Rebuttal to Robert Reich's Claim "Americans Have Not Lived Beyond Their Means"

Adam Taggart
By Adam Taggart on Sun, Jan 27, 2013 - 12:41am

Yesterday, I wrote a lengthy commentary comparing the missteps of a well-known but badly mismanaged company to how our government is being run.

A number of factors ultimately convinced me not to publish the piece in full. But I feel it would be useful to share how it ended.

And please don't ask me who "Company X" is. I'm not going to give any hints.

The Hard Truth

So why am I going on so much about this wayward, struggling company?

Because I read this today from Robert Reich:

Brace yourself. In coming weeks you’ll hear there’s no serious alternative to cutting Social Security and Medicare, raising taxes on middle class, and decimating what’s left of the federal government’s discretionary spending on everything from education and job training to highways and basic research.

“We” must make these sacrifices, it will be said, in order to deal with our mushrooming budget deficit and cumulative debt. 

But most of the people who are making this argument are very wealthy or are sponsored by the very wealthy: Wall Street moguls like Pete Peterson and his “Fix the Debt” brigade, the Business Roundtable, well-appointed think tanks and policy centers along the Potomac, members of the Simpson-Bowles commission. 

These regressive sentiments are packaged in a mythology that Americans have been living beyond our means: We’ve been unwilling to pay for what we want government to do for us, and we are now reaching the day of reckoning.  

The truth is most Americans have not been living beyond their means. The problem is their means haven’t been keeping up with the growth of the economy — which is why most of us need better education, infrastructure, and healthcare, and stronger safety nets.

He goes on to make the argument for a wealth tax on the richest Americans to pay for that education, infrastructure, and healthcare.

I'm not going to tackle the wealth tax concept here (though I have strong opinions). But I want to point out that I see the same blindness to reality, the same unrealistic expectations, in Reich's commentary as I do in [Company X].

Reich mentions but then dismisses the only point that matters: America does not have the wealth to meet the entitlements it has promised. Nor can it sustainably meet its operating costs.

Why is that? Because we, as a society, have very much indeed lived beyond our means. By building up such a tremendous amount of debt through our profligacy that a small rise in interest rates would be catastrophic. That our children and children's children will be "paying backwards" for our largess, unless some debt-clearing event transpires (which I think will).

Being unwilling to acknowledge this unpleasant but fundamental truth dooms any attempts to avoid it, via wealth redistribution or any other means. It's the same flavor of willful ignorance that caused [Company X] to convince itself it could claim all mountaintops until it eventually begrudgingly realized it wasn't summitting any.

There were many times at [Company X] where employees would report listening to the "rah rah" all-hands presentations by the executives and walk away disconcerted. Despite the assurances of the great talent within the company and the wonderful ideas currently on the drawing board, it increasingly appeared that they were not admitting the obvious: The strategy was flawed, the company was failing, and radical change was needed if we wanted to succeed again.

That's exactly how I feel when reading Reich's piece. If this is the logic that our country's leaders are using in their decision-making, then Houston, we indeed have a problem. Learning how this movie played out in the smaller [Company X] microcosm, I have no appetite for watching a sequel at the national level. But I fear that's what we're in store for.

I don't know how much influence Reich has these days, as he's not working in the current Administration as he did for three other Presidents (Ford, Carter and Clinton). But from the current fiscal and monetary policy we're pursuing, it sure seems like his mindset is not that far from those currently in DC.

So I find myself reflecting on my own personal story, when I worked for a company that had a misguided strategy I no longer believed in. How I stopped hoping its trajectory would change, and instead, decided I was going to need to change mine.

I invested in self-discovery to identify work that was meaningful for me. Fulfilling work that I'd be happy doing no matter the compensation. I cut the cord, resigning before I knew what I would do next. Staying on would only delay the hard work I'd need to do to create my future. I started developing the skills I'd need for my new chosen profession. And I began to tap the power and goodwill of other people who could help me (and whom, in turn, I could help back).

Seems to me this is good advice for our national predicament. 

The ride from here is likely to get bumpy as reality punctures our leaders' unrealistic expectations. But if we, as individuals, invest in living authentically, working hard, and fostering supportive community, we'll enjoy the benefits of a resilient life regardless of what transpires.

