Ayn Rand Killed The American Dream: Our free-Market Economy Only Works For The 1 Percent

Ayn Rand killed the American dream: Our free-market economy only works for the 1 percentEnlargeAyn Rand, Paul Krugman (Credit: WIkimedia/Reuters/Anton Golubev)

On June 21, 2015, Matthieu Ricard writes on Salon:

Excerpted from the book “Altruism”

The billionaire investor and philanthropist George Soros uses the term “free market fundamentalism” to describe the belief that the free market is not only the best but the only way of managing an economic system and preserving civil liberties. “The doctrine of laissez-Faire capitalism holds that the common good is best served by the uninhibited pursuit of self-interest,” he writes. If the laissez-faire attitude of an entirely deregulated free market were based on the laws of nature and had some scientific value, if it were anything other than an act of faith pronounced by the champions of ultraliberalism, it would have stood the test of time. But it hasn’t, since its unpredictability and the abuses it has permitted have led to the financial crises with which we are only too familiar. For Soros, if the doctrine of economic laissez- faire — a term dear to philosopher Ayn Rand — had been submitted to the rigors of scientific and empirical research, it would have been rejected a long time ago.

The free market facilitates the creation of businesses; innovation across many fields, for example in new technology, health, the Internet, and renewable energy; and affords undeniable opportunities to young entrepreneurs wishing to start up business activities that will further society. We have also seen that commercial exchange between democratic nations considerably reduces the risk of armed conflict between them. Yet, in the absence of any safeguard, the free market permits a predatory use of financial systems, giving rise to an increase in oligarchies, inequality, exploitation of the poorest producers, and the monetization of several aspects of human life whose value derives from anything other than money.

The Price of Everything, the Value of Nothing

In his book What Money Can’t Buy: The Moral Limits of Markets, Michael Sandel, one of the United States’ most high-profile philosophers and an adviser to President Obama, says that neo-liberal economists understand the price of everything and the value of nothing.

In 1997, he ruffled a lot of feathers when he questioned the morality of the Kyoto Protocol on global warming, the agreement that removed the moral stigma attached to environmentally harmful activities by simply introducing the concept of buying the “right to pollute.” In his view, China and the United States are the least receptive countries to his outspoken objections to free market fundamentalism: “In other parts of east Asia, Europe and the UK, and India and Brazil, it goes without arguing that there are moral limits to markets, and the question is where to locate them.” He gives some examples of the commercialization of values which in his view should not be monetized:

• For $8,000, Western couples can buy the services of an Indian surrogate mother;

• For $250,000, a rich hunter can pay for the right to kill a black rhinoceros in South Africa, a protected species in danger of extinction;

• For $1,500 to $25,000 per year, an increasing number of doctors in the United States are offering a “concierge” service, granting permanent access to their mobile telephone and the opportunity for same-day appointments;

• An online casino “gave” $10,000 to a single mother from Utah desperate to raise money to pay her son’s school fees, on the condition that she had to have their Internet domain name permanently tattooed across her forehead.

Can we monetize everything? Would there be any sense in letting someone buy a Nobel Prize if they had not deserved it? As for slavery, it continues to exist, just in different forms: trafficking women and children for prostitution the world over; Bangladeshi, Nepalese and Pakistani workers harshly exploited in the Gulf states; entire families in India shackled by debts spanning several generations to employers who deprive them of any freedom (more than ten million children from such families are subjected to forced labor in this way).

The only question the economist asks is: “How much?”

Markets make no distinction between worthy and unworthy choices: it is only the parties concerned who can confer value on any of the things or services exchanged. This can apply to anything, even hiring a hit man.

Do we want a market economy or a market society?

According to Sandel, even if the market economy is an effective tool for organizing productive activities, from a moral point of view, it should not invade all sectors of human life.

It therefore is not free trade in itself that must be called into question, but the fact that all freedom can only be implemented in a manner that is responsible toward those around you. These responsibilities are governed by moral values and by an ethical code that is respectful of the well-being of the community as a whole, starting with the obligation not to harm others when pursuing self-interest. By virtue of the fact that the unscrupulous and profit-hungry miss no opportunity to take advantage of unconditional freedom for their own profit and to the detriment of others, it is essential to establish regulations, which are nothing more than protective measures for society. This is, however, not what has happened, as Amartya Sen explains:

“The apparatus of regulation was dismantled year after year by the Reagan administration until George W. Bush’s time in office. But the success of the liberal economy has always certainly depended not only on the dynamism of the market itself, but also on regulatory mechanisms and controls to ensure that speculation and profit-seeking do not lead to excessive risk-taking.. . . If  you are concerned about freedom or happiness, you must try to organize the economy in such a way that they are possible.”

According to Stiglitz, “well-designed regulations did succeed in ensuring the stability of our financial system for decades, so regulations can work. Moreover, this period of tight financial regulation was also one of rapid economic growth, a period in which the fruits of that growth were more widely shared than they are today. . . . By contrast, in the period of ‘liberalization’ the growth of a typical citizen’s income was far lower than in the period of regulation. . . . There is a simple reason for the failure of liberalization: when social returns and private rewards are misaligned, all economic activity gets distorted, including innovation. The innovation of the financial sector was directed not at improving the well-being of Americans but at improving the well-being of bankers.”

