting point have been around for over 150 years, but have been gaining wider recognition and acceptance over the past fifty. After a brief setback in the 80s and 90s, the number of economists working in these heterodox traditions have grown rapidly over the past two decades as the absurdity of some of the classical dogmas have become visible to everyone.

E. F. Schumacher, chief economist for the British Coal Board in the 1950s (as classical as economics gets), wrote a book titled "Small Is Beautiful," subtitled "Economics as if people mattered." Humans are literally written out of the classical equations. His mentor Leopold Kohr suggested that bigness as such is a significant problem.

As the Industrial Age spins out of control, the theory it spawned is increasingly revealed as the Wiz that wasn't.

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