Note: If you're reading this and are not yet a member of Peak Prosperity's Economy Wonks Group, please consider joining it now. It's where our active community of economic enthusiasts share news and engage in debate regarding all things economic. Simply go here and click the "Join Today" button.

16 Comments

Doug's picture
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debt

I wrote a long response, only to see it disappear into the ether when I tried to post it.  My own damn fault.  Someone should whack me with a 2X4 occasionally to remind me how to do these things.

But, the bottom line was that I focus on three levels of debt; total credit market debt of $55 trillion, Federal debt of $16 trillion, and the $3 trillion of presumably toxic assets on the Fed's books.  As a kind of subdivision of the last, I also wonder how much of the toxic mortgage debt still sits on tbtf bank books.

I have no basis by which I can make judgments about all that debt until I know how much of it is likely to be repaid; how much can be sustained in the medium term with interest payments only, how much should be written down if calculated by mark to market accounting and how much must be written down.

I really hope this discussion can clear some of that up for me.  Thanks Adam for creating this group.

Doug

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effective rebuttal

I stumbled upon this after posting the above:

http://www.zerohedge.com/news/2013-01-26/end-era

Quote:

Authored by Dr. Tim Morgan, Tullet Prebon,

The economy as we know it is facing a lethal confluence of four critical factors – the fall-out from the biggest debt bubble in history; a disastrous experiment with globalisation; the massaging of data to the point where economic trends are obscured; and, most important of all, the approach of an energy-returns cliff-edge.

Through technology, through culture and through economic and political change, society is more short-term in nature now than at any time in recorded history. Financial market participants can carry out transactions in milliseconds. With 24-hour news coverage, the media focus has shifted inexorably from the analytical to the immediate. The basis of politicians’ calculations has shortened to the point where it can seem that all that matters is the next sound-bite, the next headline and the next snapshot of public opinion. The corporate focus has moved all too often from strategic planning to immediate profitability as represented by the next quarter’s earnings.

This report explains that this acceleration towards ever-greater immediacy has blinded society to a series of fundamental economic trends which, if not anticipated and tackled well in advance, could have devastating effects. The relentless shortening of media, social and political horizons has resulted in the establishment of self-destructive economic patterns which now threaten to undermine economic viability. We date the acceleration in short-termism to the early 1980s.

Since then, there has been a relentless shift to immediate consumption as part of something that has been called a “cult of self-worship”. The pursuit of instant gratification has resulted in the accumulation of debt on an unprecedented scale. The financial crisis, which began in 2008 and has since segued into the deepest and most protracted economic slump for at least eighty years, did not result entirely from a short period of malfeasance by a tiny minority, comforting though this illusion may be. Rather, what began in 2008 was the denouement of a broadly-based process which had lasted for thirty years, and is described here as “the great credit super-cycle”.

20130125_End1_0.jpg

It's a bit like the CC, but his analysis of globalization is good supplement.  The debt "super cycle" is obvious now, but we don't seem to be doing much about it.  Lending the whole report credence is his emphasis on energy, to which we are well aware on this site.

Good read.

Doug

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Titanic or Musical Chairs?

Interesting dichotomy. When I read these kind of things (Reich) I try to put myself in their shoes to understand why they are writing it. He has shown over the years to be 'liberal' in his thinking (for lack of a better term), then, what he is saying here actually makes sense within the context of the system we have. Now if that context changes as you are pointing out, then what he says doesn't make a lot of sense. From the context of his point of view (I'm not saying this is my point of view), what I hear him saying is:

"The extremely wealthy people who are saying we need to cut programs that don't effect their wealth, quality of life, or safety net, are really saying that we 'the little people' need to give up much of the safety net that we paid into so that we can keep this system that has redistributed the wealth fraudently to these extremely wealthy people...so they can continue to enjoy the system."

When you hear that, then the argument for a wealth tax is logical, not to mention there is plenty of historical evidence to support the redistribution of wealth from the top back toward the bottom. But, as you point out, when the context changes, hence, we realize that we have a fundamental flaw in the system (exponential growth and limited resources), then this type of logic begins breaks down. The redistribution might have some tempering effect, but in the end we are still left with the fundamental flaw.

