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Robert Reich Makes the Case for Trickle-Up Economics

Clinton Labor Secretary Robert Reich took to the air and the page today to explain that our economy’s biggest problem isn’t cyclical, it’s structural:

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

That’s it in a nutshell.  We need people to buy lots of products and services from American producers and retailers to keep the economy strong, and while wealthy individuals certainly spend more than non-wealthy individuals, in the aggregate they spend far less – both because there are so few of them, and because they can and do save more of their income than the rest of us.

So instead of throwing more and bigger tax cuts and executive bonuses at the rich on the flimsy pretense that they’ll keep the economy afloat by spending it all, how about a little more love for the rest of us?  After all the times I’ve heard rich conservatives complain about how unfair it is to force the wealthy to bear a disproportionate share of the tax burden, surely they’d agree that it’s unfair to expect the wealthy to bear the spending burden all by themselves.

Of course, this being the real world, most bottom-line-minded corporations either don’t realize or don’t care that well-paid employees spend more money on their own products or their customers’ products, so Mr. Reich has some ideas on how to increase middle-class earning power without changing corporate pay scales (Note to Ben Nelson: Reich provides an offset for each proposal except the last to make it cost-neutral, so STFU):

  • Expanded eligibility for the earned income tax credit (offset with carbon tax)
  • Exemption of the first $20,000 of annual income from the payroll tax (offset with payroll tax on income over $250,000)
  • More accessible pre-kindergarten education (offset with 0.5% fee on financial transactions)
  • Free public universities (offset with 10% wage contributions for 10 years after graduation – this one’s a little scary, but probably still better than paying off student loan sharks)
  • “Earnings insurance” to cushion the financial impact of taking a lower-wage job (no explicit offset, but cheaper than unemployment insurance)

These are certainly not the only possibilities and some of the offsets seem a little random, but overall they sound pretty good to me, and it would be fun to watch Republicans sputter about class warfare and socialist government takeover as they try to explain why they oppose them.

And while they’re not on Reich’s list, I would also recommend:

  • Not cutting Social Security.  Not only would cuts leave seniors with even less money to spend, but extending the retirement age means even fewer jobs available for everyone else.  It would probably also depress spending almost immediately as everyone suddenly realizes that they’re going to need more savings.
  • Public option or – better yet – single payer.  The less we spend on health insurance and treatment, and the less bankrupt we are from chronic illnesses, the more we have left over to spend on everything else.

The only question is, how do we get there from here?  Obama sure as hell isn’t going to push for it, and most congressional Democrats are afraid of their own shadows.

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