simply type the title and author's name at the top left of the screen and click search. >> robert reich says the root cause of the 2008 economic collapse was not wall street, but america's ever-increasing economic inequality. even the middle class, says reich, has to amass a substantial debt in order to achieve a decent standard of living. this event was hosted by the drucker business forum in pasadena, california, and it hosts about an hour. >> thank you. good to see you all here. mr. wright, thank you for joining us. become your flecha drum has been on the stage, but nonetheless i think an issue, the issues we have come a funny happening just mentioning karlin sometimes gets a laugh. the issue to discuss your our

big important ones, ones that i think we've all been grappling with, and you've written a very short book about. i think without diving straight into central issues -- >> it's much harder to write a short book that a long book. i mean that. this is the shortest book i've written and it was the hardest to write. it's like a haiku. trying to boil things down. but i think that per page i get to read much more than ever before. [laughter] >> well, we are at the end of the historic financial crisis, at least we hope we're at the end. most americans don't understand the complexities of what happened in the financial system, and yet they feel they have a very good grasp of exactly why it happened. it was too much debt. it was to must consumption,

greedy, careless bankers, financial instruments they couldn't control. so according to your book none of this was because it all. it was entirely different. what's been going on? >> i think the greedy bankers, who treated much of their responsibility as kind of money that they could spend, invest, risk in any way that you want to make a short-term gain. they were partly responsible. approximate cost of the great recession, but i don't know that it was the basic cause. if you peel "the onion" back, there's a deeper cause. and americans spend more than they could afford. we spent beyond our means. but that can't be the end of it either because and had to ask a more fundamental question which is why did our means not grow

for 30 years, when the median wage, the typical man, worker, i say millworker because before that, most workers in this country where male workers. why did the typical male worker median wage adjusted for inflation not grow, even though the economy grew? in other words, why did families find themselves with the necessity of, first of all, having women move into work and then everybody working longer hours and then the entire household going deeper and deeper into debt, just to maintain their means. and just to maintain their standard of living. that's the deepest question and i think until we resolve that question and understand its future implications we may never get out of the gravitational pull of his great recession. >> people just didn't have enough to spend? >> they were spending too much relative to what they had, but the underlying question is why didn't have more?

the economy was growing. in fact, had grown over 30 years. the median wage was stagnant. where did all the money go, and why did more of the middle cla class, defined broadly, to include most americans, why did most americans have more, why did they not have more today? can we ever get out of this great recession until the vast american middle class does have more? that's where the demand comes from any society. >> leaving aside how we get out of this, let's get back to how we got into it. you talk about people's reasonable expectation to be able to spend more, to add more and spend more. and yet for many people this is being seen as a pretty much a moral issue. overconsumption, and the willingness to take personal debt is a function or malfunction of the consumer society. isn't that the root of its?

>> you can take a moralistic view, and, indeed, in 1930, 31, 32, many who looked upon the great crash and the fundamental reasons of the great depression did take a moralistic deal. economists and business leaders said, including andrew mellon, treasury undersecretary, secretary of treasury, said we have to purge the rot from the system. this is basically a moral problem. people spent more than they could and should come and, therefore, we've got to let them just basically rot. well, you can take a moralistic position but that doesn't run advance the cause of getting out of the economic doldrums. it doesn't say much about the structure of the economy. yes, undoubtedly, people should not spend more than they have. but unless you address that more fundamental question, which is how do we get into the predicament where the economy

kept going but most people have to go into debt in order to keep up their standard of living, then you are not really addressing the underlying problem. that was the problem with herbert hoover and andrew mellon, and a lot of those in the late '20s, early '30s. they had a moralistic view but they did look at the system. >> we are hearing from president obama now that people need to spend less. they need to borrow less. they need to save more. we need to export more. these are the current nostrand that he likes. are the wrong? >> yes. in the following sense. because if you don't deal with the facts that so much of the nation's income and wealth has gone to the top, a record agree, we haven't seen this concentration at the top since 1928. unless you deal with that, you are simply saying to people you've got to get more dirt you've got to save more.

