Courtesy of Pam Martens.
If there is one must see film this year, it is Robert Reich’s newly released “Inequality for All.” If you’ve ever yearned to sit in a Reich public policy class at UC Berkeley, or get your mind around how Wall Street crashed the economy in 2008, or rid yourself of guilt that you’ve failed your family by losing your job or living from paycheck to paycheck – this is your opportunity to take a seat and let the warm and witty former Labor Secretary take you on a journey from 1928 to today.
The first stunner comes with the chart we have posted below showing that in 1928 and 2007 – the year before the two greatest financial crashes in U.S. history, income inequality peaked. In the film, Reich says about the graph: “The parallels are breathtaking if you look at them carefully.” Indeed they are.
Reich brilliantly animates this graph into a suspension bridge, demonstrating that there is a finite equilibrium of income distribution at which the U.S. economy can function. Since 70 percent of U.S. Gross Domestic Product is consumption, when workers are stripped of an adequate share of the nation’s income, they are not able to function as consumers. Less consumption means lower corporate earnings resulting in layoffs and then even lower corporate earnings and more layoffs. The vicious cycle feeds on itself.
Going forward at Wall Street On Parade, I will be calling this the Suspension Bridge Theory of Income Inequality: when the delicate balance of the structure shifts to extremes, it collapses under its own lopsided weight.
The data for the graph comes from the brilliant French duo whispered about in those secret Koch brother confabs as Piketty-Saez. They are indeed the nemesis of the Ayn Randians, proving with data going back to 1917 that dramatic income concentration at the top is a killer to the economy. Thomas Piketty teaches at the Paris School of Economics; Emmanuel Saez is the Director of the Center for Equitable Growth at UC Berkeley. Both wear the badge of honor of being denounced on the editorial page of the Wall Street Journal.
The next stunner for the public will come with the graph showing how after World War II and for decades thereafter, the income of the middle class was on a steady upward trajectory. Then, in the late 70s, the upward climb abruptly stopped. For the next three decades, adjusted for inflation, middle class incomes stagnated.
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