The The The The The The The The The The The The The The The The The The The The The The The The The The The The The The Okay, we're going in my Mini Cooper. Now, the thing you ought to know about this Mini Cooper is it is small. I'd like having a Mini Cooper.
I sort of identify with it. You know, it's pretty little. I feel as if it's proportion, that we are in proportion. You know, me and my car, we are sort of together, facing the rest of the world.
Fairness is quote the defining issue of our time and what the This kind of gaping inequality gives lie to the promise that's at the very heart of America. There is income inequality in America. There always has been and hopefully there always will. If inequality is at a very much higher level, who cares? Income inequality has been ticking up.
I think it's about envy. I think it's about class warfare. It's class warfare and it's the kind of language that you would expect from a leader of a third world country, not the president of the United States. It's true, because the United States of America is not a third world country by any measure, except perhaps income inequality, where we rank worse than the Ivory Coast, worse than Cameroon.
64th! Ah! In your face, Uruguay, Jamaica, and Uganda!
Yeah. Yeah. Okay, are we all here? My name is Robert Reich.
I was Secretary of Labor under Bill Clinton. Before that, I was at Harvard. Before that, I was in the Carter administration.
Do you remember? Anybody? You don't remember the Carter administration. Before that, I was a special aide to Abraham Lincoln. Those were tough times.
We are going to deal with three questions. The first question is, what is happening in terms of the distribution of income and wealth? Number two, why? Number three, is it a problem?
Maybe it's not a problem. Many of you call yourselves conservatives, many of you call yourselves liberals. Those labels will become increasingly irrelevant as you get deeper and deeper into this subject. I want you to test your assumptions.
If possible, I want to shake your assumptions a little bit about why... The system works as it does. Some inequality is inevitable.
If people are going to have the proper incentives to be productive, to work hard, to be inventive... That's the essence of capitalism and capitalism does generate a lot of good things. Look, the question is not inequality per se. The question is when does inequality become a problem? How much inequality can we tolerate and still have an economy that's working for everyone and still have a democracy that's functioning?
Of all developed nations today, the United States has the most unequal distribution of income and wealth by far. And we're surging toward even greater inequality. One way of looking at and measuring inequality is to look at the earnings of people at the top versus the earnings of the typical worker in the middle. The typical male worker in 1978 was making around $48,000, adjusted for inflation, while the average person in the top 1% earned $390,000. Now fast forward.
By 2010, the typical male worker earned even less than he did then, but the person at the top got more than twice as much as before. Today, the richest 400 Americans have more wealth than the bottom 150 million of us put together. Now think about it.
400 people have more wealth than half the population of the United States. Anger rising over an economic system that has rewarded some, but leaves many feeling left behind. After the economy crashed in 2008, inequality suddenly became front page news.
Who else wants to join the 1%? You look like a 1%-er. We're a fabulous percent. People from both parties were looking for someone to blame. But most people have no idea how it got this bad, or why.
Not until the last few years have we really understood all that much about inequality. I mean, we knew the top 10 or 20 percent were moving in one direction, and the bottom 10 or 20 percent was moving in another. But we didn't know what was happening at the very top, to the top 1 percent.
Hello. How are you doing? Good to see you. And then a few years ago, two researchers, Emmanuel Sayes and Thomas Piketty, found a different source of data.
They looked at IRS tax data, not just over the last few years, but all the way back to 1913, when the income tax was instituted. It showed that there were two peak years. 1928 and 2007 become the peak years for income concentration, both of them in which the top 1% is taking on more than 23% of total income.
We knew that inequality had started to increase in the late 70s and the 1980s, but we didn't know how dramatically income concentration had increased, especially within the top 1%. You had this study come out in 2003. It sat there for a number of years, and then suddenly it became important. This graph becomes very central for explaining what has happened to the U.S. economy and indeed what's happening and has happened to our society. It looks like a suspension bridge. What happened the year after 1928?
The Great Crash. And what happened just after 2007? Another crash. The parallels are breathtaking if you look at them carefully. Leading up to these two peak years, as income got more and more concentrated in fewer and fewer hands, the wealthy turned to the financial sector, and in both periods, the financial sector ballooned.
They focused on a limited number of assets, housing, Gold, speculative instruments, dead instruments, and that creates a speculative bubble in both times. We also know that the middle class, in both periods, their incomes were stagnating and they went deeper and deeper into debt to maintain their living standards. And that creates a debt bubble.