The reality is that the free market economy does not work as well as its supporters claim. They say that it leads to greater stability, but successive global crashes have shown that it can be very unstable and have devastating consequences. What’s more, all the evidence points to the markets being far less effective than they maintain, and that the fairness of supply and demand, so dear to classical economists, is nothing but a myth, since we live in a world where a vast number of needs remain unsatisfied, and in particular where the investment required to eradicate poverty and respond to the challenges of global warming is lacking. For Stiglitz, unemployment, which prevents countless workers from contributing to the economy to their full potential, is the worst failing of the deregulated market, the greatest source of inefficiency, and one of the major drivers of inequality. Poverty, as Amartya Sen explains, is a deprivation of freedom, and not just any freedom: the freedom to express the potential that each person has in life.

The politicians and economists who have dominated the US political establishment since the Reagan administration thought we had to do away with all regulation pertaining to the free market and give free rein to the laissez-faire philosophy. They thought it was the best way to create equal opportunities for all: the most enterprising and the hardest working would be those who would succeed the most. The American Dream glorifies the shoe shiner who becomes a millionaire through sheer force of ingenuity and perseverance. Yet studies show that in the United States, with the odd exception, the wealthiest people, who lest we forget make up 1 percenr of the population, as well as their descendants, have the greatest chance of preserving their level of wealth in the long term. Stiglitz summarizes the situation as follows: “America had created a marvelous economic machine, but evidently one that worked only for those at the top.”

According to the champions of deregulation, the rich’s accumulation of wealth is supposed to benefit the poor due to the fact that they create jobs, stimulate the economy, and let wealth “trickle down” to the bottom. We must therefore not kill the goose that lays the golden egg. The problems start when the goose keeps all its eggs. The reality is that nowadays there is a minimal amount of trickling down, and it no more quenches the thirst of the poor than the water of a mirage.

In collaboration with economists from various countries, French economist Thomas Piketty has analyzed hundreds of years of tax records from thirty countries across Europe, the US and Japan. The conclusion of his fifteen years of painstaking analysis from this unprecedented mass of data is that the rich are getting richer and that their wealth doesn’t trickle down. In fact it trickles up. These findings, presented in Capital in the Twenty-first Century,flatly contradict the claim, repeated over and again by libertarian economists, that the accumulation of wealth at the top of the pyramid benefits everyone by filtering down to the middle classes and the poor. This is simply not true.

One of the main features of Piketty’s findings is that when people obtain most of their wealth through inheritance and from subsequently investing it, they invariably grow richer and richer, while those who earn wages and salaries for their productive work grow relatively poorer. This goes plainly against the idea that a small government and a deregulated economy made the USA a land of opportunity for all. The current system resembles a game of Monopoly with one player having one set of dice and the other three. The latter can only get richer and richer. His success has nothing to do with his hard work and personal skills. The three sets of dice represent inherited wealth, earnings made on financial investment and assets (such as property, art collections, etc., which generate non-taxable passive income), and proportionately less taxation on the rich. One set of dice stands for productive work based on personal skills.

Piketty has also shown that the only times when inequality decreased in the USA was when the government directly intervened to promote growth, during the New Deal in the 1930s and the Marshall Plan after World War II. Then the working person could hope to gain equal footing with the financiers through his or her own merit and hard work. Based to some extent on altruism, a Keynesian style of economics is aimed at achieving prosperity for both present and future generations, not at ensuring the selfish, short-term gain of a minority. Thoughtful regulation allowed the creation of a balance in society by applying an incremental wealth tax rate. People were more concerned for their fellow man and the social contract had a stronger element of cooperation instead of barefaced competition. From the 1980s on, the American Dream ended with the likes of Ronald Reagan, Milton Friedman, and Ayn Rand, as social solidarity waned and inequality continued to grow thanks to major tax cuts granted to the rich.

If more and more citizens across the world are feeling outrage toward the current economic system it is because, as Stiglitz says, following the 2008 crisis: “It was rightly perceived to be grossly unfair that many in the financial sector (which, for shorthand, I will often refer to as ‘the bankers’) walked off with outsize bonuses, while those who suffered from the crisis brought on by these bankers went without a job. . . . What happened in the midst of the crisis made clear that it was not contribution to society that determined relative pay, but something else: bankers received large rewards, though their contribution to society — and even to their firms— had been negative. The wealth given to the elites and to the bankers seemed to arise out of their ability and willingness to take advantage of others.”

To illustrate this, let us remember that at the onset of the crisis, Goldman Sachs highly recommended that its customers invest in Infospace, a startup selling various online services that had grown rapidly and been given the highest possible rating, even though it was dismissed by an analyst as a “piece of junk.” Excite, a similar business that also had a strong rating, was dismissed as “such a piece of crap.” In 2008, after 9 million poor Americans had lost their houses, often their sole asset, the heads of Goldman Sachs received 16 billion dollars in bonuses. Similarly, the five most senior people at Lehman Brothers, one of the biggest sellers of risky mortgage loans, pocketed over 1 billion dollars in bonuses between 2000 and 2007. When the company went bankrupt and their customers were ruined, they held on to the entirety of this money. As Stiglitz remarks: “Something has happened to our sense of values, when the ends of making more money justifies the means, which in the US subprime crisis meant exploiting the poorest and least-educated among us.”


