Wednesday, January 26, 2011

Obama's Diagnosis Falls Short

Here's the key bit from a post by Robert Reich, former Clinton Secretary of Labor, on Obama's call for "competitiveness" and Obama's blindness to the real pathology of the American economy:
The Great Recession wasn’t due to America’s loss of “competitiveness” relative to the Chinese or anyone else. In fact, American corporations are now enormously competitive, racking up some of their highest profits in history. But much of their success is occurring outside the United States. GE, whose CEO, Jeffrey Immelt, was just tapped to head Mr. Obama’s new advisory council on jobs and competitiveness, has more foreign employees than American. General Motors now sells and makes more cars in China than at home.

Republicans and their supply-side economists say the nation got into trouble because government became too large, and the answer is therefore to cut spending, cut taxes, and shrink the deficit. The President, having apparently given up on Keynesian pump-priming, has no retort except to invest for the long term.

What the President should have done is talk frankly about the central structural flaw in the U.S. economy – the dwindling share of its gains going to the vast middle class, and the almost unprecedented concentration of income and wealth at top – in sharp contrast to the Eisenhower and Kennedy years.

Although the economy is more than twice as large as it was thirty years ago, the median wage has barely budged. Most of the gains from growth have gone to the richest Americans, whose portion of total income soared from around 9 percent in the late 1970s to 23.5 percent in 2007. Americans kept spending anyway by using their homes as ATMs but the bursting of the housing bubble put an end to that – leaving them without enough purchasing power to reboot the economy. So the central challenge is put more money into the pockets average Americans.
Obama didn't go down this path because he doesn't want to confront the Republicans who act as the warrior priests of the high cult of "big business" and "shrink government".

Obama avoiding going to battle for the bottom 99% of America:
This narrative would be politically risky (opening Mr. Obama to the charge of being a “class warrior”) but at least honest. And it would allow him to connect the dots – explaining why his new health-care law is critical to reducing medical costs for most working families, why tax reform requires cutting taxes on the middle class while raising them on the rich, why the Bush tax cuts shouldn’t be extended for the wealthy, why deficit reduction must not sacrifice education and infrastructure (both important to rebuilding middle-class prosperity) and why any cuts in Social Security or Medicare must be on the backs of the wealthy rather than average working families.
In America, if you are the top 1%, you get huge tax cuts and a trillion in TARP funds given to your favourite investments. Oh, and your stocks in the big banks got saved from becoming worthless by using the Federal Reserve to pump trillions of taxpayer dollars into these banks via a zero interest rate policy which bankrupts the retired living off interest income.

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