Reframing the Debate: Not That Most Americans Have Been Living Beyond Our Means, But Our Means Haven’t Kept Up Because of Widening Inequality

Even as the economy slowly recovers from the worst downturn since the Great Depression, government-haters and deficit-hawks are sticking to their same story: Americans have lived beyond their means and must now learn to live within them.

The reality is quite different: The means of most Americans haven’t kept up with what the economy could and should provide. The economy is twice as large as it was three decades ago, and yet the typical American is earning about the same, adjusted for inflation. All the gains have been going to the top.

The notion that we can’t afford to invest in the education of our young, or rebuild our crumbling infrastructure, or continue to provide Social Security and Medicare and Medicaid, or expand health insurance is absurd.

If the median wage had kept up with the overall economy, it would be over $90,000 today — and tax revenues would be more than adequate to cover all our needs. If the wealthy were paying the same marginal tax rate they were paying up to 1981, tax revenues would be far more.

Get it? The problem isn’t that most Americans have been living too well. The problem is we haven’t been living nearly as well as our growing economy should have allowed us to live.

Widening inequality is the culprit. If President Obama is looking for a central theme for his second term, this is it.

This piece is cross-posted from Robert with permission.

9 Responses to "Reframing the Debate: Not That Most Americans Have Been Living Beyond Our Means, But Our Means Haven’t Kept Up Because of Widening Inequality"

  1. Steamed in SF   May 31, 2013 at 12:20 pm

    This is utter nonsense! The poor are not poor because others are rich (except in a kleptocracy such as Venezuela, Russia and other totalitarian regimes). However, one can make people less poor by taking property and wealth away from the rich and redistributing it to the poor. But that is only a temporary measure because it did not address the underlying problem. It is just a beggar-thy-neighbor policy. Also known as utopian socialism. That's it, Prof. Reich, use tax policy to punish the successful! The rich in the US do pay a fair share. Could they pay more? Sure. Will that help the poor be less poor? Probably not, but it make a lot of Washington bureaucrats more powerful and many of them a lot wealthier because of it. Welcome to the corruption of the US government system. Plus, it will satisfy arm-chair liberal professors at UC Berkeley who expound more silliness.

  2. benleet   May 31, 2013 at 2:48 pm

    I looked up the BEA's NIPA table on disposable (after-tax) Personal Income per capita for 2013 Q3, it's $38,008. In current dollars that's just a few bucks under total personal disposable income of $12 trillion. (See the source:… With $38,008 after-tax income per human, then a family of 2 would have a post-tax income of $76,000, on average, and a family of 4 would have $152,000, a single mother with 2 children would have $114,000 — that's the average. Funny it didn't work out that way. The S.F. Fed has a graph showing per worker contribution to GDP, it's $109,000 per worker, and that's counting all part-time and temporary workers, 143 million workers in all. The Social Security Administration reports that the median annual wage income in 2011 was $26,965. That's the median, the average would be 143 million divided into $12 trillion, or about $84,000 per worker. This simplifies income a little too much, but the broad picture is plain enough.
    When workers cannot afford to buy the products they produce, then employers cut production, and lay-off workers and, lower wages. That destroys the economy. Marriner Eccles, the Chair of the Fed between 1934 and 1948 wrote about it. Really more people should read Thomas Palley's articles and books, he agrees with R. Reich. The Progressive Caucus' budget, Put America Back to Work, is the only fully designed proposal to correct these problems. Even Nouriel Roubini, Dan Alpert, and R. Hockett proposed in Oct. 2011, The Way Forward, a government jobs program of $1.2 trillion over 5 years, that's $240 billion a year. My blog:

    • Sonny   June 4, 2013 at 7:18 am

      Cheap consumer goods from China, have softened the effects of lower income levels, over the last two decades. But with those "cheap goods" already fully implemented into our economy, we can expect the future consequenses of reductions in income levels, to be very material, in their effects. Hard choices ahead. Will they be made?

  3. gzuckier   June 1, 2013 at 10:55 pm

    Brilliant. (I'm serious, not sarcastic) I hadn't seen/thought of this angle on the deficit before.

  4. P. Christopher Smith   June 2, 2013 at 8:14 pm

    Talk is cheap even if it is better than silence. the real issue is what can I do, what can you do, what can all us of do to correct the injustices you so ably and correctly describe. the people who benefit from having things stay the way they are, the 1%, are firmly in control of the government. they own the president, the congress, and the supreme court and the two major parties. What concrete action do you propose to throw them out and restore government for the people, by the people and of the people?

  5. Robert Patterson   June 4, 2013 at 11:54 am

    A parallel problems is that of trying to budget in an atmospere of constantly varying prices. Food, gasoline, sometimes even utilities prices swing wildly. In addition, political entities will invent unusual taxes that may cause unforseen increases. For instance, California's taxes on taxes and in my town, huge fees on the waster bill (Fernley, NV).