That's why you see in both these periods economic instability. What makes an economy stable is a strong middle class. Look, the most important thing to understand is that consumer spending is 70% of the United States economy. And the middle class is the heart of that consumer spending.
So it's your middle class that keeps the economy going. There's no way you can sustain the economy over the long term without a strong and vibrant and growing middle class. It can't be done. People are being intimidated. I mean, they might lose their jobs if they even come...
I talk to a lot of different groups. Some are wealthy, some are working class, some are conservative, some are liberal. And he finally got a full-time job.
The middle class is struggling. It is going downhill. I hear it all the time.
Well, everyone tells me that I am, but I don't feel like I'm middle class because I'm barely making it. Middle class is living comfortably and not having every week be a struggle. I'd like to save up and buy a house.
house one day and you know I haven't really been able to do that and been kind of holding back and just trying to make rent right now. How much do you make an hour? Right now I think it went up 21.50.
21.50 an hour. Hola Roberto! I think I'm being paid fair. It got to a point that we were able to afford, you know, a condo on Oliveira Road.
And we bought it, we had our own things, our own place. It was little, you know, two bedroom. We bought it in 2004, around 2006, started 2007. The market just dropped like a rock.
And not that long after, actually, I lost my job that I'd been at for a long time. Luckily, we had some really good friends, and one of them said, come over here and live with me. So that's where we are now.
Go with daddy. Go with daddy. You hungry? Childcare for Paulina right now cost me about $400.
I'm like, I'm excited whether I should make her walk home, buy her a phone and walk home, making sure she gets home OK, or keep paying the daycare. Bye. Here you go, mommy.
Ready? I have $25 on my checking account right now. And just thinking about all the things that we need. I don't have a way of communicating with Robert right now. He doesn't have a phone, so we have to wait for that.
I gotta figure out, we have to have enough food on the table for the kids. $25 in your checking account, that's gotta be... that's not very much.
No, it's not. But I mean, it's just one thing. I'll survive today.
I'll look it up in the pantry, see what else is there to eat. I have a full tank of gas, so I'm fine on that part. I don't need to go anywhere right now. When I was laid off, I decided to go ahead and pursue my degree at that point. Most of the classmates I have are a lot younger than I am.
It's different when you're reading about it or somebody else's issues. That's different from when it's your own family's. So when it hits home, that's probably the hardest part.
There's no official definition of the middle class. But Alan Kruger, chairman of the Council of Economic Advisors, he said the percentage of households with annual incomes within 50% of the median household. $50,000 median income, 50% above. 50% below.
If you're in the top 1%, you're earning at least $380,000 a year. If you're at the lower end of this group, you're probably at the top levels of the professional fields. A top doctor or a top lawyer.
Higher in this group, earning several million. a year are successful entrepreneurs who start profitable companies. At the highest levels, earning $10 million a year or more are the CEOs of big companies, the heads of Wall Street banks, top entertainers, and also the top sportsmen.
sports stars. Last year we made $36,000 and we're a family of three. I think I probably make between $45,000 and $50,000 a year, working 70 hours a week, six days a week. Combined income with the Army and with my personal job, maybe $55,000 to $60,000 a year. Probably close to $600,000.
Usually more than 10 million, less than 30 million. But, you know, a lot. A ridiculous amount of money. I am an entrepreneur and venture capitalist. My family owns a large manufacturer of bed pillows and down comforters called Pacific Coast Feather Company.
We are in fact one of the largest manufacturers of those things in the world. The problem with rising inequality is a person like me who earns a thousand times as much as the typical American doesn't buy a thousand pillows a year. Even the richest people only sleep on one or two pillows. The pillow business is quite tough, as it is for many, many industries, because fewer and fewer people can afford to buy the products that we make. I have the nicest Audi you can get, but it's still only one Audi.
I personally hate fancy food. I would infinitely rather go have a great bowl of pho at the local Vietnamese place than a five-course, $300 dinner at some fancy place. You know, we can only go out to eat so many times a year. We can only get so many haircuts a year. We can only get, you know, three pairs of jeans will do you.
You know, like, you don't need 300 pairs. The problem isn't that the rich spend too much of what they earn. It's actually, paradoxically, that they spend too little.
