Prosperity for the Few, Inequality for All

A new film by Robert Reich can reopen a much-needed economic discussion.

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Are you wondering why incomes for most Americans have been flat or declining even though the economy as a whole is growing? Do you wonder that means for economic growth and for our democracy?

For a refreshing and lively take on these issues, see "Inequality for All," a new film that debuts this weekend at theaters across the United States. (View trailer and see list of cities, theaters, and dates.)

"Inequality for All" features the work of Robert Reich, who served as secretary of labor under President Clinton and at the Federal Trade Commission under President Carter. With a deft comedic touch unusual in a documentary film, Reich explains how inequality has risen to levels not seen since before the Great Depression, what it means, and what can be done.   

[See a collection of political cartoons on the economy.]

A chart demonstrating increases in the annual income of the top 1% of wealthy persons in the U.S. before economic crises.

As the above chart suggests, the U.S. enjoyed a Golden Age from 1945 to roughly 1975 when the economy was growing strongly (as measured in Gross Domestic Product and stock market prices) while at the same time, inequality fell steadily. Some of this prosperity was sheer luck: the U.S., thanks to being separated by two oceans from the battlegrounds of World War II, had the only industrial capacity in the world that hadn't been bombed into smoking ruins.

But, Reich points out, inequality fell as productivity rose for several reasons: Workers had strong negotiating power through unions. Globalization had yet to pit U.S. workers against low-cost foreign labor. Higher education (the key to economic advancement) was very affordable. And taxes at the top brackets were high: as much as a 70 percent marginal rate for much of this period.

But starting around 1980, much of this changed. Globalization and anti-union legislation drove down wages. College costs rose much faster than inflation. Marginal income tax rates at the top came down fast. Meanwhile, the taxes that mostly fall on the middle class (such as sales taxes and payroll taxes) went up. 

[See a collection of political cartoons on the budget and deficit.]

As a result, all but the highest earners saw a decrease in inflation-adjusted take-home pay:

From 1990 to 2007, wage inequality in the U.S. increased significantly. The bottom 90-95% went down. The top 5% went up with the top 1% going way up. This is driven in part by trade agreements like the Trans-Pacific Partnership (TPP trade agreement). Read our white paper to better understand how TPP hurts our middle class.

Despite deteriorating economic fundamentals, many Americans were able to prop up their life styles for another decade or more. Women entered the workforce in large numbers, adding to household income. The length of the work day increased.  Families borrowed the equity they had built up in their homes. Ultimately, of course, these mechanisms ran out. The economic spring had started winding tighter in the mid 1980's. It tightened until it snapped in 2007.

Reich says that the trend towards concentrated wealth at the top has accelerated briskly since the Great Recession ended. According to data collected by Reich's colleagues at the University of California, Berkeley, nearly all the value created as the economy recovered from the Great Recession has gone to those in the top 10 percent of incomes, leaving many Americans no better off than they were in 2009-2010. Reich argues that current levels of inequality are a threat to economic growth itself: Our economy depends on consumer spending, and if consumers lack spending power and confidence, the recovery can't last very long.

The movie, directed by Jacob Kornbluth, features interviews with many ordinary Americans struggling to make ends meet. It's clear these people are not lazy. They are not Mitt Romney's 47 percent. They are working as hard as they can, holding two or more jobs in many cases.  They are spending as little as they can on day-to-day expenses. They are doing their best to build up some savings for unplanned expenses, for retirement and to send their kids to college. These people have been left behind by the American Dream.

[Read the U.S. News Debate: Should the Federal Government Provide Support to the Mortgage Market?]

Some commentators predict that "Inequality for All" can do for economics what "Inconvenient Truth" did for climate change. American's perceptions are shifting; this may be the moment for a more serious national conversation about the causes and consequences of inequality. When the American Dream was within reach for most people, Americans assumed that if someone was poor it was because they weren't willing to roll up their sleeves and get to work. Now, Pew Research reports, Americans recognize that many people work hard yet remain poor:

In 1994, Americans were just as likely to blame "not-working" as they were to blame "not-earning-enough" for the poor's lack of adequate income. This opinion changed substantially by 2001, when only one-in-three Americans believed the poor simply did not work. By 2012, with America reeling from the effects of the Great Recession, less than one-quarter still held this belief.

The Occupy movement got people talking about inequality, but it was unable to build a broad movement that could pressure a reluctant and dysfunctional Congress into taking action. Perhaps Reich's new film can reopen and broaden the conversation. Let's hope that this time the conversation can lead to action.

David Brodwin is a cofounder and board member of American Sustainable Business Council. Follow him on Twitter at @davidbrodwin.

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