Economic Yachts Rise As Rafts, Dinghies Sink
Labor Secretary Robert Reich offered a hypothetical "deal" to the several hundred businessmen at a Boston College conference early this week. If, he asked, the 20 percent of families with the highest incomes in the United States got a 25 percent boost in their incomes, and those in the bottom 20 percent enjoyed a 10 percent average raise, would this be a satisfactory deal? Most everyone would be better off, he noted. A lot of hands popped up. Pretending he had counted precisely, Mr. Reich said, "116 in favor."
He reformulated the question. The well-to-do get 25 percent, those with low incomes nothing. Fewer hands went up. "Fifty-seven," Reich counted. Another reformulation: 25 percent for the prosperous, a 10 percent income cut for the poorest 20 percent. On average, the country would still be better off, he pointed out. Not a hand rose.
Reich paused. Then the clincher: Between 1979 and today, he said, the US has taken the latter deal. Inequality of incomes has increased hugely, though bottoming out in the last two years. Yet nobody in that audience, probably most of them in that upper 20 percent, approved of such a development, though it improved the average income of Americans after taking account of inflation.
Beware of averages, warned Reich, who stands not much more than 4 feet tall. The average height of basketball player Shaquile O'Neal and himself, he noted, was 6 feet, 1 inch.
Between 1950 and 1978, the income of all brackets of Americans from top to bottom rose together. But not since then, he said. The rising tide of economic growth "lifted the yachts" of the wealthy, but the row boats of the middle class took on water, and the rafts and dinghies of low-income people were sinking. This fact, he said, will form the backdrop for the 1996 election, and probably for those in the first decades of the next century.
Reich talks without a text or notes. His eloquence has made him a popular speaker. In this election period, he gave what is probably the Clinton administration's emerging party line on the economy - as did Treasury Secretary Robert Rubin and Joseph Stiglitz, who heads President Clinton's Council of Economic Advisers, in speeches at the same conference.
One part of the line is to boast about the good shape of the national economy: 5.4 percent unemployment compared with 7.4 percent when Clinton took office, 8.5 million new jobs in those 3.5 years, subdued inflation, and a budget deficit down from $290 billion to $130 billion.
A second part is to note the feelings of insecurity among workers as a result of layoffs and growing income inequality. But this is portrayed as the result of a "dynamic and buoyant economy." The officials carefully avoid any attack on capitalism. Nor will they say anything about the Federal Reserve, even when they specifically argue that faster economic growth would be desirable and that a revival of inflation is no danger. Criticism of the Fed, Reich says, would "not be fruitful."
The third part is a list of the administration's proposed remedies to insecurity problems. These include a hike in the minimum wage, support of education and training (such as the tax break for the costs of college, direct low-interest government loans to some 5.5 million students, and consolidation of 70 government training programs), provisions to make health-care benefits more portable between jobs or continue when unemployed, and expansion of the earned-income tax credit for the poor.
Reich talks often of the dangers posed by rising income inequality. "If we continue in the direction we are going, we will lose the moral authority of the nation," he says. It could lead to greater disillusionment, anger, and resentment among workers, making them susceptible "at some point" to demagogues urging protectionism and bashing welfare mothers, homosexuals, immigrants, and affirmative action. More Americans could vote for policies that limit growth and inhibit economic dynamism.
The labor secretary likened American society to a frog which, when popped into boiling water, will quickly jump out. But if sat in luke-warm water and the heat is gradually turned up - "click, click, click" - it will boil to death. The US, he said, is "extraordinarily good" at tackling a crisis, such as the Depression, World War II, and the cold war. "But when we face problems that come at us over 5, 10, or 20 years - click, click, click," he said. "We may not react as forcefully or powerfully as we must."