They're not generating enough economic activity. Somebody earning $10 million a year doesn't spend $10 million. They save it.
And those savings go anywhere around the world. They can make the most money, get the highest return. They become part of the global capital market, including a lot of speculative instruments, I mean, gold and real estate and anything else that they're all chasing.
With the exception of the money I personally invest to start companies, I have essentially no idea what happens to my money. I invest in funds of funds, and those hedge funds do God knows what with it. But I do believe absolutely that most of the return that's being created isn't creating any kind of social utility other than creating a return for me.
And ordinarily we like saving. I mean, savings are good. But when we have so much unemployment, so much underutilized capacity here in the United States, we need spending.
Every single person there has to process units per hour. How are we going to create jobs if you're taxing the very successful people in America who provide those jobs? Sometimes we think that this is a debate over facts and figures and data.
on the job creators in this country. I think if you believe that, you're fooling yourself a little bit. The people that you call rich, I call job creators. When somebody calls themselves a job creator, they're not describing the economy or how the economy works, although that's what it sounds like. What they're really doing is making a claim on status, privileges, and power.
If a guy like me is a job creator at the center of the economic universe, the current economic arrangements are righteous and justified. I know how comfortable this is to believe because I used to believe it. You know, I grew up kind of believing it.
believing that, you know, and when people challenge that idea, I would say things like, well, you just don't understand economics. But of course, if rich business guys like me are not job creators, it's actually our customers that are the job creators. We are not the center of the economic universe.
They are. We need to replace trickle-down economics with middle-out economics. And indeed, every place you look on earth where you find prosperity, you find massive investments in the middle class and the poor. Because at the end of the day, they are the true job creators.
The most pro-business thing you can do is to help middle-class people thrive. Okay, I'm gonna get the box. Now, see this box is really important. I travel not only with my Mini Cooper, but with my box.
Do do do do do do. Hello George, how are you? You were so kind to bring the box, we have one for you too.
In recent years I've discovered that I actually have a very, very rare genetic condition. that is responsible for me being very short. Let me carry that. No, no, no, that's fine.
My parents were normal size. My grandmother always said to me, don't worry, because when I hit about 10 or 11 or 12, I'm going to, you know, have a real growth spurt. And then I got to be about 10 or 11, and nothing happened. Right this way. Yep.
Thank you. I grew up in the shadow of World War II. My father was in the war. We were middle class. My father sold dresses, my mother helped in the shop.
My first job in Washington was working as a summer intern for Robert Kennedy. It was a time when there were kind of giants, Robert F. Kennedy, Martin Luther King, and they were all trying to change society. There was a sense of possibility.
It kind of turned me on to politics. A few years later, I was picked to be a Rhodes Scholar. In those days, all the Rhodes Scholars who were selected took a boat to England. The problem was, you know, when you go over there, the Atlantic Ocean is pretty rough.
You know, I and most of the other Rhodes Scholars were sick, and I went down to my cabin, you know, and thought I was going to die. And then there was a knock on the door and this fellow was there, this kind of tall, gangly southerner, and he had chicken soup in one hand and crackers in the other. And he said, I hear you aren't feeling too well, I thought these might help. My name is Bill Clinton.
At Oxford we were at the same college. We kept in touch. At Oxford I studied mostly economics and philosophy.
But those experiences really were a study for me of the rules by which markets are organized. And this is an important point, and it's one that's very often lost. But it was the focus of my attention. You see, there's no such thing as a perfectly free market anywhere. Government sets the rules by which the market functions.
All of these rules are necessary in order to construct a free market. The real question is who do these rules benefit and who do they hurt? And in the last 30 years, as the structure of the economy began to shift, many of the rules governing our market began to shift as well. Today we're going to try to explain the mystery. Why?
inequality has been widening. Remember, the economy is growing all of this time. The economy is...
The economy continues to grow. Look, here is gross domestic product growth from 1929 to 2011. The economy overall has done extremely well, and productivity keeps on increasing. We are producing more and more and more and more and more value. That's a big, big success story. But here is the problem.
Here's the puzzle. Because if you look at the average hourly... earnings of production workers. The average hourly earning continued to rise until the late 1970s, and then something happened. Flattening wages.
Look at the gap. Something happened in the late 1970s. Something happened in the late 1970s, folks.
