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Although this article by Robert Reich was written almost a year ago, it's even more relevant today:

The 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody's Analytics. That should come as no surprise. Our society has become more and more unequal.

When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt -- which, as we've seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar?

Reich continues:

During periods when the very rich took home a larger proportion -- as between 1918 and 1933, and in the Great Regression from 1981 to the present day -- growth slowed, median wages stagnated and we suffered giant downturns. It's no mere coincidence that over the last century the top earners' share of the nation's total income peaked in 1928 and 2007 -- the two years just preceding the biggest downturns.

And this is not a coincidence either:

Look back over the last hundred years and you'll see the pattern. During periods when the very rich took home a much smaller proportion of total income -- as in the Great Prosperity between 1947 and 1977 -- the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats.

Starting in the late 1970s, the middle class began to weaken. Although productivity continued to grow and the economy continued to expand, wages began flattening in the 1970s because new technologies -- container ships, satellite communications, eventually computers and the Internet -- started to undermine any American job that could be automated or done more cheaply abroad. The same technologies bestowed ever larger rewards on people who could use them to innovate and solve problems. Some were product entrepreneurs; a growing number were financial entrepreneurs. The pay of graduates of prestigious colleges and M.B.A. programs -- the "talent" who reached the pinnacles of power in executive suites and on Wall Street -- soared.

Some say the regressive lurch occurred because Americans lost confidence in government. But this argument has cause and effect backward. The tax revolts that thundered across America starting in the late 1970s were not so much ideological revolts against government -- Americans still wanted all the government services they had before, and then some -- as against paying more taxes on incomes that had stagnated. Inevitably, government services deteriorated and government deficits exploded, confirming the public’s growing cynicism about government’s doing anything right.

It's great article. Read the rest.

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