What Has Gone Wrong with the US Economy & Democracy - Coursework Example

?Beyond Outrage (Expanded Edition What Has Gone Wrong With Our Economy & Democracy, And How To Fix It by Robert B. Reich a] Overall Viewpoint Seen from a “big picture” perspective, the author explains why the reality of American society has been one wherein the majority of people in the USA are currently suffering economically while the rich are getting richer. And this is in spite of democracy which is supposed to provide the country with leaders who represent the greater majority who are mostly middle class. This is also about a threat to democracy because Communist China is gradually penetrating the USA market and taking part ownership of American businesses as well as technologies. Robert B. Reich was Secretary of Labor under the Clinton administration. He is very much aware of the high unemployment rate in the USA since the onset of economic recession in late 2008. After several stimulus funds have been released to improve the economic condition of America, unemployment rate remained high compared to the years before recession. Figure 1 summarizes the year-to-year unemployment rates. It is now running the 6th year since 2008 when unemployment rates started to keep rising. The US economy has not recovered in terms of unemployment rate. The implication has long been and will be more claims from Social Welfare and therefore more budget and burden for the government to finance subsistence of the unemployed. This is partly responsible for the heavy indebtedness of the US government. As of April 15, 2013, the USA owes China $ 1.22 Trillion and Japan $ 1.1 Trillion (USA Today 2013). The total debts have now reached $ 5.66 Trillion and most are payable to foreign governments. Moreover, the great income disparity between the middle class and the rich in the USA has made it appear that democracy is not being served. Democracy is supposed to be a government system of the people, by the people, and for the people. Given the many years in the past, it shows that the US government has been for the rich. The rich have been lobbying for government privileges using their millions of dollars lobbying funds (Reich 2012), successfully making the government enrich corporate owners while the plight of the majority have realized economic distress – jobless or with job insecurities. b] Critique of Author’s Arguments In the first section which deals with the disparity between the middle class and the rich, the suggestions of the author about how to reduce that gap included donations to universities, opera houses, and museum (Constant 2012). Yet he argues that it is the middle class who need economic support. His argument lacks logic because donations cannot possibly narrow the gap except perhaps by chance, that is, if in the future, the middle class will gain out of donations to those intermediaries. But how? The second section deals with the elimination of tax cuts in favor of the rich entrepreneurs. Unfortunately, there is no follow up explanation how such change in policy will result in narrowing the income gap of the middle class versus the rich. If the tax cuts are curtailed, the rich will cut cost somewhere. And that somewhere could be the employment of of Americans. There should have been a new law securing the employment of those already employed regardless of the elimination of tax cuts. In other words, risk of loss in times of economic recession should primarily be the rich owners because that is the way business is. Sometime a business earns; sometimes it loses. What the rich has been doing is to make the employees shoulder the risk first before the company loses. Reich, R. B. (2012) offered more solutions in the 3rd section. One of those solutions is a pledge of allegiance to oblige corporations to create more job opportunities (Constant 2012). That idea goes against freedom to do what is best with available capital. The intention is good. But the method is contrary to a freedom-loving country. Generation of employment could have been encouraged instead of forced. Government can easily launch incentives for the purpose of drawing out excess capital (not yet appropriated retained earning) so that there would be no sign of forcing entrepreneurs to create employment opportunities. c] Strengths & Weaknesses of the US Economy According to Robert B. Reich The big corporations of rich people in America are standing tall in the globalization of economies worldwide. They are very competitive and generally rich in cash and credit means to perform better than most competitors. Another strength of the US economy is its past experiences, which the author identified to be sometime between 1947 t0 1977 when America enjoyed great prosperity, and also bad experiences during the Great Regression (from 1918 to 1933} and {1981 up to now). Actual experiences serve as lessons in history. When “the very rich took home a much smaller proportion of total income” (Reich 2011), the middle class grew and had much purchasing power to make businesses grow and create more jobs. When the rich “took home a larger proportion” during the Great Regression (Reich 2011), growth slowed down because the middle class income stagnated, resulting in less purchasing power, and the end effect of economic downturn. That was the time when America had to keep borrowing and start sinking in debt. According to Reich (2011), the obvious weakness was that the rich simply enriched themselves and eventually realized that majority of people could not support the growth of their businesses due to low purchasing power. In Germany, the middle class grew financially and outperformed the USA for already 15 years. And Germany’s growth was spread among the middle class. He cites a concrete example of worker’s pay in the USA which grew only 6% in 15 years after inflation is considered, versus Germany’s 30% growth on worker’s pay also within the same 15 years. And so, even during the recession years, the unemployment of Germany was low. It was because their purchasing power was much higher. And their businesses continued to thrive by drawing from the patronage of middle class purchasing power. d] Relevance of the Author’s View in the Current Economic Environment Definitely, the point