It’s never too late to go back to school to learn something new, and with that in mind I enrolled in the UC Berkeley course “Wealth and Poverty” taught by the economist Robert Reich. The course consisted of fourteen lectures, recorded in a classroom at Berkeley in 2023, and is now free to the public.
Reich worked in the administrations of Presidents Gerald Ford and Jimmy Carter, and served as Secretary of Labor from 1993 to 1997 in the cabinet of President Bill Clinton. He’s a respected expert on the economy and politics.
The premise of the course is that beginning in the late 1970s and early 1980s, the gap between the rich and the poor in our country has been steadily growing, and it’s getting wider faster. Reich’s explanation for the increasing chasm between the rich and poor is that it’s a policy choice. Here are a few reasons why.
It’s the Political Economy
You’ve heard the campaign slogan “It’s the economy, stupid.” That’s not quite accurate. It should be “It’s the political economy, stupid.”
There’s no such thing as an “economy,” argues Reich. There is only a “political economy” in which public policy, laws, regulations, agency actions, and court decisions all determine the framework of the economy and how the system operates.
The reality that the heavy hand of politics shapes our economy contrasts with the concept of the “invisible hand,” inspired by eighteenth-century economist and philosopher Adam Smith, which describes the incentives that free markets can create for self-interested people to accidentally act in the public interest, even when this is not something they intended. Twentieth-century economists embraced the “invisible hand” concept to conclude that free markets are self-regulating systems that create economically optimal outcomes, which can’t be improved upon by government intervention.
But again, there is no such thing as an economy that isn’t shaped by the government. The only question is how has our government intervened, who benefits, and what are the results.
Predistribution and Redistribution
One of the battle cries of the right is that the wealthy shouldn’t have to foot the bill to help the poor. They’ve pushed (quite successfully) the idea that any taxes or policies that redistribute money from the rich to the poor are a money grab by lazy minorities who don’t want to work. Reagan coined the term “Welfare Queens” who do nothing but suck on the teat of government handouts. The poor need to embrace individualism; they need to work harder and pull themselves up by their bootstraps. In this worldview, you get what you deserve, and you deserve what you earn.
What’s left out of this argument is that the economy is set up to predistribute advantages to the wealthy and powerful, begetting a vicious cycle where wealth begets power, which confers more wealth and more power to those who already have it.
Examples: Reducing regulations on corporate behavior (Citizens United, for one); relaxing finance laws; lowering capital gains taxes for investors or weakening wealth and estate taxes allowing money to flow tax-free from generation to generation; gutting the strength of labor unions (such as “right to work” laws that prohibit unions from charging dues to all workers); policies that incentivize stock market growth that almost exclusively advantage the wealthy.
Could it be if some of the predistribution mechanisms of wealth were scaled back, there wouldn’t be as much need for redistribution of wealth to the poor?
Stockholder versus Stakeholder
There was a time when many U.S. corporations tailored their missions to include all stakeholders: workers, the community, the environment, customers, and shareholders. But beginning in the era of corporate raiders in the 1980s, activist investors took control of corporations by buying up stock, focusing exclusively on profits, and growing the stock price to serve only shareholders. That meant that one of the highest costs of business—worker wages—had to be controlled. Layoffs, automation, shipping jobs overseas, and weakening of unions all hurt workers and benefited management, with executives handsomely and outrageously paid with stock options and other benefits that were out of reach for workers. The old saw is true: capital exploits labor.
Geographic Sorting
Geographic mobility, such as relocating for better job opportunities, is decreasing in the United States. The main reason is that people in low-income areas are more dependent on friends and family for financial support and child care, locking poorer people in place.
Then there are deliberate and aggressive policies to geographically sort by race. Banks used redlining practices to deny mortgages to people of color in certain neighborhoods. Communities enforced restrictive covenants. At one time the Federal Housing Authority only granted mortgages to people in white neighborhoods. Zoning laws prohibited affordable multi-unit housing in many towns and neighborhoods.
The result is that Black and poor people live in the worst neighborhoods. These same neighborhoods were cut off and isolated by highways being built through them, these neighborhoods lacked quality schools and grocery stores, they were the communities where the most toxic industries were located, exasperating health problems—because these people had little political power and needed the dirty jobs.
The geographic lines between the rich and the poor are politically drawn. They are policy choices. For example, the city of Detroit struggles economically. A high percentage of the population is Black or people of color, the schools lack resources, and the tax base isn’t enough to fund positive change. Adjacent to Detroit—just across the street—is wealthy Oakland County, with good schools, nice homes, and plenty of money. A few years ago, the idea was floated to combine Detroit and Oakland County into a single metropolitan area that would pool its tax revenue, so that the riches of Oakland County could help support struggling Detroit. Guess how well that proposal went over? The underlying cry was “Why should we have to pay to help them?”
What is the single factor that most determines how well you do in life? Answer: the ZIP Code you were born in. So keep telling us the American path to success is all about working hard and pulling yourself up by your bootstraps.
Tax Burdens
It’s ludicrous that the current administration wants to give more tax breaks to the wealthy when in fact it’s the poor and working class who bear the most pain from their tax burden. Two taxes that produce significant revenue are payroll taxes and sales tax. Both are regressive taxes, which means they are more painful for lower-income earners than the wealthy.
The payroll tax funds Social Security and Medicare. It’s taken out of our paychecks. But once you reach $160,000 in income, the payroll tax stops. So the manager making $250K a year pays a much lower percentage of their income in payroll tax than the worker making $50K. The pain felt is much greater for the lower-income earner.
Same with the sales tax. If both the poor person and rich person pay 8 percent sales tax, that 8 percent means a lot more to the person struggling financially than it does to the wealthy.
Taxes should be progressive (pain equally felt among rich and poor) rather than regressive (pain greater for the poor).
It’s Not Inevitable
These are just a few ways our system is tilted heavily in favor of the wealthy and powerful. Can we make changes to narrow the gap between the rich and the poor? Reich says yes—because poverty is a policy choice. But will we ever have the political will to implement policies that lead to change? Maybe, if the thousands of students who took Reich’s course over the past fifteen years become our next generation of leaders and believe that change is not only possible but our moral responsibility. I’m all for the Bill of Rights. Now where’s the Bill of Responsibilities?
Reich claims three elements are necessary for positive social change: 1) Dissonance between ideals and reality; 2) Widespread awareness of this dissonance; 3) A sense of self-efficacy—that we can narrow the gap between rich and poor. But there are also mechanisms keeping us from acting: denial of the problem, escapism by believing it doesn’t affect me, scapegoating (it’s the immigrants, the Blacks, the lazy), and cynicism.
The world will always be run by the wealthy and the powerful. The question is whether our leaders will govern with selfish cruelty (Trump-Vance-Musk-etc.) or with compassion (fill in names here!).
Check out Robert Reich’s free course: Wealth & Poverty.
