Aftershock: The Next Economy and America's Future by Robert B. Reich Page A
Authors: Robert B. Reich
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the economy was still in fine shape and Gore had been part of the administration that was credited for it; and in 2004, Bush won reelection mainly because of the “War on Terror.” All that can be said with confidence is that jobs and the economy are almost always at the forefront of voters’ minds.)
But even accepting the powerful effect of the economy, a backlash on the scale of my hypothetical scenario would have as much to do with voters’ cumulative frustrations and pent-up anger as with specific economic conditions on Election Day. It is not difficult to foresee a plausible trajectory. For the reasons enumerated in Part I, after the stimulus ends and the Federal Reserve tightens the money supply and raises interest rates, and after businesses replenish inventories and consumers replace worn-out products, the jobs machine stalls, and economic growth slows. Over the slightly longer term, more companies decide that their American employees are overpaid relative to equally productive workers elsewhere in the world working at a fraction of American wages, or to readily available software and automated equipment. Consequently, large numbers of middle-class Americans have to accept lower pay if they want to stay employed. With their coping mechanisms in shatters, they have to face a necessity they have managed to avoid for decades: They have to make do with less.
Poor families with minimum education are especially hard-hit. The middle class adapts in various ways. More young middle-class adults choose to live with their parents and delay marriage and children. Most Americans search harder for bargains, buy more private-label groceries and generic drugs, settle for lower grades of meat at the supermarket, stay home more, and takefewer vacations. Many give up second cars, and consequently depend more on public transportation. A significant number grow their own food, do their own home repairs, and mend their own clothes.
This permanent frugality will not come naturally. According to common stereotypes, the French draw deep satisfaction from good food and wine, the Germans from music, the English from their parks, and Americans from shopping. These facile generalizations are not entirely baseless.Just before the Great Recession, personal consumption in America equaled almost 70 percent of the country’s gross domestic product (more than 75 percent if you include the purchases of homes). By contrast, personal consumption constituted only 65 percent of the British economy, 55 percent of Germany’s, and 52 percent of Japan’s. (Personal consumption did not always constitute 70 percent of the American economy. During the Great Prosperity of 1947–1975, it held fairly steady at 62 percent, without noticeable concern. But the economy was different then. As I said earlier, income and wealth were far more equitably shared. And most Americans were on an upward trajectory.)
Yet frugality itself is unlikely to ignite a political firestorm. We have had to pull in our belts before. To understand why Margaret Jones and the Independence Party (or their reasonable facsimile) could take control, we need a deeper understanding of the confluence between economics, politics, and behavior.
3
Why Can’t We Be Content with Less?
Historically, America’s cultural obsession to consume has been tempered by the “higher virtues” of thrift and self-sufficiency. “Be industrious and frugal, and you will be rich,” advised Benjamin Franklin. The simple life has been viewed as honorable.“Many of the so-called comforts of life, are not only not indispensable,” wrote Henry David Thoreau in 1854, “but positive hindrances to the elevation of mankind.” Even after the introduction of mass production and mass marketing, as Americans swooned over the tantalizing vision of the nation as cornucopia of consumer delight, many eschewed crass materialism.“The people of this country need a … philosophy of living, not having; of happiness,
But even accepting the powerful effect of the economy, a backlash on the scale of my hypothetical scenario would have as much to do with voters’ cumulative frustrations and pent-up anger as with specific economic conditions on Election Day. It is not difficult to foresee a plausible trajectory. For the reasons enumerated in Part I, after the stimulus ends and the Federal Reserve tightens the money supply and raises interest rates, and after businesses replenish inventories and consumers replace worn-out products, the jobs machine stalls, and economic growth slows. Over the slightly longer term, more companies decide that their American employees are overpaid relative to equally productive workers elsewhere in the world working at a fraction of American wages, or to readily available software and automated equipment. Consequently, large numbers of middle-class Americans have to accept lower pay if they want to stay employed. With their coping mechanisms in shatters, they have to face a necessity they have managed to avoid for decades: They have to make do with less.
Poor families with minimum education are especially hard-hit. The middle class adapts in various ways. More young middle-class adults choose to live with their parents and delay marriage and children. Most Americans search harder for bargains, buy more private-label groceries and generic drugs, settle for lower grades of meat at the supermarket, stay home more, and takefewer vacations. Many give up second cars, and consequently depend more on public transportation. A significant number grow their own food, do their own home repairs, and mend their own clothes.
This permanent frugality will not come naturally. According to common stereotypes, the French draw deep satisfaction from good food and wine, the Germans from music, the English from their parks, and Americans from shopping. These facile generalizations are not entirely baseless.Just before the Great Recession, personal consumption in America equaled almost 70 percent of the country’s gross domestic product (more than 75 percent if you include the purchases of homes). By contrast, personal consumption constituted only 65 percent of the British economy, 55 percent of Germany’s, and 52 percent of Japan’s. (Personal consumption did not always constitute 70 percent of the American economy. During the Great Prosperity of 1947–1975, it held fairly steady at 62 percent, without noticeable concern. But the economy was different then. As I said earlier, income and wealth were far more equitably shared. And most Americans were on an upward trajectory.)
Yet frugality itself is unlikely to ignite a political firestorm. We have had to pull in our belts before. To understand why Margaret Jones and the Independence Party (or their reasonable facsimile) could take control, we need a deeper understanding of the confluence between economics, politics, and behavior.
3
Why Can’t We Be Content with Less?
Historically, America’s cultural obsession to consume has been tempered by the “higher virtues” of thrift and self-sufficiency. “Be industrious and frugal, and you will be rich,” advised Benjamin Franklin. The simple life has been viewed as honorable.“Many of the so-called comforts of life, are not only not indispensable,” wrote Henry David Thoreau in 1854, “but positive hindrances to the elevation of mankind.” Even after the introduction of mass production and mass marketing, as Americans swooned over the tantalizing vision of the nation as cornucopia of consumer delight, many eschewed crass materialism.“The people of this country need a … philosophy of living, not having; of happiness,
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