you've got to let the dollar drop. you get to thereby spend more for foreign goods. you've got to come if you want to the job, you have to settle for lower wages. all of this feature spinach types of economics may be technically correct, but it really is not correct in terms of what a buoyant and growing economy should be able to afford its citizens. >> politically or socially perhaps, one might make a strong argument for less inequality and income, economically bill, where is the argument? perhaps some people are better off at spending money. perhaps a middle-class kids consume export, why do you feel actually it takes middle-class spending in this globalized economy, why does it take you a

middle-class but to say the u.s. economy. >> number one, i draw in his book from the work and writings and thoughts of a fellow who's almost forgotten today, mariner eccles. his name adorns the federal reserve board building in washington. the eccles building. use chair of the fed from 1934-1938. and a brilliant man. whether reading passionately and daschle is in a state before he took that job. were the richest man west of the rocky mountains. and he set his mind to understanding why the great depression took such a great toll. his conclusion was that so much money and wealth went to the top and acumen at stop by 1928. athabascan jury of americans simply did have the buying power to keep the company going. unless they were deeper and deeper into debt. and that debt level is unsustainable. you look at what happened in a

three decades leading up to 2007, and there are remarkable parallels. this country theoretically could rely more and more on exports. we could let the dollar continued to drop and we could hope that it would be supported by exports. at that would take a huge change and not only the organization of this economy by the organization of the global economy. because as you know, so many countries are dependent on the united states consumers, and will get into it very quickly competitive currency devaluation. we fool ourselves if we think we get china to depreciate its currency. but even more to the point, all that as i suggested a moment ago requires american settle for lower standard of living because everything they summon from abroad would cost more. and it is unrealistic short-term strategy in any event. >> perhaps in the short term that the orthodox, long-term is

the solution. >> but why is that important? because long-term is the only solution. most economists and the policymakers in washington refused to look at the distribution of income. when i say to you that we have now, in fact when we last looked in 2007, 23.5% of total national income going to the top 1% in the united states. compare that to the late '70s. we had at that time 9% of total national income going to the top 1%. the last time in this country where we had anything close to 23.5% of total national income go to the top 1% was 1928. now, i'm not suggesting a direct correspondence, but i think it is unrealistic. >> you are suggesting

speedaisspeedaish. [laughter] >> i'm suggesting it is televised for policymakers to simply decide that distribution of income has no consequence at all. that it's not a significant part of the problem. not only economically but politically. and we'll get into that in a moment. >> you talk about, going back to 28 and anticipation of income concentrate so much by the '70s come in your book you carve up the last 150 years into some pretty big chunks that you essentially say there was a 30 year period after the second world war what you called the great prosperity, were actually income distribution was wider what social safety nets were built, and these are the healthy days of the u.s. economy. and yet the 30th courage isolate. given the rest of economic

history, modern economic history has seen such, much greater inequality, isn't it fair to say that inequality is the norm? that is, lik like a lot of basic structure of the u.s. economic system, and actually the u.s. is probably pretty over the basis of its? >> that makes what is prosperity. if you have meeting wages declining come how can you say that's prosperity? between 2001-2007 the median wage in this country adjusted for inflation actually declined. there was no trickle down from the top at all. so prosperity to me means widespread enjoyment of the fruits of economic growth. prosperity to me is not defined as a few people at the top enjoying most of the benefits of growth. and then growth slowing down because there's not aggregate demand coming from everybody else. pack your question.

i do divide modern american industrial capitalist history into three periods. roughly the first period from 1880 to 1929, 1930 being a period of consolidation of income and wealth. tremendous consolidation. and i do believe, as did marriner eccles, but that didn't contribute to the great depression. it was not sustainable. then you have the second period, beginning in the 1930s, but really reaching a kind of victories christian to end the three decades passed the second world war in which economic growth was much more widely shared. and that in turn generated a kind of a virtuous cycle, because as they gain some growth were widely shared, the country had not enough aggregate demand, but the country could be many

things. investment in education, the national defense defense, highway act, rebuilding europe, rebuilding japan, doing things that we could never conceive of a boarding, but we could afford what they very good economy. and taxes that were at the current tax rate rates on the wealthy that we would never even entertained speeders i want to get onto that in a minute. >> anthony pigott after 1980 when the pendulum swung back. and we saw more and more concentrated -- concentration of income. and i say soda disease of the great depression to i think the pendulum will swing back again because it must. >> are you looking at that period after world war ii through very tinted spectacles at this point? it ended in the 1970s and rampant inflation. and chronic loss of competitiveness by u.s.