The result of a free-market system without just regulation is the concentration of wealth-creating, income-producing capital assets among a wealthy ownership class, effectively excluding the vast majority or citizens the opportunity and means to acquire ownership of capital assets simultaneously with the growth of the economy.

The purpose of production in a market economy is the consumption of products and services by the consumers who make up the economy. But without income, the non-capital ownership class, the 99 percenters, cannot afford to purchase the products and services they desire. But when incomes rise among consumers who have the need and desire to improve their material standard of living, the market demand for products and services strengthens, which in turn increases production and results in a growth economy that, as a byproduct, creates REAL jobs, not the government style make-work that has become so prominent.

Abraham Lincoln said that the purpose of government is to do for people what they cannot do for themselves. Government also should serve to keep people from hurting themselves and to restrain man’s greed, which otherwise cannot be self-controlled. Anyone who seeks to own productive power that they cannot or won’t use for consumption are beggaring their neighbor––the equivalency of mass murder––the impact of concentrated capital ownership.

Door Might Be Closed On Firms’ IPOs


The reality is that an Initial Public Offering (IPO) is the most used financial mechanism to raise money to finance corporate growth that actually can create new capital asset OWNERS. The problem is that to invest requires past savings. And if past savings are the only source of financing for new capital asset formation (which is demonstrably not the case), then only rich private individuals or the State can own capital.

Of course, using future savings to finance new capital asset formation and acquisition of capital by propertyless people resolves this paradox easily, as considered and recommended by binary economist Louis Kelso and philosopher Mortimer Adler.

As it stands now, while OWNING private property, namely productive capital assets, is an individual right, only an élite has the ability to exercise it. The result is that economic growth is shackled by the slavery of past savings.

As a result, the United States is headed for more personal and family economic turmoil and social unrest and upheaval due to a faulty economic system that fosters the concentration of wealth-creating, income-generating productive capital – the ownership of non-human productive assets such as land, structures, machines, super-automation, robotics, digital computerized operations, etc. The system is faulty because economic growth is based on individual and family accumulations of savings, with ALL economic growth dependent on past savings “invested” to further concentrate productive capital ownership. This will leave the vast majority, or the so-called 99 percent, who are property-less as related to ownership of productive capital assets, unable to save sufficiently and instead struggling to sustain their livelihood month to month, as they fear for job loss and having to rely on taxpayer-supported government welfare.

To change the rules and reform the system, the outcome of FUTURE policies must be to facilitate financing economic growth with “FUTURE SAVINGS,” and simultaneously create new capitalist owners of wealth-creating, income-generating productive capital assets. “FUTURE SAVINGS” are profits used to repay loans for new capital formation and acquisition of existing productive assets by new owners.

Critically, we must recognize that Americans and the world’s people do not have to end up desolute and bereft as the FUTURE unfolds due to fundamentally flawed assumptions in modern economics and finance: that new capital formation is impossible without first cutting consumption, saving, then investing. The result has been that the “supply of loanable funds” derived from past savings determines the “production possibilities curve” or rate at which economic growth can be sustained.

If we are to achieve the goal of general affluence for every human being, the first requirement is to increase progressively the total amount of the income to be shared. This requires increased production, not redistribution, in order to generate incomes that would be distributed according to market principles. This is the ONLY means to promote a fuller utilization of our productive facilities and a consequent progressive increase in the aggregate income to be available for distribution, and to which increasing quantities of newly created products and services would become available to everyone.

“Distribution is the trouble” said Dr, Harold G. Moulton, President of Brookings Institution, in his 1935 book The Formation Of Capital. Said Moulton, “The way our income is distributed provides an inadequate purchasing power for our full production.”

The problem that needs to be addressed is threefold: 1) how to increase production, 2) how to distribute the income from production according to relative inputs of human labor and non-human productive capital, and 3) how to distribute that income to people who will use the increased income for consumption, not reinvestment (to further concentrate ownership of wealth-creating, income-generating productive capital assets).

In today’s economic world, economic progress and the financing of FUTURE growth is subject to a reliance on existing accumulations of savings that result from cutting current consumption. Income, instead of being spent on consumption to keep production and consumption in balance, is diverted into savings. With fewer customers purchasing what is produced, the financing of FUTURE productive capital used to produce new products and services becomes less financially feasible.


As is noted in the forward to the “new edition” of Moulton’s The Formation Of Capital, written by Norman G. Kurland, Michael D. Greaney and Dawn K. Brohawn, my colleagues at the Center for Economic and Social Justice (www.cesj.org):

“Financial feasibility refers to the ability of new capital investment to pay for itself out of the future earnings of the new capital. This is an application of Adam Smith’s observation that the purpose of production is consumption. A standard test to determine whether a company should invest in new capital is whether there is sufficient consumer demand to support the marketable good or service to produced. In other words, why add a new productive asset or tool if no one is going to buy (consume) what it produces? Thus, as Moulton emphasizes in this book, demand for capital is derived from consumer demand.

“Worse, from the standpoint of political and social stability, using past savings to finance growth accelerates, and provides a rationalization for maintaining and even increasing, concentrated ownership of the means of production. It also leads to expanding the role and powers of the State in a desperate effort to stabilize the economy. The rights of private property (i.e., the rights to the fruits of, and control over, what one owners) are taken from individual citizens and transferred to the State.”

The resulting problem is that to the extent that the savings investment approach increases production, the economic benefit accrues to the current owners, who re-invest to acquire more productive capital wealth rather than consume a growing portion of their capital incomes. This concentrates ownership even further.

