Robert Reich is Both Right and Wrong about the Bargain between the 1% and the 99%.

“For most of the last century, the basic bargain at the heart of the American economy was that employers paid their workers enough to buy what American employers were selling” (Reich 2011).  Robert Reich indicates that this basic bargain created a virtuous cycle of higher living standards, more jobs and better wages.  I am going to say that from a purely economic standpoint the cycle was virtuous, but when one takes a longer view, through environmental glasses, that capitalist bargain also produced over-consumption, global warming and environmental degradation.

In the short-term the economic turndown is creating great pain in the 99%, but on planet earth there are now other nations who are beginning to imitate the over-consumptive lifestyle of the 20th century Americans – China, India and Brazil being in the forefront of such emerging nations that want the MacMansions with a three-car garage.  Planet earth cannot sustain such over-consumption, so we have a short-term/long-term dilemma. 

Robert Reich tells the oft-repeated story of Henry Ford who paid his factory workers 3 times the prevailing wage and turned them into worker/consumers who could afford to buy the product they were producing – Ford cars.  Reich goes on to say that today Ford Motor Company is paying new hires half of what it paid its employees a few years ago and that this is an indication that the “bargain” between producers and workers is now over.

From the year the Commerce Department began collecting wage and salary data (1929) till the 1970s wages rose steadily, but by 2011 employee pay has fallen to its smallest share of the economy since 1929.

If we look at the other side of the coin – corporate profits – they constitute a greater proportion of the economy than at any time since 1929, which of course was the beginning of the Great Depression.  Robert Reich points out that the 1929 Great Crash was preceded by an era when wages flat-lined and corporate profits soared, as is the case today, although the present is worse since wages have declined as a proportion of the economic pie, while corporate profits and the bank accounts of the Super Rich have skyrocketed.  The economic troubles of today are due to the fact that the basic bargain set in motion by Henry Ford has been, once again, been broken by greedy members of the élite class who want to take from the working class rather than share in the benefits of sustained economic growth.  We must wait for history’s verdict on whether this is good, bad or neutral vis-à-vis the environment and sustained life on planet earth. 

The Republican agenda for restarting the economy is wrong-headed.  They want to increase corporate profits by preventing any government regulation and a raising of corporate taxes and those that apply to the very rich.  Instead, from the short-term perspective, they should be putting more money in the pockets of the 99% to stimulate the economy.  Telling the Republicans that is pretty much like telling a pit bull he should not like red meat.  Greed is a powerful driver. 

We have another short-term/long-term dilemma.  Republicans and those who want to prevent any effort to make corporations and the rich pay higher taxes are making lots of money and corporations are awash in cash.  Many CEOs have made the decision to buy back their stock, which raises the price of that stock and which fattens the bank accounts of the very decision-makers who issued the order to buy the stock back.  In the short-term these rich executives get richer because their incomes are tied to the price of their company stock, which goes up when it is bought back by the company that issued it in the first place.  In the longer-term such greed does not produce anything nor create jobs and, furthermore, it takes away the buying power of the 99%, that consumption that drives economic growth. 

Here is the reality: when the rich get more money their consumption is limited by the size of their class and therefore their money, much of it hoarded or invested, does not drive the economy like the consumption of the 99%[1].  When you put money in the pockets of the vast majority of Americans, they don’t save or invest it – they spend it and this drives economic growth.  Again, in the short-term this is good for America, while in the long-term it may prove to be fatal to life on earth.  Unfortunately, politicians don’t get elected talking about life on earth and corporate executives certainly don’t line their pockets thinking about the continued existed of humankind on this tiny cosmic spaceship we call our Mother Earth.  The short-term is going to win every time, in spite of the global warming conference going on in Durban, South Africa as I write these words.

Here is what our politicians should do to stimulate the economy: raise taxes on corporations and the rich, especially the Super Rich and cut taxes on the working class.  That is the short-term solution to the woes produced by the economic turndown.  Of course, taking the long-term view, this will put more plastic bottles in our landfills and use up more petroleum and natural resources, so in the long-term we must begin to make political decisions that allow continued economic growth but at the same time reduce global warming, depletion of limited natural resources and environmental deterioration. They only way to solve both the short-term and long-term problems we face is for the government to stimulate growth in the right kind of production and provide incentives to capitalists to begin shifting away from the production of products that do environmental harm and waste vital resources.  We still need members of the 99% to buy things, but we need the 1% to begin producing the right things – those products that use less of our limited resources and that, once used, are not detrimental to our water, air and earth when discarded.  This is the daunting challenge of the human future on a planet with limited resources, one that is now facing the imitation of the 20th century American lifestyle by emerging nations. 

What I am trying to point out here is the Robert Reich is absolutely correct about the short-term needs and solutions for America, but there is another long-term perspective that also needs to be addressed.

We’re in a short-term vicious cycle because the rich and corporations are sitting on hoards of money and the rest of us have run out of credit and savings to consume enough to jumpstart the economy.  But we also have a long-term vicious cycle in which growing economies globally are depleting vital resources, moving toward the American-style over-consumption and disposing of improperly produced products in ways that harm Mother Earth and threaten the lives of our grandchildren and the continued existence of life on our little planet. 

Putting more money in the pockets of the 99% solves the short-term problem, but not the long-term one.  People of the future are going to consume produced goods.  That will not change and governments are going to continue to try and find ways to encourage consumption.  What matters for the long-term is not so much consumption, but what kinds of things are being produced, by what means are they being produced and how are they transported.  There are great improvements that can be made in all of these areas.  We now produce many unnecessary things, using high energy-consumption means and transport the thngs around the globe in ways that eat of vital resources. 

Let’s jump start our economy in the ways that Robert Reich suggests, but let’s jump to a new era of smart production, which will automatically make consumption by all of us smarter.  Let’s restore Henry Ford’s bargain with workers, but let’s also restore the bargain with Nature that our Paleolithic forefathers had, a bargain in which they consumed in ways that did not threaten the long-term existence of most species on the planet, especially their own.



Reich, Robert.  2011 (November 28).  Restore the basic bargain.  Tumblr


[1] Their purchasing power accounts for about 70% of the total American economy.

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Comment by Eugene L. Mendonsa on December 2, 2011 at 2:06pm

Thanks John.  Ecological thinking is not reflected in his writing, but Reich is a very bright guy who would, I think, understand this perspective.


Comment by John McCreery on December 1, 2011 at 7:24am

I can only say, "Hear, hear!"


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