Review: U.S. can’t afford to forget the little guy

September 27, 2013

By Christopher Swann
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The Occupy Wall Street movement failed to ignite popular indignation about the widening gap between poor and rich in the United States. “Inequality for All”, a documentary based around Robert Reich, President Bill Clinton’s Labor Secretary, makes a strong case for action.

Reich is literally the little man. Because of a genetic disorder, he is only 4-foot-11 inches. He jokes about that, and seems to think his physical perspective gives him a natural sympathy with the metaphorically little people – society’s losers. The University of California, Berkeley professor also shows a talent for using a few words and images to explain a big idea: that rising income inequality creates a vicious economic and political cycle.

Concentrating wealth in the top tier, he argues, means less spending on goods and services, since the ultra-wealthy can only ever manage to spend a fraction of their bloated incomes. The resulting decline in employment reduces tax revenues, which in turn impairs the government’s ability to invest in public education – a potentially powerful social equalizer.

That takes America further away from its self-image as the land of opportunity. Reich cites statistics demonstrating that children born into poverty in the United States are less likely to escape than their counterparts in the UK and continental Europe.

Even the wealthy are hurt by inequality, the film suggests. Their excess savings sloshing around the financial system make bubbles in asset prices more likely, as vast wealth chases diminishing investment opportunities. In addition, income inequality can promote financial instability by encouraging the aspiring middle class to borrow excessively.

“Inequality for All” also does a fine job highlighting the nefarious political consequences of inequality. Lax campaign finance rules give the ultra-rich and the companies they control virtual free reign to shape the political system to serve their interests.

The film is persuasive, but many of these arguments are familiar. Where the film falls short is in explaining why Americans have become so tolerant of the income gap. It does, inadvertently, leave a few clues.

For example, the lagging lower middle class family that is struggling to put food on the table appears anything but underfed. They are often pictured driving cars or in homes with no shortage of consumer electronics. It is hard to work up much indignation on behalf of such people, even if they are short-changed in education and healthcare. The inequality of today is quite different from the hunger and misery that galvanized big political change after the 1929 Wall Street crash.

The documentary also loses some credibility through an overly sympathetic portrait of the Clinton administration, in which Reich served. The film admits to sins of omission, such as Clinton’s failure to force through tax changes that would have capped the tax deductibility of executive pay for companies. But there is no mention of the administration’s moves to deregulate the banking industry, which led to much predatory lending and a spike in financial service salaries.

Despite these gaps, “Inequality for All” provides an entertaining explanation of why America can’t afford to ignore the little guy.

 

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