In the late 1970s, I was at the Federal Trade Commission. I was looking at a lot of studies about the direction that the economy was going in. More of American manufacturing was beginning to move abroad. There was the beginnings of a technological revolution. Financial markets were becoming a little more complex.
bit more powerful. There was a move to deregulate. Well, you connect the dots and all of these begin to look as if they're connected somehow to this widening inequality. For example, we knew that labor unions were declining.
And that decline mirrored almost exactly the decline in the middle class's share of national income. The hard part is stepping back and seeing the big picture. Many people, even to this day, say that the decline of unions really was attributable to Ronald Reagan taking on the air traffic controllers.
I must tell those who fail to... for duty this morning. They have forfeited their jobs and will be terminated. There's no question that beginning in the late 70s, but also after Reagan fired the air traffic controllers, there was a...
major assaults on unions. Employers did try to prevent unions from being formed much more aggressively than before. I'll go, you don't have to hang on to me. And employers fought to bust unions that were already there.
But maybe they were doing so because they felt they had to in order to maintain their competitiveness, given so many other companies that were non-union in the United States and also many companies abroad. The major underlying issue was two interrelated things. Globalization. and technology. I mean, you hear the word globalization over and over and over again.
Globalization, globalization, globalization. Rarely has a word gone so directly from obscurity to meaninglessness without any intervening period of coherence. Can anybody lend me their iPhone for a moment? Anybody have one? Great.
Thank you. I don't have one. And I've really wanted to have one.
Where do most of your dollars go when you buy an iPhone? What do you think? Let's go.
Let's do the bidding. A little over 700 of you have these clickers, which is great. You say mostly to the United States, some of you say to China, and then some of you say, a few of you say Japan.
Eleven of you think Germany. Well, here's where your dollars go. Most of your dollars are going to Japan.
Some of your dollars are going to Germany. In fact, Germany is the second biggest one. South Korea is the third. And here, 6% of your dollars are going to the United States. And only 3.6% of your dollars are going to China.
Now, it's assembled in China. Do you get this? It's assembled in China. But the assembly...
...is of pieces from all over the place. Everything is coming from everywhere. I want my students to see it's not just cost of wages or labor, it's also which country's workers add what value. My Mini Cooper is made by a foreign company.
But where a company is headquartered means less and less in this new global economy. Technologies like cargo ships, containers, satellite communication technologies, and eventually computers and the internet, these technologies enabled the production process to be parceled out around the world. large numbers of American manufacturing workers began to lose their jobs, which meant it inevitably began undercutting the wages of a lot of working Americans.
Even factories remaining in the United States shed workers as they automated. You know, we have this romantic idea that we can get manufacturing back, but you get manufacturing plants back and they're filled with robots and computers. The old assembly line is gone. I was one of the earliest investors in Amazon.com. I consider Amazon.com to be one of the greatest economic achievements of our time and certainly something I'm incredibly proud of.
But make no mistake... Amazon.com employs 60,000 people and does 70, 80 billion in sales. But if mom and pop retailers were doing that 70 or 80 billion in sales...
It wouldn't be 60,000 people employed doing it. It'd be 600,000 or 800,000 or a million people because those business models are so much less efficient. So Amazon created a huge economic windfall here in the Pacific Northwest, but all over the country, there are people who are no longer employed in selling stuff who are not happy.
As a manager for Circuit City, it was a look behind the curtain, so to speak, as a manager, to see exactly how everything worked. So when you got laid off, did you see it coming or was it sudden? They did several layoffs while I was there.
People had been there too long. They're making too much money because they've been there too long. And we're going to have to do something to cut the payroll.
The hardest part was thinking, is it going to happen to me? Until I became a student, it was pretty dicey. I mean, it would have been easy for me to just fall into depression, which happens to a lot of people, or go for a lower-paying job, which would have put me in a worse financial situation.
Looking back on it, you can see the pattern. It's not as easy to see when you're in it, but the signs were there. I mean, there was a major slowdown in business, and I think that a lot of that had to do with things like Amazon.
Because I've been in retail for so long, I don't go through the automated checkout lines. And one of the main reasons is because I know that every time I go through that, it's taking a little bit of someone's job away. It's not that I think that I'm going to save their jobs in the long run, but I know that I'm going to slow down the transition a little bit so that maybe they're going to have a little bit longer to get ready for the transition.