I've been thinking about the analogies to the titanic for what's happening and potentially coming. I'm beginning to think it's more like a big game of musical chairs. The chairs are our resources. The music is playing and we are all playing the game and then the music stops for a second and we all scramble for a chair. Those with the most wealth are people with the fattest a$$es. They have the capability of pushing the skinnier a$$es out of the way by their shear mass. The chairs are sitting around the table of consumption so these fat a$$es keep getting fatter and now need two chairs to sit on when the music stops. Meanwhile those getting pushed out of the game just sit on the sidelines either passively watching and wondering if they'll get to play again, or there are some that try to steal a little bite between the players that remain.  Eventually, there's one big fat a$$ at the end that wins the game. Then everyone says okay great you won, you sit on top of the mountain, now what?

Thank You

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Let's compare Reich to some data

Thanks Adam for starting Economy Wonks and writing this thread.  Your personal story is compelling.  I want to address the following issues taken from Reich’s quote.

These regressive sentiments are packaged in a mythology that:
*  Americans have been living beyond our means
*  We’ve been unwilling to pay for what we want government to do for us
*  We are now reaching the day of reckoning.
The truth is most Americans have not been living beyond their means
The problem is their means haven’t been keeping up with the growth of the economy

I will use graphical data directly from the Federal Reserve web site, and one from the New York Times.  Doug’s graph provides an excellent overview on total credit market debt.  I will narrow the focus.

Americans have been living beyond our means.  TRUE  This graph shows United States Government debt divided by GDP.  Last year it exceeded GDP.  This is just the official debt.  It does not include unfunded liabilities that are estimated to range from $70 trillion to $400 trillion.  This sure looks excessive to me.

We’ve been unwilling to pay for what we want government to do for us.  TRUE  This graph shows United States Government expenditures and receipts.  Notice how often the red line of expenditures is above the green line of receipts.  You can quibble about “willing”, but for 30 years now we certainly haven’t done it, except for a brief period in the late 90s.

Most Americans have not been living beyond their means.  FALSE  This graph shows personal debt divided by disposable personal income.  That means income after taxes.  All personal debt, the blue line, peaked at 130% of income.  Just mortgage debt, the red line, peaked at 100%.  Does this look like responsible money management to you?

https://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html

Means haven’t been keeping up with the growth of the economy.  I think this is TRUE.  However the best graph I can present is based on data from the Census Bureau, Bureau of Labor Statistics, and the Federal Reserve that has been interpreted by Reich and professors from UC Berkley.  However, I’ve seen confirming data from a variety of credible sources for over twenty years now.  This graph shows the growth of wages compared to productivity.  More wealth is being produced but median pay has been stagnant since the 70s.

We are now reaching the day of reckoning.   TRUE  In fact it already started with the crash of 2008.  Look at the first three graphs again.  The changes since 2008 are drastic and shows that the reckoning continues.  Odds are it will get only get worse.

Adam has show one good example of how to respond to this knowledge.  Think hard about what works best for you.

Travlin

PS  In a previous thread my graphs displayed in the thread instead of having to follow the link.    Does anyone know why they don't display here?  Adam, feel free to fix this if you can.

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we may and we may not

"The ride from here is likely to get bumpy as reality punctures our leaders' unrealistic expectations. But if we, as individuals, invest in living authentically, working hard, and fostering supportive community, we'll enjoy the benefits of a resilient life regardless of what transpires."

Well Adam, the more I learn and see, the more I realize there are NO guarantees, including this statement which, quite frankly, sounds a little PollyAnna-ish, no disrespect intended.  That's not to say we should abandon this way of thinking.  It's fundamental to a physical approach to the issue.  But it may very well not be enough.

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No guarantees given

ao -

I didn't provide any guarantees, despite your reading it that way.

I do agree the future is full of uncertainty. As with everything in life: your efforts to prep could fail when needed most, you may have the right strategy but the wrong timing, things could really get out of hand where you live, etc. As Chris often says, "local mileage will vary".

That's no reason not to invest in your resiliency, though, IMO (and it sounds like you agree). And it's not a reason to live fearfully, either. Those who foster resiliency at both the physical and emotional levels will have the best odds of thriving regardless of what the future brings. Part of that is bringing a 'practical optimism' to your planning. You may regard that as PollyAnna-ish; I don't. It's at the core of our approach here at Peak Prosperity.