What historically empowered America’s original capitalists was conventional savings-based finance and the pledging or mortgaging of assets, with access to further ownership of new productive capital available only to those who were already well capitalized. As has been the case, credit to purchase capital is made available by financial institutions ONLY to people who already own capital and other forms of equity, such as the equity in their home that can be pledged as loan security––those who meet the universal requirement for collateral. Lenders will only extend credit to people who already have assets. Thus, the rich are made ever richer, while the poor (people without a viable capital estate) remain poor and dependent on their labor to produce income. Thus, the system is restrictive and capital ownership is clinically denied to those who need it.

The conventional approach relies on savings for additional investment in new productive capital assets, instead of providing the means to satisfy people’s material needs and wants. The result has been to create a global ownership class of very rich people who reinvest most of their capital incomes to further their concentrated wealth ownership.

Supporters of this economic paradigm argue that no income generated by capital should be used for consumption. Instead, all capital income should be reinvested in ways that create new capital, thereby providing jobs for the masses until full employment is reached. Thus, most economist today assume that there is virtually no other means whereby most people can earn an income except in the form of wages paid for their labor.

Moulton summarized the results of his investigation:

“We find no support whatever for the view that capital expansion and the extension of the roundabout process of production may be carried on for years at a time when consumption is declining. [i.e., when saving is taking place.] The growth of capital and the expansion of consumption are virtually concurrent phenomena.”

Of course, the supporters of the arcane economic paradigm ignore and are oblivious to the reality that tectonic shifts in the technologies of production are destroying jobs and devaluing the worth of labor as increasingly the non-human productive capital factor is replacing the need for labor in the production of products and services needed and wanted by society.

Understanding Moulton is absolutely necessary in order for us to set out on a path to prosperity, opportunity, and economic justice. The question that Moulton poses is what should be the source of financing for capital formation?

Moulton answered the question as follows:

“A new and even more dynamic factor has come into the process of capital formation through the evolution of modern commercial banking. The development of the banking system, with its ability to manufacture credit, has served to render funds immediately available for the purposes of capital creation without the necessity of waiting upon the slower processes of accumulating funds from individual savings. The result is to sustain productivity at a higher level and to facilitate the growth of new capital at a more rapid rate than would otherwise have occurred.”

In other words, as noted in the forward to Moulton’s new edition:

“New capital formation can be financed by using money created by the commercial banking system. It is not necessary (and even counterproductive from the standpoint of economic equilibrium and sustainable growth) to rely on cutting consumption to generate the savings necessary to finance new capital formation.

“Following Moulton’s reasoning, the remedy to an economic downturn is thus not to manipulate the money supply by increasing government debt or bailing out failed speculation (which, among other problems, distorts the operation of the market and places a debt burden on future taxpayers). Nor is it an effective, long term solution to stimulate demand by subsidizing artificial job creation, legislating higher minimum wages, ignoring market forces in collective bargaining negotiations, imposing price controls or supports (especially on interest rates), or redistributing existing wealth. Such measures may be necessary at times as expedients, but are ultimately self-defeating. Instead, what is needed is to:

“1) Increase production by financing new capital formation through the extension of bank credit backed by the present value of the future stream of income to be generated by the new capital.

“2) Get the profits generated by the new capital into the hands of all workers and citizens who will use it for consumption, not reinvestment in additional new capital.”

In reading The Formation Of Capital, Moulton fails to list as a possible solution widespread, direct private ownership of the means of production. As noted by my colleagues at CESJ in the forward to the new edition:

“A broad base of owners and diversity in the forms of productive capital owned would ensure that all workers and as many people as possible, including the disabled and poorest of the poor, would receive income generated by many forms of advancing technology, and would use the income from their capital for consumption rather than reinvestment.”

Moulton’s omission was addressed by Louis Kelso and Mortimer J. Adler in their 1958 book The Capitalist Manifesto. Kelso, a successful corporate lawyer and self-schooled economist, was also an expert in finance who later formed a leading investment banking firm specializing in his financial mechanism, the Employee Stock Ownership Plan (ESOP) and other methods for financing worker and broader citizen individual ownership in productive capital. In the late 1960s, I had the privilege to form with Kelso Agenda 2000 Incorporated, a consulting firm, whose advocacy mission was to provide financial mechanism for economic development based on the Kelsonian principles underlying the binary economic or two-factor model of economic reality.

The Capitalist Manifesto made the moral and economic case for widespread ownership of the means of production. How to finance widespread productive capital ownership was spelled out in the assertive subtitle to The New Capitalists: A Proposal To Free Economic Growth From The Slavery Of Savings. (Both books are available as free downloads at http://www.kelsoinstitute.org/pdf/cm-entire.pdf and http://www.kelsoinstitute.org/pdf/nc-entire.pdf, respectively.)

Not surprisingly, the source that Kelso and Adler referenced most often in The New Capitalists is Moulton’s The Formation Of Capital. Moulton showed how the extension of commercial bank credit can be used to finance capital formation without requiring existing accumulations of savings. What Kelso and Adler argued as the solution to the income distribution problem was to democratize access to direct, private ownership of new capital formation.

Over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. Advancing technology continues to rapidly take over the vast bulk of production from human labor.