Contrary to popular mythology, globalization and technology haven't really reduced the number of jobs available to Americans. These transformations have reduced their pay. It's not just that wages are stagnating, but when you take into consideration rising costs, the rising costs of rents or homes, dramatically increasing costs of health care, the rising costs of child care, and also the rising costs of higher education, rising much faster than inflation.
Take all of these into consideration and you find that it's much worse than just stagnating wages. It's basically middle-class families, often with two wage earners, working harder and harder and harder and getting nowhere. I work at a law firm as a litigation assistant. And Moses?
I work as a bus operator. Do you know how much is in your bank account right now? Mine is like...
Less than a hundred bucks, so I want to say maybe 80. Yeah, yesterday it was only $30. And that's what does working. Yeah.
Car insurance, 125, kids roll 150. rent, $13.75. We felt like we had to write it all down, because how could we not have money? We make money.
You know, I'm working now. We don't know how much we're going to be paying on that. The Y, this is my money.
that I donate $16 a month to Children International. We don't even have here my UCSF bill. Remember the hospital bill?
It's like 200 and something dollars. It's not even here that we need to pay. What about savings? We haven't been able to.
We don't have a savings account. I took it off because it wasn't working. Hi, you brought your car.
Did you guys play baseball? She's been playing. When she was born, we had no money. The refrigerator was empty, the freezer was empty. I said, this is not the way I want to raise my daughter.
How was your day? I've seen single mothers work three jobs just to be able to. to pay rent and I didn't want that so I started going to school.
How do you build wealth? Not that I want to be wealthy, I just, how do you do it? How the heck do you build wealth?
Like when you don't have anything, when you don't have any assets, when you don't have nothing. This is going to be mommy's office, look. This is going to be my office.
It's not my office yet, but it's going to be my office really soon. People, I think, would be less concerned about inequality of income and wealth if everybody had a chance to make it. As long as there's upward mobility, as long as anybody with enough guts and gumption and hard work can make it. America can move up the income ladder then we don't have a problem. But as income inequality rises upward mobility is actually less than it was before.
In the United States 42% of kids born into poverty will not get out. Compare that to Denmark where only 25% of kids born into poverty stay there. Even Great Britain, a country that still has an aristocracy, has more upward mobility than we do.
You know, people occasionally say to me, OK, Reich, if you think it can be done better, what nation does it better? Whom should we emulate? And the answer is the United States.
In the three decades after World War II, a day that I call the Great Prosperity, The more people were included in that prosperity, the more that prosperity generated more prosperity. What we know works in the global economy, you'll do what the Germans do, you'll do what the Japanese do, you'll put your people first, you'll expand the middle class. President and it would not have the capacity to have a corrupting influence over government decisions.
It's a concept. Vinnie Leyva, you're stupid, smarmy ass, take it, little snail! Oh You can't express yourself, but we are going to listen to the money from the big corporations that now are basically engulfing American politics. And with him registering voters were tortured and murdered.
Better make a living, better make getting by. It's all taking and no giving. He inspired me, actually, personally, to really want to go out and make a difference.
Going to Brazil to work with an NGO in the favelas. I know my wife, definitely. Erica wants to go to school, too. Now that she sees that it's possible.
I wanted to become a lawyer. You know, I've thought about it a lot. I wrote a couple of books on this stuff.
I knew what to do. I would, on my weekends, I would take a day off to start. I came, not a revolution, but you know what, maybe we do need something like that. Just to watch him shatter, you're just a step on the boss man's ladder, but you've got dreams he'll never take away.
In the same boat with a lot of your friends, waiting for the day your ship will come in and the tide's gonna turn and it's all... gonna roll your way. Looking out to the sky. What a way to make a living.
That ain't getting by. It's all taking and no giving. They just use your mind and you never Get the credit, it's enough to drive you crazy if you let it 9 to 5, yeah, they got you where they want you There's a better life, and you think about it, don't you? It's a rich man's game, no matter what they call it And you spend your life, put money in his wallet 9 to 5, what a way to make a living Get it, get it It's all takin'and no givin'They just use your mind And they never give you credit It's enough to drive you crazy if you let it Nine to five, yeah, they got you where they want you There's a better life than to dream about it, don't you? It's a rich man's game, no matter what they call it And you spend your life, put money in it for it 9 to 5, working 9 to 5, the jerk is goodbye.