Aftershock(Inequality for All--Movie Tie-in Edition)

Aftershock(Inequality for All--Movie Tie-in Edition)

3.9 125
by Robert B. Reich

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Updated and With a New Introduction

When the nation’s economy foundered in 2008, blame was directed almost universally at Wall Street bankers. But Robert B. Reich, one of our most experienced and trusted voices on public policy, suggests another reason for the meltdown. Our real problem, he argues, lies in the increasing concentration of income

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Updated and With a New Introduction

When the nation’s economy foundered in 2008, blame was directed almost universally at Wall Street bankers. But Robert B. Reich, one of our most experienced and trusted voices on public policy, suggests another reason for the meltdown. Our real problem, he argues, lies in the increasing concentration of income at the top, robbing the vast middle class of the purchasing power it needs to keep the economy going. This thoughtful and detailed account of the American economy—and how we can fix it—is a practical, humane, and much-needed blueprint for rebuilding our society.

Editorial Reviews

From the Publisher
Praise for Robert B. Reich's Inequality for All

“Important and well executed. . . . Reich is fluent, fearless, even amusing.”
The New York Times Book Review
“Reich provides a thoughtful dialogue about the structural problems that led to the recent recession. . . . His ideas are worth exploring.”
The Washington Post
“[Reich] suggests a number of innovative ways to reverse the trend toward greater inequality and usher in another, more hopeful phase in American history.”
The Charlotte Observer
“One of the clearest explanations to date of . . . how the United States went from . . . ‘the Great Prosperity’ of 1947 to 1975 to the Great Recession.”
—Bob Herbert, The New York Times
“All Americans will benefit from reading this insightful, timely book.”
—Bill Bradley

“Lucid and cogent.”
Kirkus Reviews
“Well argued and frighteningly plausible: without a return to the 'basic bargain' (that workers are also consumers), the 'aftershock' of the Great Recession includes a long-term high unemployment and a political backlash—a crisis, he notes with a sort of grim optimism, that just might be painful enough to encourage necessary structural reforms.”
Publishers Weekly

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Knopf Doubleday Publishing Group
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5.36(w) x 7.94(h) x 0.62(d)

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Eccles’s Insight

The Federal Reserve Board, arguably the most powerful group of economic decision-makers in the world, is housed in the Eccles Building on Constitution Avenue in Washington, D.C. A long, white, mausoleum-like structure, the building is named after Marriner Eccles, who chaired the Board from November 1934 until April 1948. These were crucial years in the history of the American economy, and the world’s.

While Eccles is largely forgotten today, he offered critical insight into the great pendulum of American capitalism. His analysis of the underlying economic stresses of the Great Depression is extraordinarily, even eerily, relevant to the Crash of 2008. It also offers if not a blueprint for the future, at least a suggestion of what to expect in the coming years.

A small, slender man with dark eyes and a pale, sharp face, Eccles was born in Logan, Utah, in 1890. His father, David Eccles, a poor Mormon immigrant from Glasgow, Scotland, had come to Utah, married two women, became a businessman, and made a fortune. Young Marriner, one of David’s twenty-one children, trudged off to Scotland at the start of 1910 as a Mormon missionary but returned home two years later to become a bank president. By age twenty-four he was a millionaire; by forty he was a tycoon—director of railroad, hotel, and insurance companies; head of a bank holding company controlling twenty-six banks; and president of lumber, milk, sugar, and construction companies spanning the Rockies to the Sierra Nevadas.