As pointed out in the forward to the new edition of The Formation Of Capital, Moulton demonstrated that the chief means by which capital formation is financed in a modern industrial and financial economy is commercial bank credit backed by the present value of the future stream of income to be generated by the newly formed capital assets themselves with the collateralization requirement of existing accumulations of savings (already owned assets). To this Kelso added that 1) the ownership of the new capital financed with what he called “pure credit” must be broadly owned, and 2) the universal collateralization requirement could be met by using capital credit insurance and reinsurance in place of existing accumulations of savings.

Kelso’s refinements of Moulton’s work underpin a comprehensive national economic program called “Capital Homesteading” (http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/), developed by the Center for Economic and Social Justice. The “Capital Homestead Act,” which gives a legislative framework to the program is a way to implement both Moulton’s insights and Kelso’s solution to the income distribution problems of a modern economy. It would empower every American man, woman and child, including the poorest of the poor, with equal opportunity and the social tools to acquire, control and enjoy the fruits of productive corporate capital assets. Based on a new socio-economic paradigm that some have called the “Just Third Way” (as the moral alternative to traditional capitalism and socialism), Capital Homesteading also offers a template that can be tailored to eradicate poverty and economic powerlessness in the poorest of nations around the globe. (see the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797.)

The means by which Capital Homesteading proposes to achieve its goals involve major restructuring of America’s tax system and Federal Reserve policies (see abridged http://foreconomicjustice.org/?p=8942). These are designed to lift artificial barriers to more equitable distribution of FUTURE corporate capital and stimulate faster growth rates of private sector investment. Capital Homesteading would shift primary national income maintenance policies from inflationary artificial wage increases and unproductive income redistribution expedients, to market-based ownership sharing and dividend incomes.

The proposed Capital Homestead Act would reform monetary institutions and tax laws to democratize access to capital (productive) credit. By universalizing citizen access to direct capital ownership by making available “interest-free” productive credit and new, asset-backed money for increasing production, Capital Homesteading would close the power and opportunity gap between today’s haves and have-nots, without taking away property from today’s owners.

As my colleagues conclude in the forward to the new edition:

“Moulton’s insights in The Formation Of Capital suggest a practical and morally sound basis for restructuring the financial system to enable money to be created as needed to finance sustainable economic growth. World poverty can be eradicated, something not possible within the current economic paradigms, which rely on existing accumulations of savings to finance capital formation. With the specter of another economic depression looming over today’s world, and with the widening gap between “haves” and “have-nots” threatening social harmony, there is no real justification for delaying the implementation of a program of Capital Homesteading to establish and maintain a free, prosperous and just economy for all.”

For other related articles, please see my article “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://foreconomicjustice.org/11/economic-justice/.

Also please see my article “The Absent Conversation: Who Should Own America?” published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/who-should-own-america_b_2040592.html and by OpEd News at http://www.opednews.com/articles/THE-Absent-Conversation–by-Gary-Reber-130429-498.html

Also see “The Path To Eradicating Poverty In America” at http://www.huffingtonpost.com/gary-reber/the-path-to-eradicating-p_b_3017072.html and “The Path To Sustainable Economic Growth” at http://www.huffingtonpost.com/gary-reber/sustainable-economic-growth_b_3141721.html.

Also see the article entitled “The Solution To America’s Economic Decline” at http://www.nationofchange.org/solution-america-s-economic-decline-1367588690 and “Education Is Critical To Our Future Societal Development” at http://www.nationofchange.org/education-critical-our-future-societal-development-1373556479. And also “Achieving The Green Economy” at http://www.nationofchange.org/achieving-green-economy-1373980790. Also see it complete with the footnotes at http://foreconomicjustice.org/?p=9082.


Pfizer And Allergan’s $160-Billion Pharmaceutical Merger Puts New Twist On Tax-Avoiding Inversions


On November 24, 2015, Jim Puzzanghera and Samantha Masunaga write in the Los Angeles Times:

More than 65 years ago, a Los Angeles drugstore owner installed a laboratory above one of his shops to make a product that would discourage children from sucking their thumbs.

The operation quickly changed focus to an antihistamine eye drop called Allergan. Renamed after that drug, the firm moved to Irvine and grew into a global pharmaceutical giant.

Now, the Allergan name is being retired as part of a $160-billion merger with rival Pfizer Inc. that would create the world’s largest drugmaker.

The long-expected stock-and-debt deal — the second-biggest ever — already is drawing fire for being the most creative attempt yet at avoiding U.S. corporate taxes. It also is raising fears of higher drug prices for consumers.

Although Pfizer is the larger company, the deal unveiled Monday is structured so that Allergan, now an Irish company, is technically the buyer.

The move is a twist on a controversial tactic known as inversion, in which a U.S. firm buys a smaller foreign competitor in a lower-tax nation and shifts the merged company’s headquarters there to reduce taxes.

The White House and the two leading Democratic presidential candidates quickly blasted the Pfizer-Allergan tie-up as a corporate tax dodge.

“This proposed merger, and so-called inversions by other companies, will leave U.S. taxpayers holding the bag,” said Democratic front-runner Hillary Clinton.

The new firm would be called Pfizer and would be led by its current chief executive, Ian Read. Although its global operational headquarters would be in New York, the merged company’s principal executive offices would be in Dublin to take advantage of Ireland’s low corporate tax rate.

