Robert Reich writes about the impact of growing inequality in the United States. He has a graphic that shows the effects over the past hundred years. As the US and Europe come closer to their Niagara fall, his logic is compelling. Edmund Burke’s saying that those who don’t know their history are destined to repeat it comes to mind.
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.
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.
Here our Treasury warns that while the World Cup and rebuilding Christchurch will provide a short-term stimulus, our long-term growth will be influenced by world events. As Europe and the United States come closer to their Niagara fall, National’s policy of tax cuts for the rich and asset sales so the rich can spend their cuts, coupled with a hard line forcing people on benefits to look for non-existent work means that real growth will be a way off here as well until things change.