But if you're looking for guarantees regarding the snippet you quoted, I'll give you one: I'll guarantee you WON'T enjoy those benefits if you don't invest in those practices.

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Adam Taggart wrote: ao - I

Adam Taggart wrote:

ao -

I didn't provide any guarantees, despite your reading it that way.

I do agree the future is full of uncertainty. As with everything in life: your efforts to prep could fail when needed most, you may have the right strategy but the wrong timing, things could really get out of hand where you live, etc. As Chris often says, "local mileage will vary".

That's no reason not to invest in your resiliency, though, IMO (and it sounds like you agree). And it's not a reason to live fearfully, either. Those who foster resiliency at both the physical and emotional levels will have the best odds of thriving regardless of what the future brings. Part of that is bringing a 'practical optimism' to your planning. You may regard that as PollyAnna-ish; I don't. It's at the core of our approach here at Peak Prosperity.

But if you're looking for guarantees regarding the snippet you quoted, I'll give you one: I'll guarantee you WON'T enjoy those benefits if you don't invest in those practices.

Adam

I'd definitely agree with your last statement more completely if we didn't have a government that might decide you should share the fruits of your labor with someone who didn't take the action you did.  And I agree one shouldn't live fearfully but rather realistically and even more importantly, faithfully. 

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Inevitable Resiliency

AO/Adam,

"The ride from here is likely to get bumpy as reality punctures our leaders' unrealistic expectations. But if we, as individuals, invest in living authentically, working hard, and fostering supportive community, we'll enjoy the benefits of a resilient life regardless of what transpires."

I'm not trying to speak for Adam, but the way I read this is:
There isn't much we could do to be less resilient. If you work at it you can, at a minimum, suffer less than you otherwise might when the dues are called in, the party ends and we collectively start feeling the hangover from living on unlimited energy and resources.

Afterall, in my estimation, our transients live better than people in third world villages.

I'm not trying to speak for AO, but the way I read his comment is like this:
We're on the precipice of something that's a lot more dangerous that we like to acknowledge.

So, just going off my interpretation, I think you both have a point that should be well taken.
We should be doing everything we can to build resliency in the interim, but it's probably not wise to think that benevolence will reign if/when we have a collapse - which is inevitable to any business that's so mismanaged. 

Adam, 

I really like the anology that the U.S. is like a poorly run business. Every facet of our society these days "looks" like a corporate business to me; we have revolvoing door positions for societies less educated laborers, security to make sure they don't get too rowdy, a bored, disenfranchised middle management and a bunch of dawdling, priveledged idiots 'elected' (in-so-much as you elect your coporate management) to manage our company. 

So what do we sell? Money, I think. We're a money distribution machine for the FED, and not a lot more. 
With no tangible assets, and such a widespread involvement in the rest of the world's transactions, we can't ignore how an eMerican economic collapse would impact the rest of the worlds powers. Argentina, Zimbabwe, Yugoslavia... the Soviet Union - those were all either isolated economies or economies that were reliant on western banking. When that bank itself goes?

I shudder to think, and I don't think you're statement sounded "Pollyanna", but we may be in for a *very* rough ride... 

We seem to be cool with acknowledging the notion that there's something deeply wrong with our society, and that it will impact us, but we seem equally comfortable ignoring the gradient; we say sure, standards will change - but that change itself invites further change, and the potential for a very deep, cataclysmic collapse exists embedded within these changes in the macro-economic composition of the Earth. 

The population cannot be supported by organic methods (ergo, agriculture without readily available petrol) and that to me speaks volumes about the potential depths. So, as we look into this dark water that's rising, I think we all see the width and breadth, but the depth is something we really can't nail down.

African scale pandemics, starvation, drought and warfare is not unlikely. The Roman Empire was digested by very similar social ills and the dark ages were the result. History might not repeat, but it has a rhythm, and I have a hard time believing people will pull together in sufficient quantity and with sufficient skills and ethics to make anything more than very small, isolated pockets of 'resilent' communities. 