Pfizer and Allergan said the effective tax rate of the new company would be 17% to 18%, well below Pfizer’s effective tax rate last year of 25.5%.

U.S. companies have stepped up their use of inversions in recent years as foreign countries have been lowering their tax rates to lure corporate headquarters.

New Treasury Department regulations, including ones issued just last week, have made the tactic somewhat more difficult. But the Pfizer-Allergan deal is structured as a foreign acquisition to avoid those rules, said Larry Harding, vice chairman of Radius, a firm that helps U.S. companies operate overseas.

“It’s definitely an interesting inflection point and has ratcheted up the issue,” Harding said.

Lowering Pfizer’s taxes wasn’t the only motivation in the merger, which Read said would give the company more “financial flexibility” to invest in research, development and manufacturing.

“I want to stress that we’re not doing this transaction simply as a tax transaction,” he told investors on a conference call.

Later, on CNBC-TV, Read called the merger “a great deal for America,” where the new firm would have 40,000 employees.

Allergan has about 2,100 employees in Irvine and 300 in Corona out of a worldwide workforce of 30,000.

“We will continue to pump in $9 billion globally into research, mostly in the United States,” Read said. “These sort of resources are being brought together to cure major illnesses for humanity.”

Pfizer is known for the cholesterol-lowering medication Lipitor and the male erectile dysfunction drug Viagra.

Allergan was acquired in March by the Irish drugmaker Actavis in a $66-billion deal that thwarted a takeover attempt by Valeant Pharmaceuticals International Inc. The new company kept the Allergan name.

The Pfizer deal values Allergan at $363.63 a share, about 30% more than its price when reports of a deal first surfaced last month.

Allergan shareholders would get 11.3 shares of the new company for each of their shares. Pfizer shareholders would get one share of the new company’s stock for each of their shares, but have the option of receiving cash, up to a total of $12 billion, for some or all of their shares.

After the deal closes, Pfizer shareholders would own 56% of the combined company. U.S. and European regulators must approve the transaction.

The stock of both companies dropped Monday. Allergan fell $10.76, or 3.4%, to $301.70. Pfizer shares dropped 86 cents, or 2.7%, to $31.32.

Jamie Court, president of advocacy group Consumer Watchdog, worried that the consolidation of two pharmaceutical giants would lead to higher drug prices because of decreased competition.

“Certain patients are going to not only see elevated prices, but potentially a loss of choice,” he said.

On the campaign trail, Sen. Bernie Sanders, the Vermont independent seeking the Democratic presidential nomination, called on the Obama administration to block the deal.

“The Pfizer-Allergan merger would be a disaster for American consumers who already pay the highest prices in the world for prescription drugs,” Sanders said. “It also would allow another major American corporation to hide its profits overseas.”

But industry analyst Richard Purkiss, managing director at investment banker Piper Jaffray, said he thought the merger would have little effect on consumers.

“Pricing is mainly a function of what competition there is, and this doesn’t give the company any greater power in most of its categories because they’re not particularly overlapping businesses,” he said.

Purkiss didn’t think there were many barriers to the deal’s completion. But as the largest inversion-type merger so far, Pfizer and Allergan could face regulatory hurdles in Washington, said Maxim Jacobs, an analyst at Edison Investment Research.

Rep. Sander M. Levin (D-Mich.) said inversions have cost the U.S. government tens of billions of dollars in tax revenue and that the Pfizer-Allergan deal should spur lawmakers to take action.

President Obama believes “it is not fair for companies to essentially renounce their citizenship [and] seek to, at least on paper, relocate themselves somewhere else so they can pay a lower tax rate,” White House Press Secretary Josh Earnest said.

Obama and Democrats have sought to change the tax law to prohibit inversion-type deals, but bills proposed in the House and the Senate last year still have not gone to hearings in the Republican-controlled Congress.

Meantime, the administration has tried to make inversions more difficult. Last week, the Treasury Department added to prior restrictions by issuing technical rules that would limit the ability of U.S. companies to merge with foreign firms to avoid corporate taxes.

Clinton said she would propose specific steps in the coming weeks to stop inversions.

Some Republicans also have criticized inversions but said the solution is to lower the U.S. corporate tax rate significantly to reduce the incentive to reincorporate overseas. Ireland has a 12.5% corporate tax rate. The U.S. rate is 35%, the highest of any developed economy.

Rep. Charles Boustany (R-La.) called the latest deal “a sad reflection of our broken tax code, which is driving businesses away from the United States instead of encouraging them to grow here at home.”

The Business Roundtable, a trade association of chief executives at major corporations, said inversions were “a self-help solution to compete in the global marketplace” and predicted they would continue until the corporate tax code is overhauled.

But with bipartisan attempts at tax reform efforts stalling, legislation is unlikely until after next year’s presidential election.

Besides the tax benefits, the companies expect to save $2 billion in the combination. Pfizer executives had talked about splitting their company in two soon, one focused on developing new products and the other focused on established drugs. But they said Monday that they won’t be in a position to consider that option until the end of 2018.

The deal has a breakup fee of as much as $3.5 billion, which either company has the right to exercise.



Presidential Candidate Template – Talking Points For Candidate Campaign

This is a template of talking points for Presidential candidates by the Center for Economic and Social Justice (www.cesj.org).

To win the White House, a candidate must appeal beyond the top 0.5 percent or even the top 10 percent of Americans who today have a secure proprietary stake in the future of the U.S. economy.