In the Crash of 1929, his businesses were sufficiently diverse and his banks adequately capitalized that he stayed afloat financially. But he was deeply shaken when his assumption that the economy would quickly return to normal was, as we know, proved incorrect. “Men I respected assured me that the economic crisis was only temporary,” he wrote, “and that soon all the things that had pulled the country out of previous depressions would operate to that same end once again. But weeks turned to months. The months turned to a year or more. Instead of easing, the economic crisis worsened.” He himself had come to realize by late 1930 that something was profoundly wrong, not just with the economy but with his own understanding of it. “I awoke to find myself at the bottom of a pit without any known means of scaling its sheer sides. . . . I saw for the first time that though I’d been active in the world of finance and production for seventeen years and knew its techniques, I knew less than nothing about its economic and social effects.” Everyone who relied on him—family, friends, business associates, the communities that depended on the businesses he ran—expected him to find a way out of the pit. “Yet all I could find within myself was despair.”

When Eccles’s anxious bank depositors began demanding their money, he called in loans and reduced credit in order to shore up the banks’ reserves. But the reduced lending caused further economic harm. Small businesses couldn’t get the loans they needed to stay alive. In spite of his actions, Eccles had nagging concerns that by tightening credit instead of easing it, he and other bankers were saving their banks at the expense of community—in “seeking individual salvation, we were contributing to collective ruin.”

Economists and the leaders of business and Wall Street—including financier Bernard Baruch; W. W. Atterbury, president of the Pennsylvania Railroad; and Myron Taylor, chairman of the United States Steel Corporation—sought to reassure the country that the market would correct itself automatically, and that the government’s only responsibility was to balance the federal budget. Lower prices and interest rates, they said, would inevitably “lure ‘natural new investments’ by men who still had money and credit and whose revived activity would produce an upswing in the economy.” Entrepreneurs would put their money into new technologies that would lead the way to prosperity. But Eccles wondered why anyone would invest when the economy was so severely disabled. Such investments, he reasoned, “take place in a climate of high prosperity, when the purchasing power of the masses increases their demands for a higher standard of living and enables them to purchase more than their bare wants. In the America of the thirties what hope was there for developments on the technological frontier when millions of our people hadn’t enough purchasing power for even their barest needs?”

There was a more elaborate and purportedly “ethical” argument offered by those who said nothing could be done. Many of those business leaders and economists of the day believed “a depression was the scientific operation of economic laws that were God-given and not man-made. They could not be interfered with.” They said depressions were phenomena like the one described in the biblical story of Joseph and the seven kine, in which Pharaoh dreamed of seven bountiful years followed by seven years of famine, and that America was now experiencing the lean years that inevitably followed the full ones. Eccles wrote, “They further explained that we were in the lean years because we had been spendthrifts and wastrels in the roaring twenties. We had wasted what we earned instead of saving it. We had enormously inflated values. But in time we would sober up and the economy would right itself through the action of men who had been prudent and thrifty all along, who had saved their money and at the right time would reinvest it in new production. Then the famine would end.”

Eccles thought this was nonsense. A devout Mormon, he saw that what passed for the God-given operation of economics “was nothing more than a determination of this or that interest, specially favored by the status quo, to resist any new rules that might be to their disadvantage.” He wrote, “It became apparent to me, as a capitalist, that if I lent myself to this sort of action and resisted any change designed to benefit all the people, I could be consumed by the poisons of social lag I had helped create.” Eccles also saw that “men with great economic power had an undue influence in making the rules of the economic game, in shaping the actions of government that enforced those rules, and in conditioning the attitude taken by people as a whole toward those rules. After I had lost faith in my business heroes, I concluded that I and everyone else had an equal right to share in the process by which economic rules are made and changed.” One of the country’s most powerful economic leaders concluded that the economic game was not being played on a level field. It was tilted in favor of those with the most wealth and power.

Eccles made his national public debut before the Senate Finance Committee in February 1933, just weeks before Franklin D. Roosevelt was sworn in as president. The committee was holding hearings on what, if anything, should be done to deal with the ongoing economic crisis. Others had advised reducing the national debt and balancing the federal budget, but Eccles had different advice. Anticipating what British economist John Maynard Keynes would counsel three years later in his famous General Theory of Employment, Interest and Money, Eccles told the senators that the government had to go deeper into debt in order to offset the lack of spending by consumers and businesses. Eccles went further. He advised the senators on ways to get more money into the hands of the beleaguered middle class. He offered a precise program designed “to bring about, by Government action, an increase of purchasing power on the part of all the people.”

