Aftershock | Robert B. Reich

Summary of: Aftershock: The Next Economy and America’s Future
By: Robert B. Reich

Introduction

Dive into the world of ‘Aftershock: The Next Economy and America’s Future’ by Robert B. Reich, a comprehensive analysis of the increasing income disparity between the rich and the middle class and how it perpetuated the 2008 recession. This book summary unravels the complex socioeconomic factors at play, including the rise of a struggling middle class and the erosion of the traditional social safety net. Discover the factors that shaped America’s economic landscape, understand the impact of wage stagnation on an expanding economy, and learn about Reich’s proposed policy changes to restore balance and ensure a more equitable future for all.

The True Cause of the 2008 Recession

Excessive consumer borrowing was not the cause of the 2008 recession, rather it was a symptom of a bigger issue- the growing income disparity between the rich and middle-class. The top 1% accumulated most of the wealth, leaving the middle class with stagnant wages, causing them to rely on borrowing to maintain their living standards. This income disparity is not a new phenomenon, it started in the late 1970s and was worsened by globalization and technological advancements that cut into US jobs. Instead of securing safety nets like education and unions for the working class, politicians favored deregulation and believed in the free market to redress wage and job loss. This growing income disparity has led to a slow recovery from the 2008 recession and presents a social and political predicament and could lead to upheaval and reactionary politics if not addressed.

The Middle Class and American Economy

The US economy requires a prosperous middle class to generate purchases essential to demand goods and services that lead to increased employment. When economic problems arise, the government’s support should temporarily fund the economy to reestablish jobs and reconstruct demand. Despite conspicuous consumption, wealth does not trickle down sufficiently to keep the US economy running smoothly. This disconnect has resulted in a significant gap between the stagnant middle-class income and the immense growth of the economy since 1980. While the politicians focused on the financial economy by celebrating a booming stock market and bailing out banks, they overlooked the failing middle class and the reduction in consumer demand, leading to adverse effects on the US’s economic security.

The Rise and Fall of the American Dream

The American economy experienced a massive boost in the post-war era, thanks to government-funded jobs and worker safety regulations, increased productivity, subsidised mortgages, and improved access to higher education. The middle class enjoyed more of the increase in household incomes, which significantly improved their standard of living. However, by the 1970s, the rise of globalization and automation led to the loss of jobs and wages, and the government began diminishing the safety net. Rather than maintaining its side of the bargain, the government shifted tax cuts to the wealthiest, leading to a decrease in government funding of infrastructure and social services. Companies also began laying off workers and shifting health care costs and diminishing pensions to employees. The government deregulated Wall Street while insuring it against major losses. The federal government “turned finance – which until then had been the servant of American industry – into its master.” All these factors contributed to the decline of the American dream, causing people to lose confidence in the country’s prosperity.

The Middle Class Struggle

Americans are facing financial hardships, and the middle class is using coping mechanisms such as longer work hours, utilizing savings and borrowing heavily. However, these mechanisms are no longer effective as child care costs increase, easy credit is scarce, and job opportunities pay less. Postponing retirement and paying off debts have become necessary. The basic bargain at the heart of the American economy is broken, and the struggle continues.

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