of view of the author was very relevant and realistic. His statements are based on historical facts. People are presently experiencing the current economic difficulties of being jobless even after the multiple stimulus funds were released in billions of dollars. e] Current & Future Conditions of American Economy The descriptive elaborations about the current American economy are very realistic. It exists even up to the present. For example, there is still a political argument between the democrats and the republicans in the way the government should manage the economy of the country. American middle class actually became more indebted and failed to grow while rich people received an income that was 5,000% compared to the average American middle class earner. All these are well founded because Robert Reich monitored the realities of America. As for the future, he predicts that America will experience another Great Depression similar to the 1930s if the trend of rich people receiving substantial income and middle class not receiving enough to even pay debts or grow in order to cope up with inflation, will continue. To prevent this, he recommends raising taxes on the substantial income of the rich. f] Support for the Author’s Arguments To verify the disparity in the income of the rich and that of the middle class, another source, namely, George Washington University’s Face the Facts USA disclosed statistics they have gathered. The information is shown in Figure 2 – Growing Gap Between Income of the Rich and Income of the Middle Class. There was indeed a great discrepancy between growth in the income of the rich very growth in the income of the medium class. g] Insights from the Book & References For those not so familiar with the statistics and trend of business in America, the insight provided by the author would be the historical and logical explanation for the current economic gap between rich and middle class and also the major reason why there has been a prolonged economic crisis in the USA. The author also gives a proposed solution, which is raising the taxes coming from the income of the rich. Blodget (2012) agreed with Warren Buffet about the need to raise taxes on the rich. This is about the best way to lessen the growing gap between rich Americans and the middle class. Warren Buffett testified that taxing the rich will not discourage entrepreneurs from earning more. But it will certainly reduce the budget deficit. h] Realistic Examples to Support the Author’s Arguments The author utilized realistic examples like the Chinese buying treasury stocks of US government, aside from the wealthy Americans who are now controlling much of the resources of USA. They are as if buying the democracy so that they can manipulate the government to serve their private interest even if it will be at the expense of the greater majority. In fact, it looks like all the contents are based on realistic examples. The Republican were cited for having a regressive plan of action by not wanting to increase taxes of the wealthy. This has been in the news for a long time. He also reminded the readers about America’s history right before the Great Depression and the years when the middle class grew which resulted in the great progress of America. Thereafter, the rich entrepreneurs began to curtail that growth by taking most of the income for themselves. Since then, America has stagnated economically. All these are real. i] Review of Business Indicators to Determine Predictions and Conjectures As a democratic country that is supposed to serve the interest of the majority of people, in this case the middle class, the first business indicator would be USA’s Annual Growth Rate over the years. It tells whether or not the country is progressing. The 2nd would be the distribution of that growth or to put it in another way, the comparative growth in the resources of the majority versus that of total growth of the country. Figure 2 can serve this purpose. If the value of growth in dollar value outside of the actual total income of the middle class appears to be substantial, the government should trace who are actually accumulating much of the wealth of the USA from the growth realized over the years. Another important business indicator is the annual unemployment rate which was already shown in Figure 1. The following GDP charts show mostly annual growth rate from post-World War II to the present. See Figures 3A to 3F. j] Relevance from the Economic Perspective & Economic Theories Support or Challenge What actually happened to the American economic community could be explained by the Adam’s Smith Theory of Survival of the Fittest He predicted that given a free market, the notion of serving the self-interest would result in benefitting the whole. So why is it that the rich corporation owners benefitted only themselves? And there is no divine hand meet the needs of the weak? Karl Marx’s Communist Manifesto is the other extreme wherein the masses will overthrouw the elite because of the social injustice in the equitable distribution of wealth. People who accuse President Obama of leaning towards the left are actually recalling the teachings of Karl Marx. The more realistic economic theory being applied is the General Theory of Employment by John Maynard Keyness. It says that in times of high unemployment, the government will intervene. This remains a challenge until the present. US government is tryin g to be of help to the unemployed. But it is sinking in debt as a result. The question remains: what should government do to intervene for higher employment rates? So far, the answers have been Tax Credits and an increase in the Tax Rate for the top 1% rich earning $500,000 per year. k] Recommendations in Line with the Predictions of Robert Reich The Great Depression as an option will certainly be dreaded by the rich and poor and middle classes. It was the author’s recommendation to unite the middle class people for a more resounding clamour against government’s failures to control the economic conditions such that there should be equitable distribution of wealth. This is a good idea. But how to implement such mobilization of the middle class was not made clear. The author seems to have proposed a simple mathematical solution