Otherwise an appeal to redistributive or “Robin Hood” populism can increase the Welfare State’s already dangerous foothold in Presidential politics. To assure a landslide victory in November of [YEAR], [CANDIDATE] should embrace a concept of “free market populism” and genuine “economic and social justice for all,” where the poor can become owners of new wealth-creating, income-producing property without taking old property away from the already wealthy.  Free market populism assures that the American Dream is accessible to all.


1. How can [CANDIDATE] support change for America without abandoning traditional American values?

2. How can [CANDIDATE] offer a free enterprise, private property version of “economic and social justice” that would directly address the conspicuous and growing disparities of opportunity between America’s most affluent citizens and our hungry and homeless and others at the bottom of our economic ladder?

3. How can [CANDIDATE] offer a new vision and a comprehensive growth strategy to stimulate increased global competitiveness of the U.S. productive sector, without inflation and with maximum opportunities for all voters to earn and share in the ownership and profits in the new growth pie?

4. How can [CANDIDATE] offer “a more just labor deal” for working Americans that is based on solid and timeless principles of Lincoln and the Founding Fathers, which all Americans could rally behind — rich and poor, workers and owners, young and old, people of all races and religions — because it would lift existing tax and credit barriers to “the means of acquiring and possessing property” as called for in George Mason’s Virginia Declaration of Rights?

The Answer

Just as Lincoln made access to our land frontier under the Homestead Acts his economic key to the Oval Office in the 1860 campaign and Ronald Reagan in 1975 called for (but never delivered) “an Industrial Homestead Act,” [CANDIDATE] should campaign on and deliver “The Capital Homestead Act” as a means of providing every family with rising property incomes from an expanding equity stake in a future high-tech and more dynamically growing American industrial frontier.

What Makes This Different from the Wage/Welfare System?

In sharp distinction from classic socialism and in contrast to the confused and contradictory principles of the welfare state, the four interdependent policy pillars of the Capital Homestead Act are:

  1. Free and Open Markets. Restoration of the freely competitive market for determining just prices, just wages and just profits, for more efficient allocation of resources and for decentralizing economic choices.
  1. Private Property. Restoring the original rights of private property in the means of production, particularly for corporate shareholders, as a means for securing people’s economic choices and property incomes, for decentralizing corporate power, and for increasing management accountability.
  1. Limited Government. Radically reducing the power of the government at all levels over economic decision-making.
  1. Expanded Capital Ownership. Adding expanded capital ownership as a new pillar for the future of U.S. income maintenance policy, equivalent to the goal of full employment.

What is lacking in Most Conservative Economic Reforms?

Conservatives correctly focus on private sector growth and resist redistributive tax and welfare policies. However, most tax and credit incentives advocated by conservatives lack populist appeal because they fail to broaden the ownership of our free enterprise system and therefore are at best “trickle-down” rather than “percolate-up” supply-side policies. The Capital Homestead Act would correct this fatal omission.

What is the Political Foundation for the Capital Homestead Act?

President Reagan was a strong advocate of expanded capital ownership. On August 3, 1987, he commended the report of the Presidential Task Force on Project Economic Justice, chaired by Ambassador J. William Middendorf II, which advocated Employee Stock Ownership Plans (ESOPs) for privatizing state-owned enterprises in the Caribbean Basin region. The Presidential Commission on Privatization also endorsed the ESOP as a means for privatizing the postal service and other Federal Activities.

On Capital Hill, ESOP supporters have ranged from Senator Russell Long to Richard Lugar, from Paul Laxalt to Chris Dodd, from Phil Crane to Mike Barnes and Charles Rangel.

In its 1976 Report, the Join Economic Committee advocated broadened ownership of new capital as a major new economic policy.

As a result of [19] ESOP laws passed by Congress since 1974, over [8,000] U.S. companies with over [8] million workers are gaining an ownership stake in their companies. Over [18] states have passed legislation encouraging ESOPs. Governors Dukakis and Cuomo have established special agencies on employee ownership and participation.

Some Features of the Capital Homestead Act

Among reforms to the Federal tax system:

  • Adopt a single rate tax for incomes from all sources, with no deduction (except for business expenses, health care and education and possibly for charitable donations) and exemptions only for basic subsistence and for incomes channeled into tax-exempt broad-based equity accumulation vehicles such as Capital Homestead Accounts (CHAs), IRAs and ESOPs (up to $1 million in accumulated equity per person). A family of four would not be taxed until their incomes exceeded $110,000. All incomes above that, no matter how high, would be taxed at the same rate.
  • Balance the Federal budget each year and gradually pay down the Federal debt by automatically adjusting the single rate to whatever percentage is required from all anticipated non-exempt incomes, regardless of source.
  • Phase out [special] employee and employer payroll taxes and integrate the costs of promised benefits under the Social Security System under the single rate income tax.
  • Reduce capital gains taxation by inflation-indexing of gains from the transfer or sale of investment property.
  • Allow corporations to deduct dividend payouts (as now permitted for employee shares held by ESOPs), making dividends taxable at the individual level and eliminating the discriminatory double tax on corporate profits.
  • Further broaden citizen access to capital credit for leveraged acquisition of income-producing property by allowing tax incentives similar to leveraged ESOPs for leveraged CHA’s, IRAs, consumer stock ownership plans for utilities, and Community Investment Corporations (for -profit resident-owned land planning and development corporations).
  • Require all citizens to fill out a simple one-page income tax form, showing income and benefits from all sources, so that even the poor and handicapped would qualify for a “negative income tax” (as originally suggested by Milton Friedman) to provide all Americans with a “social safety net” in the event of misfortune.

