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Robert Reich video can be seen here: http://www.youtube.com/watch?v=f4ZTwPsmpnc

Hello and welcome to the YouTube channel of CrushTheStreet.com!

My name is Josh and I’m the technical analyst for FutureMoneyTrends, as well as the founder of ContangoDown.com.

I have been asked to provide a rebuttal to the premise of the book, “Aftershock,” written by Robert Reich, in which he describes the income distribution to the wealthy as the reason why America can no longer move in an economically viable path. In researching this particular topic, I expected to disagree with Mr. Reich, and accuse him of being a communist and a flaming liberal. But if we look at the economic trends outside of the biased views of political persuasions, I will dare say that we can all agree with Mr. Reich. Certainly, the economy, the real economy, is nowhere near where it needs to be. The jobs that we are creating are minimum wage, seasonal jobs in a retail industry that is steadily losing operational margins.

On the other hand, it appears to be Wall Street that is getting all the bailouts : the bankers and the speculators gambled recklessly by enticing a market of middle-class families into investments that they could not afford outside of a bubble economy, and eventually, these bets went horribly awry. Yet, instead of leaving these white-collar bums to their just reward, the government violated the core principle of free markets and began bailing out the worst offenders. In the meantime, the victims of the speculation marketing, those that fronted the underlying asset of the now toxic derivatives, were given the boot.

It is true that we all have responsibilities and we must take full ownership of our decisions. But to revise this basic tenant of adulthood for the otherwise criminally insane and not offer even a quasi-equitable solution to the majority basis of America’s population highlights the zero-sum nature of our immediate circumstances.

The term “zero-sum game” is often bandied about in an intellectually irresponsible manner. At its core definition, it simply describes a mathematical scenario where there are just as many winners as there are losers. The options market, for example, is a zero-sum game : for every trader that loses in his or her position, there is a counter-balancing trader that wins. Therefore, there is no moral leverage in a zero-sum game, and even more importantly, the scope of the game is constant : the elements are distributive and not integrative.

Why does this point matter? The pie in Mr. Reich’s economic model for America does not get bigger once the middle-class reaches an inflection point, where the ratio between per-capita productivity and personal income caps out. This inflection point was hit during the fifties and sixties. Since then, per capita productivity would increase but personal income would actually decline. In order to keep up with standard of living thresholds, the middle class would develop coping mechanisms to address this deficiency.

First, women started entering the workforce en masse. When this secondary income wasn’t enough to overcome rising rates of inflation, a second coping mechanism of longer hours was imposed by the subtle hands of economic hegemony. When even this was no longer enough, most families resorted to debt, or what is euphemistically referred to in government as deficit spending. However, when that bubble burst, the consequence was far greater than merely financial ruin : the American middle class no longer has any other avenues to keep the engine running.

Essentially, we are at the mercy of the Federal Reserve : the recent Tapering drama was nothing more than a joke. The numbers simply don’t support the continuation of an indefinite bull market. According to Alison Schrager of Reuters, median household net worth fell 47% between 2007 and 2010. Those that have not been completely gutted are reducing their risk exposure to traditional investment vehicles, with shares of equities held by 65-to 74-year-olds falling from 55 to 44 percent in the same time range. With the older generation losing massive amounts of wealth just prior to retirement age, and with increasing indebtedness by younger consumers, a depression like scenario is not out of the question : the margin to pull resources to pump up the economy is simply non-existent. Remember that in a zero-sum game, the components are distributive : wealth cannot be created or destroyed, it simply accumulates on one side of the ledger.

This imbalance will at some point or another correct itself : whether the government pre-empts this crisis is a controversial and confusing topic. First, it’s unclear whether the government even realizes that there’s a problem brewing. Second, the government is mostly the problem.

This is where I diverge from Mr. Reich : his solution is reform based policies, inevitably drawn up by the government, to forcibly distribute the nation’s wealth back to the working and middle-class, and thereby create a sustainable economic model. But coercion of distribution only leads to multiple microcosms of corruption : rather than dealing with the corruption itself, government’s solution has always been to spread it out over a wider surface area to give the appearance of progress when no real net change exists.

Instead of distribution, we must focus on integration : merely stirring the contents of the pot is not enough. We have to start adding more ingredients from a complete recipe built on exploration and innovation. Unfortunately, this would require new thinking, something that Washington is not able to do in an appreciable time frame. Overly liberal variants of environmentalism has caused us to hesitate when other nations do not. The bizarre moral code that prevents the United States from extracting the fortunes of war after paying such a dear cost is another philosophy that restricts our future economic growth. And the fact that the greatest military power on earth has begun to capitulate to the demands and threats of its enemies is surely the greatest disaster of our national and economic security : like it or not, we are living in a world of scarcity. In order for Americans to enjoy their current standard of living, we must ensure that our people maximize our economic allocation. 

You don’t like it? Tough. There are only two types of successful people : those that forge their own path and those that leach off the success of others. Because we cannot control the family we are born into, most of us will have to earn our success. This is the path that America must also take : pioneering into yet another frontier and emerging victorious. As Mr. Reich so aptly put it…there  are no more coping mechanisms left!

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