Robert Reich's Vicious Cycle Case Study

Robert Reich's Vicious Cycle is a cycle that the American economy is currently stuck in. It refers to a series of variables that all feed into each other to increase economic inequality. It is possible to start anywhere in the cycle, but here wages stagnating will be first. When wages stagnant, workers can't buy as much. When workers can't buy as much, companies have to downsize because less people are buying their products. When companies downsize, their tax revenues decrease because the payroll amounts go down. The payroll tax is important in terms of generating revenue for the government. Because the government has less revenue, they have to cut programs. Cutting programs leads to rising costs in education, because education is less subsidized.

This means workers become less educated. Less educated workers mean that workers have a harder time finding work, which causes unemployment to rise. When unemployment rises, the government has to pay more in unemployment and welfare (for those underemployed), which increases deficits. Those deficits bring us back to the beginning, where wages stagnant. One step to get out of this cycle would be to raise the minimum wage to a living wage (a wage where anyone can fully support at least themselves), and then tie it to inflation. This would mean workers would have more spending power, which would support companies. Another step is increasing investment in worker education by the government, which would decrease unemployment and alleviate unemployment and welfare payouts.