If I had to guess, I'd say that when the bill gets handed to us, most of the people in the U.S. will be reduced to what is basically serfdom for wealthy land owners. Why? Because that's been the human condition since the agricultural revolution, barring the last 400 years.

Cheers,

Aaron

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Excellent point-by-point analysis, Travlin

Excellent work, Travlin!

I was really hoping for this kind of "eyes wide open" analysis when starting the Economy Wonks Group. Thanks for starting with the bar high.

(You'll see I did load the charts into your previous post, save one. I couldn't get the NYT one to appear legibly, so I left the link. Email me if you want to a refresher on how to add images to comments).

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Arsonist's with Firechief's Hats

Lots of good comments, but for the life of me it seems like many others read a very different quote from Reich than I did. Firstly, I usually enjoy his commentary, I do not always agree with him as I find he tends to oversimplify things and leave out salient details in the process.

I read his quote as primarily a slam at the currently fashionable practice of lamenting the “fact” that we cannot afford Social Security, Medicare, and other so-called “entitlement” programs. (Even the naming convention is a pejorative)

I happen to agree with this part of the quote, and I suggest that this is the substantive part of his point. He does bring in the spoiler to claim that Americans do not live beyond their means, and this seems to be inflammatory to the PP audience, so we have the majority commentary concerning this and related subjects. More on this in a minute.

To his primary point, I’ll offer a supportive narrative; there is an intrinsic requirement in a capitalist political economy for an insurance type safety net, that cannot be marginalized by Libertarian or other small government ideologies. It must be provided for as a first priority, it is not a question “can we afford it” it is a question of who pays for it. Period. Full stop.

How we got to the false dichotomy of caterwauling that we’re broke, SSI is a Ponzi scheme, and we must immediately stop the madness is almost funny, but is instead pathetic. These claims are the purview and lexicon of the wealthy and those that stand to benefit from cessation of these types of insurance programs. All part of a long line of disastrous neo-liberal socio-economic policies specifically designed to convert these types of programs to privatization, along with any and all other public assets. The only truly shocking part of this is how many perfectly intelligent (but apparently gullible) people fall all over themselves and march in lock step support.

Reich is rightly incensed that this narrative has reached the volume and decibel level that is has, as it fails every test of critical thinking.

Let’s go to Mark Thoma, who published this excerpt in 2005:

Economic systems differ in their ability to provide goods and services and in the level of economic risk faced by a typical household. Socialism is a low mean, low variance economic system. With a planned economy, cycles in unemployment do not occur unless mandated by planners. Worker income, though low, is not subject to substantial variation over time. Other economic risks, such as access to housing and risks related to healthcare are also very low since these services are provided by the state. Economic risks for workers are low in such a system, but so is average income.

Under capitalism the average level of income is much higher, but economic risk is higher as well. In a capitalist system, workers can be involuntarily displaced as new products are invented, new production techniques are implemented, production moves outside the country, or inevitable business cycle variation occurs. These are shocks that affect workers independent of their own behavior. A worker who has shown up to work every day and worked hard to support a family can be suddenly unemployed for reasons unrelated to anything connected to his or her own behavior.

As the U.S. entered the 20th century, important social changes arising from industrialization were becoming increasingly evident, and these changes exposed the high degree of economic risk under a capitalist system. Migration to cities and the resulting breakup of the extended family, reliance on wage income as a primary means of support, and increasing life expectancy resulted in increased economic risk for the typical worker relative to the more agrarian economy that existed prior to industrialization.

In an agrarian economy, economic security is provided by extended family relationships coupled with the largely self-sufficient nature of farms. On a farm, a recession is a bad harvest, but it generally does not mean a total lack of income. Times can be tough, food can be very scarce and there can be hunger, but generating a subsistence level of income from the farm is usually possible even in the worst of years. For a worker dependent solely upon wage income, the consequences of a recession are much more severe. A recession means a total lack of income, not just hard times. Without the help of others or the existence of some type of social insurance program, abject poverty is a real possibility (see Life After the Great Depression for descriptions of the misery that followed the Great Depression).

Retirement also takes on a different character. On the farm, retirement meant gradually, if often reluctantly, letting the children take over responsibility for the farm, but it did not mean a total loss of income. Children provided for parents. But an aging worker in a city, perhaps disconnected geographically from their children, faces a different circumstance upon retirement. Such a worker may face a complete loss of income, and disability from age is not always an event that occurs according to plan. Even a worker who has diligently saved for retirement can suddenly become impoverished due to events such unexpected health costs, or even a much longer life than expected.

