Reflecting on the American economic meltdown

Aftershock: The Next Economy and America’s Future. By Robert Reich. Alfred A. Knopf, 2011. 192 pp.

Robert Reich’s new volume of popular economics is imaginative, engaging and clear-eyed—but one somehow expects more from it. The title alone, Aftershock: The Next Economy and America’s Future, leads a reader to hope for some serious trembling: an ‘aftershock’, after all, evokes surprising tremors coming after a larger quake, it conjures the picture of already weakened edifices collapsing, and even the hope of creative destruction that accelerates the construction of something new. The larger quake Reich has in mind here is the great financial crisis of 2008. But this book is unfortunately not the story of an aftershock. It is not the tale of reverberations in an unstable system and how we might manage and control them. Instead it is a book that points at a fracture that still underlies American society—inequality—and then offers some well-known ideas about how best to close that dangerous gap. But the book is not courageous or aggressive enough in talking about how perilous this problem is, and how sadly limited our economic imagination for dealing with it has become. We need now an aftershock—perhaps several—and what Reich gives here is essentially little more than an afterwobble. It’s not enough shaking, either for a book or for economics.

Reich begins by highlighting the link—what he calls a ‘virtual pendulum’—that binds American politics and economics. The country, he notes, has historically swung from periods in which economic gains are centralized in the hands of a few to periods in which prosperity is widely spread. And while the immediate reasons for the pendulum’s movements are economic, its real motor force is political. Policy choices lead to either distribution of wealth (as in the period after the Second World War) or historic and embarrassing levels of wealth concentration (see the last four decades). The aftershock Reich is now uneasily pondering is the snap-back of the political pendulum as a result of the excesses of concentration, which Reich believes is robbing the American economy of its vitality.

Reich’s book then becomes a discussion of how a more equal society consumes more. He retells the stories we all know of negative real wage growth in recent years and an economy that has produced no new net jobs in over a decade. Until America’s middle class is empowered—and employed—so that it can consume more, he sees no resolution to the have–have not economic conflict, and the inevitable emergence of a political fight as well.

What Reich proposes in Aftershock is a collection of sensible ideas to restore income equality: tax credits and other assistance for Americans earning less than $50,000 a year—the heart of the middle class—paid for by a combination of resource taxes and higher taxes on the wealthiest. Reich would tax the richest at 55 percent and eliminate most capital gains taxes—an attempt both to rebalance consumption and to balance out the absurd situation in which, as he explains, the very wealthiest Americans paid taxes at a 17 percent rate in 2009. He has in mind a world in which the market is allowed to breathe life into the economy, but in which the state helps press more people into that market on an equal basis.

Fundamentally, Reich is on to something powerful and important in understanding the way in which an unequal society—one of unequal opportunity and unequal security—will chew away at America’s politics. He does a good job recounting the challenges to fundamental reform, but what he is missing is the sort of overarching idea that would make such substantial reform possible. He relies too much on the market in most places and doesn’t ask the hard questions about ways in which markets are now failing. Reading Reich you’re left with the sense of the need for a new economics. And you have as well a feel for the forces he sees devouring American politics: greed chewing away at the top, anger at the bottom. When the greed and anger meet, we can likely expect that shock he has in mind. But it’s not likely to be an aftershock of the 2008 crisis so much as the first tremors of a much larger fault line, a shock that this book unfortunately tells us too little about how to manage, navigate, and survive with our values intact.

Joshua Cooper Ramo is the managing director of Kissinger Associates, an international consulting firm based in New York. His most recent book is The Age of the Unthinkable: Why the New World Disorder Constantly Surprises Us and What We Can Do About It. In an influential paper called “The Beijing Consensus” in 2004, published by the Foreign Policy Centre in Britain, he described the Chinese model of economic development and its attraction for developing nations. Ramo is a member of the World Economic Forum’s Young Global Leaders, and is a former assistant managing editor and world section editor of TIME.