Monday, October 18, 2010

Aftershock, Income Inequality, and Why Everyone is Angry at the Economy

The other day on NPR's Fresh Air, they had Robert Reich on, talking about his new book, Aftershock: The Next Economy and America's Future. I found the interview both entertaining and informative. The basic thesis of the book is that, in terms of recovery from our current economic troubles, we're hosed. According to Reich, the underlying issue with the economy isn't just about banks or stimulus, it's about an income inequality and the impact that it's having on the overall economy. Reich goes back and highlights a figure from the Great Depression who addressed some of these issues, then points to some larger changes that would be needed in order to bring jobs back to the economy and purchasing power back the middle class.

One quote that I found particularly amusing, Reich pointed out that when they go to mainstream America and tell them that the recession ended back in June 2009, that people laugh at them. The people who are out of work, underwater on their mortgages, and struggling to make ends meet are keenly aware that if your indicators say that we're out of the recession, then your indicators suck.

This is something that is an underlying pain point for the current administration and one of the issues that's driving trends as we move toward the election in November. Regardless of what the economic dashboards say, regardless of what the stock market numbers say, the Main Street economy sucks. But there is actually a bigger theme behind this.

For some time now, there has been the adoption of this idea by the media and in political circles in Washington that if the stock market numbers are high and the market appears strong, then the economy must be healthy, happy, and thriving. The Bush administration used this same logic to make a case for the performance of their economic policies, despite poor employment numbers and a generally lifeless economy. It's also a core message to the whole concept of 'trickle-down' economics, "they are doing well and it's only a matter of time before that starts to trickle down your way. Wait for it... Wait for it..."

But one job is not always equal to one job. Remember when they wanted to make "burger assembler at a fast food restaurant" count as a manufacturing job -- it makes it easier to mask the gushing flow of manufacturing jobs leaving the local economy.

When the financial system was on the edge of collapse, our government rushed in the paramedics to rescue the financial services industry. We bailed out Wall Street. We bailed out GM. We bailed out the banks and AIG. But when it came to saving the suffering middle class through programs like extended unemployment or mortgage relief, the people we elected did little to help. Those initiatives sank and drowned. For home owners that found themselves in loans that were underwater, there has been no adjustment, no correction, no bail out, just a continuing parade of foreclosures and terrible unemployment. This sense of inequity is part of what's driving the anger.

On Marketing and Message
If you look at all of that anger and the energy behind it, then connect it to messaging, you can see some of the challenges that the current candidates are facing. For Democrats, they position themselves relative to the bail out and say, "see, we saved the economy," but that doesn't match the reality that people are experiencing or perceive that they are experiencing. It doesn't really matter whether there was a victory on paper or not -- it's like telling someone who's computer was infected with a virus, "I've been able to rebuild your operating system, but all of your files, your photos and your data are gone."

Meanwhile, Republicans say, "see, we told you the bail out was a bad idea. They just made matters worse." But with marketing and message, people gloss over history, so it doesn't really matter that the collapse and the TARP bailout both took place under the a Republican president, nor does it matter that when it came to the stimulus bail out, Republicans sat on the economic Titanic and fought to prevent Main Street access to lifeboats.  Whether or not Republicans offer a solution or a recipe for anything other than a return to the policies of the previous administration doesn't really matter, instead there is an audience that can connect with single message that bailout equals bad idea.

If you follow Reich's thesis, real resolution won't happen until this income inequality can be addressed. And with most of the current approaches centered around "the health of Wall Street" as though it were an engine instead of an indicator, the larger outlook will probably remain bleak (or worse) for some time.

The Great Irony of the Bailout
The great irony of the bailout is that people that directly benefited from it are also angry and frustrated. Here is an interesting segment from the episode of This American Life titled 'Crybabies' that aired recently on KQED. Continue through the intro on 'Outrage' to this first section on Wall Street. Here's a synopsis from their site:
Act One. Wall Street: Money Never Weeps.
Ira with Planet Money economics correspondent Adam Davidson on why—even after everything President Obama has done to save Wall Street, actions which have led to record profits and bonuses—Wall Street seems ungrateful. Adam and producer Jane Feltes head out to a Wall Street bar where they're told by three finance guys that there's no reason to thank the President for saving their jobs. Planet Money is a co-production of This American Life and NPR News. (14 minutes)  
A Populist Pressure Cooker 
Overall, a poor economy stresses its constituents. People are unhappy and looking for change, but finding themselves powerless to make changes. Stuck in an underpaid, overworked job with increasing productivity expectations? If there are no jobs, you have no freedom to change jobs or find a better situation, and there is no pressure on the employer to make your work environment better. And like a stove with the burner on high, tensions and stress within our society keep increasing.

Take California as an example. We have a situation where the laws and ballot initiatives have mandated levels for the majority of spending for the state, making real change impossible. Meanwhile, term limits, super-majority requirements and the demographics of the legislature mean that most budget 'problems' get rewritten and pushed into the future. Several years ago, frustrations with this situation exploded in the recall and the election of a populist reformer. And yet, despite publicity, a famous name, and host of proposed reform programs, nothing really changed and no problems were solved. Nowadays, you often hear proposals of revolutionary reform like a Constitutional convention, but I haven't seen the signs of a real movement for anything like that. And so, with politics what you have now are people spinning messages of reform on top of a system and product that isn't really going to change fundamentally.

In Reich's interview, he noted that the current policies were not reforming the economy sufficiently to change the imbalances highlighted in his book. However, he was optimistic that, over time the government would come to understand that the reforms-to-date were not sufficient to correct the bigger picture, and begin implementing stronger reforms. I don't agree with him on this point. A conspiracy theorist might suggest some sort of overarching system that benefits from keeping the pressure cooker on high, but I think that the truth is much simpler. Like a business with shrinking markets and uninspired products (fill in your example here), government and politicians intrinsically avoid bold vision or substantial change. Imagine if we had some sort of entrepreneurial start-up incubator model for new government policy and reform.

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