As industrialization progressed, 1920 marks a benchmark year where, for the first time, more than half of the population lived in cities. When the Great Depression hit around a decade later, the social changes the U.S. was experiencing and the need for new ideas regarding the government’s responsibility for the economic security of its citizens became clear. The Great Depression made it evident that in a capitalist system, where the whimsies of the marketplace can wreak havoc on people’s lives, the government has an obligation to provide economic security. It was also evident that the private sector did not provide the needed level of insurance and that government intervention was required to overcome this problem (due to both moral hazard and asymmetric information problems in the private insurance market).

It is important that the economy be allowed to change with new technology and changing preferences, but the consequences for innocent workers affected by such changes is a social responsibility that needs to be addressed. In addition, as extended family relationships are hindered by geography and the social contract between parents and children breaks down, the elderly need a way to avoid poverty. Programs such as Unemployment Compensation, Medicare, and Social Security arose as a means to mitigate these economic risks under capitalism using the least amount of society’s valuable resources.

Drawing a rough analogy, socialism is like investing in T-Bills. Low risk, but low return. Capitalism is like the stock market. There is a higher average return accompanied by higher risk. Financial theory tells how to insure against such risks and there is no reason why this cannot be applied in the social insurance arena to smooth variations in income.

There is a need for social insurance under capitalism.

Yes. Absolutely.

And lastly, back to the point that Americans have or have not lived beyond their means. Economist Michael Hudson gets it right when he points to the valorized time of the supposed Clinton budget “surplus”. He points out that these budget surpluses simply represented a withholding of state (federal) spending, and this directly transferred into a lower wage average for most Americans. He is right on this point. Lower infrastructure investment stymies technological growth limiting such growth to that which is directly and easily monetized by the supposed free market. However noble this may appear, this does not map to the organic growth of the population, newly minted college graduates, coupled with the labor glut caused by both enhanced productivity stateside and offshore low burden labor, seek to further drive wages lower.

However, the cost of living does not stay static, and the consumer credit industry is used to fill in these shortfalls, resulting in catastrophic levels of personal debt. Michael Hudson’s central point is that declining wages are supplemented by the availability of consumer debt, and account for the massive levels of private debt (much larger than government debt as a function of GDP)

So we are to interpret this as “living beyond our means” or is there a deeper, more important question that is beginning to appear?

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Thanks Adam

Thanks for the help with the graphs.  I will email you.

You asked for wonk, so … cheeky    As demonstrated by a lot of people here, it is not necessary to get real technical to provide good information.  Some of us are just sort of weird that way.  But I appreciate the opportunity to let my inner nerd get out to play.  He can be a real pest sometimes.

Travlin

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I agree Darbikrash

It is important that the economy be allowed to change with new technology and changing preferences, but the consequences for innocent workers affected by such changes is a social responsibility that needs to be addressed. In addition, as extended family relationships are hindered by geography and the social contract between parents and children breaks down, the elderly need a way to avoid poverty. Programs such as Unemployment Compensation, Medicare, and Social Security arose as a means to mitigate these economic risks under capitalism using the least amount of society’s valuable resources.

I've been pushing this point for awhile. In my opinion it's not a liberal or conservative view, but a reality. Technology and science are wonderful and we need them, but they also create costs as much as benefits. Although innovation/invention can happen at any level of the economy, most often it is applied from the top down when it comes to major mass-societal changes. We need to remember that technology has a long history of being a mechanism for keeping wages down for the capitalist. Increase the rate of innovation and my guess is wages fall faster. (anyone have graphs on this?) If we were to calculate the real costs of innovation, meaning the social/wealth cost of displaced workers and made the private entities that are responsible for these changes pay for those real social costs, we probably wouldn't need the social safety net, but unfortunately this is wishful thinking since they see their actions as a part of the "free market"  and not as a responsibility to the society that made them the entity they are. The other problem is that these costs are often future costs that can't be predicted and only reveal themselves in hindsight. I see hypocrisy on all sides of this. Too often the rebuttal is "we're a company, not a charity."  On a human level, it makes me sick, but our current mature capitalist system (an aggregate of oligarchs) really doesn't treat the human as a human, but rather as an input. On a financial level, they are only doing what they need to do to survive. I'm not sure what the answer is, but we definitely need the safety net, because the private sector has shown that they don't want to and cannot afford to take on the responsibility. If they would stop and think about it, they are getting a pretty good deal...they cut their costs through innovation, and the public sector gets to deal with and pay for the fallout...private sector merely washes its hands once the decision is made, albeit, subtracting out the minor token of a severence package. 

