Robert Reich’s September 3 op-ed in The New York Times is worth reading in its entirety, but let me quote just a couple of paragraphs:
Look back over the last hundred years and you’ll see the pattern. During periods when the very rich took home a much smaller proportion of total income — as in the Great Prosperity between 1947 and 1977 — the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats.
During periods when the very rich took home a larger proportion — as between 1918 and 1933, and in the Great Regression from 1981 to the present day — growth slowed, median wages stagnated and we suffered giant downturns. It’s no mere coincidence that over the last century the top earners’ share of the nation’s total income peaked in 1928 and 2007 — the two years just preceding the biggest downturns.
Reich goes on to make clear that this isn’t the only cause of economic hard times, but it is a contributing factor. Henry Ford, who hated the New Deal, still recognized that the more people were able to afford his cars,the more profit for him. As noted back in June, Ford deliberately drove up wages in his region by paying his workers well above what he had to.