Highlights of his address:
The short answer is the economy is still recovering from the Crash of 2008. This may sound obvious, but it hasn’t stopped some people from pretending our problems began after President Obama was inaugurated in January 2009.
The recession President Obama inherited in 2009 was no ordinary recession—it was triggered by the collapse of an $8 trillion housing bubble. Construction in the housing sector kept the U.S. economy on life support during the Bush years, but this life support was withdrawn almost overnight.
In addition, with the collapse of home prices and pension wealth, more than $12 trillion of household wealth was sucked out of the U.S. economy in 2008, so families had to cut back on spending—especially families that had borrowed heavily during the bubble years.
This cutback in spending was like slamming on the brakes, and it caused the largest increase in unemployment since the Great Depression. President Obama’s stimulus bill stopped the free fall, but it wasn’t nearly big enough to fill a hole of more than 10 million jobs or to make the employment rate bounce back from its 2009 low.
Finally, years of high unemployment have depressed workers’ wages, so they have barely been keeping up with inflation. The income of typical middle-class families has declined since the official end of the Great Recession.
As a result of these factors, middle-class buying power remains too weak to fuel the kind of robust growth we need to lift our economy out of the massive hole it fell into in December 2007.
So we’re stuck in a vicious cycle: When consumers don’t spend enough, businesses don't know whether they'll have buyers for their products, so they hesitate to invest and hire, so unemployment stays high and consumer spending stays weak.
Unfortunately, Republicans in Congress have obstructed every attempt to clean up the mess that President Bush left behind. They rejected President Obama’s American Jobs Act of 2011, which would have created millions of jobs and avoided the kind of layoffs at the state and local level that have hobbled the recovery.
If we want to fix what’s wrong with our economy, we can’t just return to the way things were before the Crash of 2008. We have to fix what was wrong before the Crash. And what was that? In short, it was the failure of our low-wage economic strategy of the past 30 years, which crippled the growth engine of the U.S. economy.
The first step of the low-wage strategy was a sustained war against workers’ freedom to bargain collectively with employers. The percentage of workers covered by a union contract fell from 27 percent in 1979 to 13.1 percent in 2011.
The second step of this strategy was the relocation of U.S. manufacturing production to countries with lower wages and environmental standards, from which goods would be shipped back to the United States.
The third step was Wall Street’s takeover of the real economy.
To fix what’s wrong with the U.S. economy, we have to replace the failed low-wage economic strategy of the past 30 years with a high-wage strategy for shared prosperity.
The first step in such a high-wage strategy is to put America back to work because high unemployment keeps wages down.
The second step of a high-wage strategy is to restore workers’ ability to bargain collectively, which will raise wages, reduce economic inequality, fuel consumer demand and help rebuild the middle class.
The third step of a high-wage strategy is to make things in America again. We can do that by eliminating our trade deficit, ending overvaluation of the dollar, combating currency manipulation by our trading partners, eliminating all incentives for offshoring in our tax code, enhancing Buy America safeguards, aggressively enforcing our trade laws and promoting a Global New Deal to help our trading partners rely on domestic incomes, rather than trade surpluses, as their source of economic growth.
The fourth step of a high-wage strategy is to shrink our bloated financial sector and make it serve the real economy again by re-regulating Wall Street, eliminating the tax benefit for leveraged buyouts and imposing a modest tax on financial speculation.
Doing all these things would restore a “virtuous circle” in which wage growth leads to healthy consumer demand which encourages business investment, drives productivity growth and, if we have strong unions and low unemployment, leads us back to dynamic wage growth.
For more information visit prosperityforamerica.org