industry, a crisis in confidence indeed. i mean, the pendulum swung back in 1980 very strongly. didn't that show that actually the previous system had failed to some degree of? >> no, not at all. the double-digit inflation in the late 1970s was brought up largely by the oil producers. jacking up the price of oil. and that, of course, float through the system and generate double-digit inflation. jimmy carter was blamed. paul volcker came in and broke the back of inflation by raising short-term interest rates. and also broke the back of jimmy carter because that was the end of the carter administration. fed chief india to president. but no, i think the great prosperity ended largely because structure was conducive. beginning in the late '70s you have a substantial sharp

diminution in the strands of labor unions. united under the change in the organization of production, or deregulation and privatization. many people say yes, but the economy did so well under the reagan fractured type ideas. that begs the question, what's the economy? the median wage, i keep going back is because i think if you find an economy from the ground up, as what do most people experience in terms of their wages, and their benefits, median wage benefit through the 19, late '40s, '50s, '60s and early '70s kept on going up at a very remarkable, remarkable pace. then what happened in the late '70s, particularly after 1980, stagnation. this was not -- >> and a lot of people thought the end of the '70s what they were expecting was not very pleasant and they voted for reagan on the basis of that. you are suggesting here somehow

a system was subverted because inflation caused by oil seems coming is that not overly simplistic? >> is that not overly simplistic? is that not a rhetorical question you asked? no, i don't think he was only sent the state. you look at the david i think the economy from the standpoint of the average working person was actually functioning well, except for by the late '70s, double-digit inflation brought on by oil prices. i think what we began to see after 1980, as meeting wages stagnated, and as many people discovered that they had less job security, their benefits were eroded, health benefits, pension benefits, everything else. the people at the top do better and better. the stock market did better and better. those indices of economic growth and prosperity did better and better, but if you are an average working person, were in

the middle class broadly conceived, knows that since 1980 you have not done better and better. and that is exactly the problem that we fundamentally could avoid through these coping mechanisms. women, going into paid work and everyone working longer hours and then finally everybody using their houses as atm devices. we've come to the end of this coping mechanisms. everybody has to face -- the awkward fact that adjusted for inflation, most families are barely better off than he worked 30 years ago. >> deregulation started in 1980. that, in fact, was carried through in the clinton administration which you were a part. in many people's views unleash a great era of prosperity, perhaps not as distributed as widely as you would have liked. are you saying that everything you listed in the impact was, in

fact, a mirage? >> no. i think some deregulation was good economic deregulation of airlines, by and large good. deregulation of talking. i think by and large good. [inaudible] >> that was bad. i think repeating the glass-steagall act was a mistake. thousand of the clinton administration, certainly. and congress at that time. i think also a failure by alan greenspan, larry summers, and bob rubin, to heed brooksley born's concerns at the commodity futures trading commission about derivatives of their failure to basically agree, see the dangers that she saw in derivatives getting out of control. that also contribute to the problem. virtual regulation of wall street is i think a part of the

very damaging legacy that we lived with better after. >> deregulation and a lot of times is from 1980 onwards, is widely credited with unleashing much great entrepreneur energy into the u.s. economy. is that not right speak with some of it is right, undoubtedly. one of the great strengths of the u.s. economy is not only entrepreneurialism, but also a venture capital community that supported those entrepreneurs. but by the time you get to the late '90s, most of the entrepreneurialism was occurring on wall street. it was not in terms of new gadget. it was entrepreneurs in terms of new financial gadgets. and that was a zero-sum game as it was taking money from one pocket and putting money in another. it was creating a casino capitalism that ultimately was its own undoing. you see, part of the problem has

to do with financial incentives. and it's not so simple, and here you and i probably are much greater agreement than your questions just. [laughter] >> i'm just asking the questions. >> i mean, i think that actually the construct in some people's minds is a he was government and only was the market is fundamentally simplistic. because government shapes the market. there will be no market if you didn't have government rules path of how the market is the organized. and when franklin d. roosevelt said, and his labor secretary, frances perkins, what a great labor secretaries in history, basically 1935 created the opportunity, and the legal basis for collective bargaining, and created social security and minimum wage and a 40 hour work week with time and a half overtime. and all sorts of other

incentives. it change the organization of the market, followed by a period of time in the late '40s and '50s and '60s when this country invested in education, higher education, primary school, secondary schools, infrastructure to a huge degree. the national defense highway act. i mean, we as a country, as a government, working sometimes against business, sometimes with business, we completely reorganize american capitalism, and made it work for everyone. >> to clear up one thing from your book, from that period that you seem to quote with approval, you talk about how american business is organized time and have come incentives operated, and you quote from the book, all our employees, not owners of their place in the system depends on the roles of democratic promotion.