Thank You

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More agreement

Darbikrash,
"It is important that the economy be allowed to change with new technology and changing preferences, but the consequences for innocent workers affected by such changes is a social responsibility that needs to be addressed. In addition, as extended family relationships are hindered by geography and the social contract between parents and children breaks down, the elderly need a way to avoid poverty. Programs such as Unemployment Compensation, Medicare, and Social Security arose as a means to mitigate these economic risks under capitalism using the least amount of society’s valuable resources."

It won't be much of an option of we want to even pretend to stave off Plutarch's "oldest and most fatal ailment" in society. With people living longer, we can no longer just remove them from the workplace and benefit by hiring less expensive workers... Many elders these days do not have the latitutude to rely solely on SSI, or their pensions (which are becoming more scares, less profitable and dramatically less reliable). 

The social implications of these things, to me, speak to the fact that we have, beyond a doubt, lived beyond our means.
Had we not, our senior citizens would not be looking for jobs greating people at Wal-Mart to try and bridge the gap between their SSI and debt obligations. That's not a reflection on poor spending habits or (just) a failure to save, either. The market forces that drove the housing bubble did some pretty solid damage to the entire idea of retirement through the hideously inflated costs of housing. There's no way that a house in a subdivision on .14 acres that cost $25k in material and another $20k in labor can immediately appreciate to $250k... and continue to appreciate as it's used, and grows older.

So, where does this go from here? 
Government housing projects, food assistance and so on. There's no choice but to increase government spending to deal with the fallout from state-sponsored spending and risky loan making.

Kinda ironic.
Cheers,

Aaron
 

Quercus bicolor's picture
Quercus bicolor
Status: Silver Member (Offline)
Joined: Mar 19 2008
Posts: 248
Limits to growth

Darbikrash,

The argument that capitalist systems impose more economic risk on people and therefore are best complimented by a social safety net is a good one.  However, that doesn't change the limits placed on the system by depletion of resources.  It could be argued that using up those resources quickly as if there were no limits is living beyond our means in that it gives a higher standard of living today at the expense of a lower one and possible economic/social/political instability in the future. 

Perhaps if we reorganized our economy to provide a lower standard of living and a safety net in line with that lower standard, this concept would work.  Another possibility is to reorganize society to once again allow local communities and extended families to provide that safety net.  Of course, if we don't reorganize voluntarily, the reality of depleted resources will do it for us.

I hope you all find my thoughts a useful addition to the discussion.

Q.B.

darbikrash's picture
darbikrash
Status: Platinum Member (Offline)
Joined: Aug 25 2009
Posts: 573
More firehats and arson...

@ Gillbilly- spot on with your assessment of technological impact on wage labor.

One of the great secrets of the mid and late 20th century was the implementation of productivity enhancement schemes (intensification of production) in the middle class workplace.

What is not widely recognized was that some percentage of these productivity gains were returned to the middle class in the form of increased benefits and wage inputs during much of the 20th century. These distributions, coupled with a labor shortage, were largely responsible for the increase in living standards for the middle class during the previous century. What is notable is the sharing of these productivity gains was decidedly one sided <shocker> and heavily biased to the managerial and capitalist class.

20 percent for you and 80 percent for them.

Nevertheless, this resulted in solid wage gains and a rising standard of living up until the late ‘70’s- when neo-liberal economic polices came into full swing. Neo-liberal economic policies introduced aggressive trade practices that provided access to low burden labor (e.g. far east labor) and the dominant dynamic of the 20th century ended abruptly and without fanfare- which is to say the labor shortage that lasted nearly 200 years was over. In it’s place was a labor oversupply, found within ready and easy access to extremely low cost Chinese workers.