Eccles arrived at these ideas not by any temperamental or cultural affinity—he was, after all, a banker and of Scottish descent—but by logic and experience. He understood the economy from the ground up. He saw how average people responded to economic downturns, and how his customers reacted to the deep crisis at hand. He merely connected the dots. His proposed program included relief for the unemployed, government spending on public works, government refinancing of mortgages, a federal minimum wage, federally supported old-age pensions, and higher income taxes and inheritance taxes on the wealthy in order to control capital accumulations and avoid excessive speculation. Not until these recommendations were implemented, Eccles warned, could the economy be fully restored.

Eccles then returned to Utah, from where he watched Roosevelt hatch the first hundred days of his presidency. To Eccles, the new president’s initiatives seemed barely distinguishable from what his predecessor, Herbert Hoover, had offered—a hodgepodge of ideas cooked up by Wall Street to keep it afloat but do little for anyone else. “New York, as usual, seems to be in the saddle, dominating fiscal and monetary policy,” he wrote to his friend George Dern, the former governor of Utah who had become Roosevelt’s secretary of war.

In mid-December 1933, Eccles received a telegram from Roosevelt’s Treasury secretary, Henry Morgenthau, Jr., asking him to return to Washington at the earliest possible date to “talk about monetary matters.” Eccles was perplexed. The new administration had shown no interest in his ideas. He had never met Morgenthau, who was a strong advocate for balancing the federal budget. After their meeting, the mystery only deepened. Morgenthau asked Eccles to write a report on monetary policy, which Eccles could as easily have written in Utah. A few days later Morgenthau invited Eccles to his home, where he asked about Eccles’s business connections, his personal finances, and the condition of his businesses, namely whether any had gone bankrupt. Finally, Morgenthau took Eccles into his confidence. “You’ve been recommended as someone I should get to help me in the Treasury Department,” Morgenthau said. Eccles was taken aback, and asked for a few days to think about it.

“‘Here you are, Marriner, full of talk about what the government should and shouldn’t do,’” Eccles told himself, as he later recounted in his memoirs. “‘You ought to put up or shut up. . . . You’re afraid your theory won’t work. You’re afraid you’ll be a damned fool. You want to stick it out in Utah and wear the hair shirt of a prophet crying in the wilderness. You can feel noble that way, and you run no risks. [But] if you don’t come here you’ll probably regret it for the rest of your life.’” Eccles talked himself into the job.

For many months thereafter, Eccles steeped himself in the work of the Treasury and the Roosevelt administration, pushing his case for why the government needed to go deeper into debt to prop up the economy, and what it needed to do for average people. Apparently he made progress. Roosevelt’s budget of 1934 contained many of Eccles’s ideas, violating the president’s previous promise to balance the federal budget. The president “swallowed the violation with considerable difficulty,” Eccles wrote.

The following summer, after the governor of the Federal Reserve Board unexpectedly resigned, Morgenthau recommend-ed Eccles for the job. Eccles had not thought about the Fed as a vehicle for advancing his ideas. But a few weeks later, when the president summoned him to the White House to ask if he’d be interested, Eccles told Roosevelt he’d take the job if the Federal Reserve in Washington had more power over the supply of money, and the New York Fed (dominated by Wall Street bankers), less. Eccles knew Wall Street wanted a tight money supply and correspondingly high interest rates, but the Main Streets of America—the real economy—needed a loose money supply and low rates. Roosevelt agreed to support new legislation that would tip the scales toward Main Street. Eccles took over the Fed.

For the next fourteen years, with great vigor and continuing vigilance for the welfare of average people, Eccles helped steer the economy through the remainder of the Depression and through World War II. He would also become one of the architects of the Great Prosperity that the nation and much of the rest of the world enjoyed after the war.