juiciness and without hesitation corporate bureaucracy headed leveling effect on incomes. so most people look back now at the bureaucratic time as an economic disincentive. >> yes. i agree with your point. i did not quote that with praised it as a sociology textbook of the time, and i thought it quite ironic, i was doing out in tongue in cheek. amass bureaucracies of the time, they were big opa-locka peace. three major auto producers, five major chemical producers and for major steel producers. they held back innovation. although they did help in their way foster unionization, as much was unionized on opa-locka fees around much more competitive and social structures, innovation was not nearly what it could be

and what should be. my only point there was that the economy was coming many respects, designed so that instead of ceos earning 350 times what average workers earn, which is what they do today, a typical ceo then was earning 35 times what an average worker was earning. people on wall street were not coming close to the seven, eight, nine figures that they are now working to wall street was a handmade industry rather than the boss of american industry. it was a time when let me social problems. look at madman, i make and who would want to go back to a period where women were treated so poorly, where blacks were second class citizens? but at least by the '60s, not only were we enjoying widespread prosperity but we are making some headway, a voting rights

act, a civil rights act. we were conscious, beginning to be conscious about women's opportunities, and lowering many of those barriers. >> what comes across like strongly, that turning point at the end of the '70s is a sense that invested interest somehow reasserted itself. and you talk about how the game is rigged against the ordinary person. explained a little more about that. in what ways are the ordinary middle-class disenfranchised economically? how do you fix that system? >> well, when you say i say the game is rigged, i actually and reflecting upon the way many people are doing a system today. the wall street bailout for example, if you look at polls, and i have some of them in there, as to how ordinary americans use them, it's just not the tea partiers on the

right specs are you angry, to? >> who say, in a government that was a capitulation of wall street by taxpayers and by the government with no strings attached. but there are many liberals coming many democrats who say although the wall street bailout may have been necessary, to do in such a way that there were no conditions, very few conditions put on wall street, i mean, you know, they didn't have to any sense of our homeowners to reorganize their mortgage obligations if they were deeply, deeply imperiled. there was no or very little demand on wall street to limit the pay of wall street workers and bonuses. there was very little requirements with regard to loaning or lending money to small businesses. and on and on and on down the list. what we ended up after the wall street bailout is fewer big banks, not more big banks. fewer big banks, who is more

likely to be too big to fail. and so for the typical american, unfortunately, this is not -- i think this is a terrible thing. who was already discovering that his or her coping mechanisms were running out. the wall street bailout, i think that on top of the history of the enron and ein clone and all of the 2002 deprivations, begin to look like the system was not working for ordinary people. >> was that a lot of political fervor in the white house? >> a good question. i think the obama administration did inherit a terrible economy, and did inherit the troubled asset relief program, t.a.r.p., the wall street bailout.

i think in retrospect, and it's easy to be a monday morning quarter back in retrospect, i think hank paulson and certainly tim geithner and others could have been tougher on the banks, and could have insisted, particularly when it came to financial reform legislation, that derivatives be better controlled. that are now loopholes in the new law, so big to allow a lot of traders to drive their ferraris right through them. i think it would have been possible to put a cap on the size of large banks. i think it would have been possible to die executive compensation and traders compensation to longer-term profits, rather than the kind of quarter year-to-year that they are now bound to. britain is much more successful in certain ways. and has been in terms of financial reform, then has the united states spent but it is potentially a much bigger hole

trying to dig itself out. >> yes, britain is in a deeper hole, that's right. i mentioned in that bug that it's not by coincidence that britain is the most unequal of all european countries in terms of distribution of income and wealth. >> so again, why wasn't the wall street bailout fluffed? >> i think what happens when wealth and income go to the top, to such an astounding degree as we have seen over the last 30 years, is that without accusing anybody of malfeasance, inevitably there is more political power at the top. every politician in washington is much more dependent on wall street and big business, and rich donors than ever before. i mean, i have spent, let's see, i think about half of my adult life in washington, beginning in