In this context, the productivity sharing with the middle class begins to erode, there is no longer a compelling need to retain and attract labor, as unions have been decimated in the same time frame.

In this environment of global competition, corporations must externalize costs, as they are competing against the lowest common denominator not just in this country, but in low wage labor countries as well.

The name of the game became, and still is, externalizing costs. This externalization of any and all costs becomes predatory, and results in a “double whammy” as labor is outsourced, simultaneously adding to the oversupply of captured US labor driving wages lower, and decrementing the local tax base by removing regional consumers from the payroll.

Hence, we “can’t” afford social programs like SSI.

Again, its arsonists with firechief hats. (H/T Brad Delong)

@ A.M.

Your example of the housing bubble phenomena is a good one. Many considered that housing appreciation would provide a significant supplement to their SSI benefits, and we know how well that’s working out.

There is another example that is perhaps more relevant to Reich’s position on living beyond ones’ means, and that is the overall demise of the rentier class as a method of maintaining even a modest standard of living upon refinement.

Many folks saved throughout their lifetime, often enduring significant hardship to save a nest egg that was earmarked for supplemental retirement income realized through money market accounts, interest bearing passbook accounts, and FDIC insured CD’s. These plans are completely shot due to the ZIRP monetary policies that have reduced interest income on insured accounts to laughable levels. You can make the argument that these monetary policies are the result of government gone wild, or you can make the argument that these measures were needed to address a crisis of capitalism, but either way, I doubt that this cohort of savers and newly minted retirees would take kindly to the notion that they lived (or are living)  beyond their means. Talk about a broken social contract.

This example reduces to the glass half/full-half/empty argument, as technically, they are unable to support themselves to the standard of living that they planned for, notably, due to forces entirely outside of their control.  In other cases, the home mortgage debacle has similar examples. Yes, a good many people bought homes they had no business buying, and to be sure some treated their homes as frivolous ATM’s, but others borrowed against their homes to pay medical bills for a sick child, telling themselves the rising tide of appreciation would float all boats. Living beyond their means? Technically, yes, if expenses exceed inflows, that is the classic definition of overspending.

But if the collapse of social mobility is closing off opportunities for personal advancement, and wages are also contracting due to the aforementioned reasons, these arguments begin to lose their gravitas if workers are unable to pay for things at the sustenance level, such as medical care, medical insurance or even food. This transcends what we would all agree is to be a declining standard of living as we enter a time of resource depletion.

It does force a considered approach to prioritization of things that constitute an acceptable standard of living, and these necessary compromises are held in stark relief to the excesses of the upper class.

Reich’s point is that continued deification of these fortunate few (and their self aggrandizing arguments) is not only counter productive, but introduces a dialog accompanied by a defective moral compass which improperly valorizes those that do succeed as being entirely self sufficient, and then seeks to cut the legs out from under those who are less successful- and passes it all off as absent resiliency, poor morals, laziness, and lack of individual responsibility/financial planning as the prime causality.

The numbers are stark, more than 1/3 of the population has a zero net worth, and fully ½ would be destitute within 90 days of losing their job. Maybe those arguments of moralistic failure play with a small percentage of slackers and layabouts, say 5%-8% of any given population which sociologists tell us are always going to be moochers, but when the numbers get to be this large, it’s just not a plausible argument any more.

Lastly, on your point that this realization will result in increased government spending and government housing projects, etc, I’m not so sure. We are discussing social insurance, not government handouts. The question has been asked, but not answered, “who pays for it” (it being acceptable and meaningful social insurance) and to me when I see Apple computer sheltering $1billion USD per week from taxation, I know exactly where it needs to come from.

@ Quercus bicolor….agree 100%.

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 1909
New PP Group tracking resource depletion

Fellow Wonks -

Just wanted to alert you to a new PP.com Group ResourceWatch that is dedicated to tracking the quantity & quality of the remaining stocks of key resources.

Today's first post concerns the recent news of drastic cuts (up to 77%) in the catch rates for the cod fishing industry, as fish stocks remain dangerously depleted.

The Crash Course framework is built atop the Resources story. If, like me, you want as clear a view as possible to how it's playing out, consider joining this Group.

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