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Aftershock 4 out of 5 based on 0 ratings. 127 reviews.
RobertS_PhD More than 1 year ago
AFTERSHOCK may well be the most important book written on the current economic crisis. I say this because it offers a critical insight that I have seen in very few other places: The fundamental cause of our problems is the relentless drive toward income concentration. The problem with concentrating income into the hands of a few people is that you take money from millions of people who would spend nearly all of it, and give it to a tiny number of people who can't and won't spend it -- but will instead save it, gamble with it, or invest it offshore. The end result is simply too few viable consumers to drive the economy. Reich points out that income for American middle class families has been essentially stagnant or declining for over three decades. The middle class has coped with this in three basic ways: (1) Women have entered the workforce, (2) People worked longer hours, and, of course, (3) We all relied on debt (credit cards and home equity loans) rather than income to support our consumption. Those coping methods are now exhausted, and we are left in a position where average Americans simply do not have sufficient discretionary income to support a sustainable recovery. The great American consumer class -- which was the driving force behind our prosperity in the 1950s and 1960s -- has been largely decimated. To his credit, Reich correctly identifies globalization and, especially, automation technology as primary forces behind declining middle class wages. At the same time, rather than enacting countervailing policies, the United States (beginning with Reagan) has gone in the exact opposite direction and adopted a conservative agenda that has actually accelerated the trend toward income concentration. The one shortcoming of the book is that Reich -- not being a technologist -- fails to anticipate how advancing technology is likely to dramatically worsen the situation in the relatively near future. As someone who works in this area, I can tell you that the degree of progress we are soon likely to see in automation technologies is historically unprecedented. To get a sense of what we may face in the future, I would strongly recommend that this book be read in conjunction with Aftershock: "The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future" Both books offer an eerily similar analysis of the crisis -- both concluding that the problem is a dearth of viable consumers. Both books also propose very similar solutions: direct income supplementation. Reich proposes a negative income tax (which was supported by free-market icon Milton Friedman). Anyone who wants to understand the current crisis and the danger we face in the future should read both "Aftershock" (for its emphasis on political and social implications) and "The Lights in the Tunnel" (for insight into how technology and globalization will continue to transform the economy -- and lead to an even more severe crisis, if we do not act ).
Ken_530 More than 1 year ago
I found this book delightful. It was an easy read - especially for an economics book. The most important discovery Reich makes is Marriner Eccles, who wrote a book showing how he thought through the possible causes of the Great Depression. He was a banker from Utah and became the Chairman of the Federal Reserve under FDR. Thus, in his analysis Reich is not original. His rediscovery of Eccles is a remarkable find. And his similar analysis of the current financial crisis - the concentration of wealth and income at the top - shows how close we recently came to another meltdown like that of 1929-1930. Digging out of the unemployment mess, the lack of the ability of the middle class to sustain purchasing power, and the lack of demand - underlies our 'aftershock.' Solving that problem will be incredibly difficult. Reich sets forth a list of the policy initiatives during the Great Depression and after WWII to show how we slowly got out of that crisis. Much of what we have to do now is similar. But each crisis is different and new. We can take what happened eighty years ago as a lesson and a guide, but we are going to have to think though each new step on its own terms. All this helps me to realize how little power the Fed Chair really has. If Eccles could recognize a major cause of the Great Depression but could do little to overcome it, then Alan Greenspan likely had less influence in getting us into this mess than he would like to claim. An economic and social balance has to be restored. The deal that the average person felt allowed them into the American dream has to be recreated. Otherwise, if the game is rigged in favor of the top players, the small players (that is, the middle class) withdraw and go elsewhere. The old economic game is over. It is not so much that some few were winners. The 'winners' killed the game. It has already ceased to exist. Reich is asking the question - What do we do next?
TWRtwr More than 1 year ago