1967 got in and out. in washington is entirely different from what it used to be because there is so much money. most of that money is coming from big corporations and wall street, and very wealthy individuals. >> the health care reform can you criticize in similar terms in your writings. was that also a situation where vested interest in people were needed, what they want to? >> well, i was there during bill clinton's attempts to change health care system. i saw how vested interests absolutely killed it that. and so i congratulate obama for getting as much as he did. but in order to get health care reform, he had to essentially pay off the pharmaceutical industry, getting the pharmaceutical industry a limit on how much they would lose by the reforms, and also explain to them how much they would gain if that is on top of george w. bush's medicare expansion for

the drug industry, but also i think was a bit of a payoff. it's a very powerful, very powerful in washington. the health insurance industries are extraordinarily powerful. and in order to move something like health care, there have to be these payoffs. but the problem is, with these payoffs, ultimately americans will be paying more. this racial cost control and health care legislation, largely because all these vested interests said you are not going to control our costs. >> let's move up to some of these lesions are some of the threats, the risks from your analysis. you talk about populism on the right, and populism, indeed it seemed that during the financial crisis, we now seem to be integrated where that anger, people have gone on with their lives. i don't think that for a moment.

i think part of this anger is showing up all over in this midterm election. it tends to be more visible on the right, and the republican party is it with the tea partiers. but every poll i see had every i talk with and kind of free floating focus group that i maintain around the country in terms of talking to people, i've never people so angry. you see, it's not i think a rocket scientist. when people are scared about losing their jobs or their homes or their savings, wind they are economically frustrated and anxious and insecure, there's a tendency to want to find somebody to blame. and the situations, and juicy historically in this country and also tragically in europe, the situations do breed the possibility for demagogues to come along and say, well, your problems really are related to

them, or them, or them. the upsurge in anti-immigrant element to this country now i think is indirectly, or sometimes directly, related to the economic pressures people feel. the upsurge in anti-muslim sentiment, you know, the irony is that after 9/11 you could see the hatefulness that we are now seeing. you didn't see it after -- well, we could go on and on and on. you get my point. it's happening in europe as well, a kind of anti-immigrant sentiment, a right wing nationalism, senior phobia, isolationism, we had in the 1930s. we had the smoot-hawley tariffs. we had a lot of right wing and left wing anti-foreign upsurge in feelings. i worry that that kind of anger can be very dangerous for the

come and for society. >> the band-aid across the financial system is holding. this team is spending history to have an effect. job numbers started to creep up slightly in recent reports. so he is telling us actually, you know, stick with it. things are coming around. do you feel that confidence? feel that we are on the right track to? >> no. i do agree with the president to what extent, and that is that inevitably come at the extent this is a business cycle phenomenon that's the reverse of isaac newton's law. what goes down eventually comes out. and that should be some comfort. people have to replace appliances and cars, durables that wear out. eventually, factories and businesses have got to replace machinery. and inventories have to be

replenished. but you look at what big business in this country is doing with $1.8 trillion of cash, they are not creating jobs. they are not expanding. why? because they are not sufficient customers to why i do not sufficient customers? because consumers are hunkering down. consumers are hunkering down because they are scared and they're still coming out from under and a huge, huge amount of debt. and they are worried about their jobs. and so what our business is doing with $1.8 trillion of cash but they are buying other businesses, mergers and acquisitions are going up. they are going abroad. they are finding markets abroad. they are buying back their shares of stock. but not -- none of this create jobs. so when the president says everything we return, or the job situation is getting better, i can understand where the optimism comes from, but i'm afraid that unless we as an economy, as a society deal with

this fundamental imbalance adequate to in his book, we're really not going to be getting very far. aggregate demand which i believe is very central to an economy is just not going to be there. >> president obama talked about a more aggressive agenda protecting people from the market, regulating the market more closely and so on. i see that's an agenda you subscribe to. had he simply not been aggressive enough? >> i'm a great fan. i really am a great fan of the president. i think he's a wonderful president. i think we are very lucky to have him. if i tried to be constructively critical, however, i would say that he could do more to connect the dots, show people that what he has tried to do, and the problems they face, are very much related to this fundamental