of taking more funds from the rich in order to give to the middle class and poor in the form of Tax Credits. What tax credits can the unemployed receive? There are 86,000,000 Americans estimated to be unemployed as of May 2012 (Cennsky 2012). Figure 4 – America’s Jobs Crisis shows the breakdown. The more realistic and logical solution, although ambitious, is to unite the middle class and have them aim for self-reliance through a series of step-by-step process. (1)Register each member with valid identity and address. (2)Form as many business groups as will be needed to include all the members, as though forming a cooperative. (3)Have each group identify which need of society the members would like to serve. (4)Develop a feasibility study for the market to be served and for middle class members to be gainfully employed. (5)Secure funding from government, even if not in the form of a grant but in the form of a loan to produce something. (6)The production of each group should be supported by the other middle class groups even if they have to boycott the rich entrepreneur’s products and services and have them replaced by the middle class production. (7)Create a system of accounting and medium or means of transaction that does not necessarily depend on the printed dollars. For example, Promissory Notes will do. Remember that the Federal Banks are owned by the rich bank owners. Through a system of accounting using other means of transacting, goods can be transferred from one middleclass member to another to meet needs without even parting with dollar bills. Excess supply of products produced should be sold to the rich for cash. That is when dollars can be saved by the Union of Middle Class in the USA. There are hundreds of millions belonging to the middle class. They ought to be a power to reckon with. If properly organized and disciplined, eventually, the middle class can raise its own Central Bank to create its own means of exchange for all goods and services that middle class members produce in order to be self-reliant. Readers should avoid falling for the circus of “demonizing” culprits identified with greed among the rich and Republicans. Lobbying cannot be avoided. It would be a waste of time to perpetually argue over who will jump over the Fiscal Cliff whether it is the Democrats or the Republicans or the Federal Bank owners who funded the businesses of foreign countries. They can akll do that at the same time. And nothing good for the middle class will take place in spite of their falling into the ravine. What the middle class should do is to empower itself by organizing peacefully and spreading the good news about a new order that aims to accomplish self-reliance for the middle class, by becoming more productive starting with organizing, planning, and implementing strategies with self-discipline from each member. They can stop hoping for the benevolence of the greedy rich. And the unity should also identify the pro-middle class Senators and Congressmen for a solid vote only for worthy public servants who will not push the poor and middleclass over the Fiscal Cliff by debating over nonsense during their term of office. Subdivided into providers of needs, the middle class should attend to the needs of its members – food, clothing, shelter, education, employment, and savings – by actually starting a productive endeavour. Definitely, there should be those who should be in the agricultural sectors raising meat products, raising crops, vegetables, and so many other food items. Lakes can be turned into fishponds. Home industries can be started to produce clothes, shoes out of animal skin, and so on. There are many Americans with creative minds. They should use all available talents to overcome initial difficulties as a result of changes. There are those who are good at negotiating. Let them negotiate with government for financing of the many business projects to be implemented by the middle class. Each member should have a role within the Union of middle class citizens. There can also be religious and charitable groups from within the Union to handle the presence of impoverished Americans as a result of the present, disgusting system of the rich and influential. Eventually, the poor who will be rescued can become a member of the middle class. The definite bottom line is that people in the middle class should learn to trust in themselves, their abilities, their vast membership. It is by taking actual initiatives to be a catalyst of change among the members of the middle class that logically, something good will take place. This is in contrast to hoping for rich business owners and their allies in government to do whatever might be right for the middle class. They have their own major problem called avarice. If that is embedded into their characters, then what solution coming from them can be expected whether in the short run or in the long run? The best bet of the middle class to have their predicament resolved would be from among those who feel the difficulties of the middle class. Figure 1 – Unemployment Rate Statistics in the USA [Source: US Dept. of Labor Bureau of Labor Statistics (2013). Viewed April 19, 2013 Figure 2 – Growing Gap Between Income of the Rich and Income of the Middle Class. [Source: George Washington University. Income Gap Between Rich, Middle Class, Poor Widens. FacetheFactUSA.org, March 25, 2013. Web] Figure 3A Figure 3B Figure 3C Figure 3D Figure 3E Figure 3F Figure 4 – America’s Job Crisis [Source: Cennsky, A. The 86 Million Invisible Unemployed. CNN Money, May 4, 2012. Viewed April 20, 2013 @ http://money.cnn.com/2012/05/03/news/economy/unemployment-rate/index.htm ] Works Cited Blodget, H. Why Warren Buffet is Right About Raising Taxws. The Daily Ticker, November 26, 2012. Web. Cennsky, A. The 86 Million Invisible Unemployed. CNN Money, May 4, 2012, Web. Constant, P. Middle Class War: An Economist Explains How to Make America Fair Again. TheStranger.com, April 18, 2012. Web. Reich, R.B. Beyond Outrage: What Has Gone Wrong With Our Economy & Democracy, and How to Fix It. USA: Knopf, April 2012. Print Reich, R.B. The Limping Middle Class. The New York Times, September 3, 2011. Web. Foreign Holdings of USA Debt at All-Time High. USA Today, April 15, 2013.Web. Read More