This is a review not of Robert Reich's work but, rather, of the MP3 audio files you get when you purchase this book on the Barnes & Noble web site and download it. The book comes as four MP3 files and, as of 3/31/2010, all four files truncate the author's narration before the chapter is completed. Robert Reich is literally cut off mid thought. Unless you have a printed copy of the book, there is no way to know how much of the book you are missing. The file sizes and playing times of the flawed files are as follows: Part 1: 30,550 kb 65:05 Part 2: 33,660 kb 71:44 Part 3: 34,441 kb 73:24 Part 4: 28,763 kb 61:17 I contacted customer service about the problem and they said they would notify the publisher that there was a "content problem." They said it would take seven days and that I could re-download the files. They said they could not contact me to let me know when the problem was fixed. I would just have to try again after seven days, re-download the files and see whether or not they had changed. Well, it's been over a week and the files have not been updated and I guess I am left to just wait and try again repeatedly until the problem has been fixed. Obviously, I think this is a poor job by both the publisher and Barnes & Noble. So, buyer beware.
DurangoBo More than 1 year ago
Good short read. Mr. Reich hits the nail on the head in identifying some of the causes for our economic problems. His solutions are a bit off base and reflect his progresive liberal bias.
LN_Adcox More than 1 year ago
This book was well written, easily understandable by the layman and interesting to anyone unwilling to accept current economic and political rhetoric at face value. The reader is not presented and overwhelmed with complex formulas, theories or esoteric arguments. The premise of the book is that a rebalanced global economy whereby Americans save more and borrow less is not the solution to sustained economic recovery, but that what is needed is a rebalancing of the American economy so that benefits are shared more widely. Simply put, if wealth is monopolized by the few, and the earnings of the many are inadequate, an economy produces more goods and services than its people are capable of purchasing. When income is concentrated among the few, the demand for goods and services shrink. The savings of the rich are hoarded, circulated in speculation, or invested abroad. Reich makes many comparisons between the Great Depression and the Great Recession of 2008. He cites the famous economist John Maynard Keynes. During the Great Depression, Keynes declared capitalism to be the best system ever devised to achieve a civilized economic society, but he recognized two major flaws. It fails to provide full employment, and distribution of wealth and incomes is arbitrary and inequitable. This makes capitalism highly unstable and vulnerable to economic booms followed by catastrophic collapse. Government's responsibility is to correct these faults according to Keynes. On the other hand, classical economists held that markets are self-correcting. Large scale unemployment would be solved by forcing workers to experience joblessness long enough to accept lower wages. Hence Hoover economists urged against government action to combat the Great Depression. The Great Recession of 2008 was put off by coping mechanisms employed by the middle class which were eventually overwhelmed and became ineffective. Reich attributes the superficial or apparent recovery of the stock market to the bailout, but criticizes many of the abuses. He describes the unholy alliance of government, big business and the fabulously wealthy. Reich predicts a long period of high unemployment and points out that those that find jobs will most likely earn much less than they previously did. He warns of a possible backlash if a "new contract" isn't forged with the middle class providing them equitable return for their labor and offers several suggestions for doing so. However, he predicts enlightened political cooperation will occur to prevent a serious backlash. I do not embrace many of Reich's rebalancing suggestions. I do wholeheartedly support increasing taxes on the wealthiest 5% of Americans that are currently only taxed at the 15 to 20% rate as most of their wealth is categorized as capital gains. I also do not share his optimism of the likelihood of enlightened political cooperation. Instead I am left feeling resentful and somewhat duped since all politicians regardless of Democratic, Republican, "Tea Party" or other affiliation seem to be expounding the same time worn trickle down economics or simply asking us for money to defeat the incumbent. In may cases I think we are being asked by politicians to take actions (support or reject legislation or principles) that are not in the best interests of the middle class. At any rate, I highly recommend this book. Wholehearted agreement is not necessary to come away with a much better understanding of where we are and how we got here.
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