imbalance in the economic system. and that he needs to mobilize, energized supporters around to rectify this balance. no democrats in washington, certainly no republicans that i know of, are going to the people and saying, not only do i feel your pain, not only do i feel your anger, but i don't want you to be resentful or angry at the rich. this is not a matter of class warfare. this is a matter of understanding that for organizational regions, for structural reasons we've got to the point where just as we are so misaligned in terms of who gets what, that even people at the top would be better off having a smaller share of the rapidly growing economy, in which politics was positive, then a large share as if they do now have an economy that is

almost dead in the water, and in which politics are getting more negative. >> we haven't talked about george solution, it will go to questions or shortly and i'm sure we will get a chance. in very broad terms, it seemed that in america there is no political backing for progressive agenda, for higher marginal tax rates on the wealthy, for income support of the less wealthy and so on. what political pulpit do you think there is that such an agenda will come back with you talked about the beginning about the pendulum swinging back. to why isn't going to swing back? >> i think is going to swing back because in a year or two or three when stagnation or anemic recovery continues, and many people see that the forces of xenophobia and nationalism are growing, many will conclude that

the only option is a fundamental reforms that i've suggested here. now, i'm not suggesting anything as radical as dwight david eisenhower presided over when he was president. nobody accuse accused eisenhower of being a socialist, but under president eisenhower republican, former general republican eisenhower, the form -- the highest tax was 91%. again, i'm not going there. [laughter] >> i'm not exhuming eisenhower. but i do -- i do want to remind people that we did think differently about this 30 years ago. and the big debate in washington now is to use a to the top 2% who got the lion share of the bush tax cuts in 2001 out of 2003 to keep you say bush tax cuts which were never intended to go beyond 10 years anyway, that's how they get through congress, by the way, you can't have intelligent to go back to

the provisional tax rate of 39%. is that so bad? as i recall, the economy did pretty well under bill clinton. we have a long-term deficit if we don't say to the top 2%, i'm sorry, you've got to go back as expected to the clinton tax rates. then we are going to blow a $36 billion hole next year in 2011 in the federal budget. because that's the windfall at the top 2% would get stuck. [inaudible] >> i think if you look at the total -- i think where to look at the total tax system. i mean, most any% back of americans pay more in payroll taxes than income taxes and payroll taxes and has become more progressive over time. americans now pay hugely in

sales taxes, which is very regressive because they pay more than middle-class pay. it takes a much larger chunk out of their income than the very wealthy. so if you look at the total tax system, it is getting more and more and more aggressive. that puts a huge burden on middle-class and working-class who is already poor, already terribly burdened. so i think we do need to -- specs of the answer is yes, you would agree it is a much higher margin? >> yes, all of the tax system, absolutely. >> all right. let's go to questions do. we have a microphone any audience. we will take one at the back there. if you introduce yourself. way for the microphone to get you and introduce yourself. thank you. >> hi. my question is i'm assuming that you would have some sort of higher tax on the extremely wealthy people, if it is a prominent if you rely on the upper percent of earners in a

country, then if they don't do well in your economy tanks and it's in the response that only 5% of people, whether you tax the middle class and everyone, more equally than have a more stable economy because you are relying on the whole population were as instead of the top 5% mac bashing percent. >> we're talking not a matter of degree come a matter of degree here. again, don't accuse me of being dwight eisenhower. i'm not going there. by john maynard keyes in 1936 and in his general theory, he did admit that we need an economy does base itself on the degree of inequality, otherwise there wouldn't be sufficient incentive for entrepreneurs and people to build businesses. but the question is how much inequality do you need. and john maynard keynes, looking at the jy to inequality in britain in the late '20s set we don't need to this degree.

i said that was one of the central problems of capitalism. that attended to, over time, go more and more concentration of income and wealth. gilad thing i'm saying is that trickle-down economics as the supply-siders have tried to sell it has not03 actually dropped, d for inflation. they were not as our new jobs created. in fact, between 02000 7a very tinfrtion of the mber of j ead, cred adder the clinto so don't buy the ideology. i mean, i think we will become enemies, we havegotog