Among reforms to the Federal Reserve Act

  • Aim at a zero inflation rate, maximum productivity increases, green growth, renewable energy systems and universal citizen access to low-cost capital credit.
  • Move toward an asset-backed currency (not necessarily gold), which would reflect real productivity increases and be supported by tangible real estate, structures, machines and other productive assets in the U.S. economy.
  • Sell Treasury paper on the open market, ban any future monetizing by the Federal Reserve of Federal deficits, phase out all present holdings by the Federal Reserve of Treasury paper, and force government to borrow from the market to discourage future Federal deficits.
  • Allow the competitive marketplace to determine lender transaction fees, including loan default risk premiums, above their “cost of interest-free money” supplied under the section 13 powers of the Federal Reserve.
  • Reinstate the Federal Reserve’s discount mechanism as an instrument for increasing liquidity (i.e., lending ability) of our commercial banks, so that local banks, rather than foreign lenders, will meet America’s future credit needs for rebuilding our infrastructure, modernizing the Rust Belt and other basic industries, and for accelerating sustainable and environmentally sound expansion of agriculture, energy and high-tech industries.
  • Allow savers to receive market interest rates for “old money” and existing savings to loan out for non-productive uses like consumer loans and government loans or ownership-concentrating uses of credit.
  • Reduce transaction costs for ownership-expanding private-sector productivity growth, by establishing a special discount rate for “new money” at 1 percent or less (to cover actual service costs of administering and regulating the U.S. monetary system) to be charged to member banks which makes loans at competitive mark-ups to farm families and to commercial and industrial enterprises which offer widespread individual access to ownership sharing through Capital Homestead Accounts for their workers, customers, and citizens generally. Just by reducing bank prime rates down to 3 percent or less for farms and enterprises using leveraged ESOPs, IRAs, and other broadened ownership vehicles, this “lowered-tiered” reform to the costs of capital credit would:

*            Cut a major cost of production without taxpayer subsidies,

*            Provide all citizens with a means to acquire capital incomes to supplement wages and incomes from other sources, thus systematically balancing expansion of consumer demand with increases in demand for new capital formation.

*            Make U.S. industry more competitive in global markets,

*            Increase private sector savings and investment, jobs and family incomes,

*            Reduce public sector costs and increase taxpayer rolls, and

*            Eliminate our trade deficit globally.


Access to capital credit largely determines who will share in the ownership of America’s productive wealth. The Capital Homestead Act is designed to democratize access to capital credit and thus ensure widespread citizen participation in basic economic decisions and property incomes. It is the key to creating a broad popular constituency in favor of free market, property-oriented policies and against excessive government growth.

Footnote: This is a comprehensive reform package, which requires ALL policies to be simultaneously implemented.


Signs Of A Dying Society


This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License.
On November 23, 2015, dkmich writes on the Daily Kos:

While Edward Snowden and Chelsea Manning and John Kiriakou are vilified for revealing vital information about spying and bombing and torture, a man who conspired with Goldman Sachs to make billions of dollars on the planned failure of subprime mortgages was honored by New York University for his “Outstanding Contributions to Society.”

This is one example of the distorted thinking leading to the demise of a once-vibrant American society. There are other signs of decay:

1. A House Bill Would View Corporate Crimes as ‘Honest Mistakes’

Wealthy conservatives are pushing a bill that would excuse corporate leaders from financial fraud, environmental pollution, and other crimes that America’s greatest criminals deem simply reckless or negligent. The Heritage Foundation attempts to rationalize, saying “someone who simply has an accident by being slightly careless can hardly be said to have acted with a ‘guilty mind.'”

One must wonder, then, what extremes of evil, in the minds of conservatives, led to criminal charges against people apparently aware of their actions: the Ohio woman who took coins from a fountain to buy food; the California man who broke into a church kitchen to find something to eat; and the 90-year-old Florida activist who boldly tried tofeed the homeless.

Of course, even without the explicit protection of Congress, CEOs are rarely charged for their crimes. Not a single Wall Street executive faced prosecution for the fraud-ridden 2008 financial crisis.

2. Unpaid Taxes of 500 Companies Could Pay for a Job for Every Unemployed American

For two years. At the nation’s median salary of $36,000, for all 8 million unemployed.

Citizens for Tax Justice reports that Fortune 500 companies are holding over $2 trillion in profits offshore to avoid taxes that would amount to over $600 billion. Our society desperately needs infrastructure repair, but 8 million potential jobs are being held hostage beyond our borders.

3. Almost 2/3 of American Families Couldn’t Afford a Single Pill of a Life-Saving Drug

62 percent of polled Americans said they couldn’t cover a $500 repair bill. If any of these Americans need a hepatitis pill from Gilead Sciences, or an anti-infection pill fromMartin Shkreli’s company, they will have to do without.

An AARP study of 115 specialty drugs found that the average cost of a year’s worth of prescriptions was over $50,000, three times more than the average Social Security benefit. Although it’s true that most people don’t pay the full retail cost of medicine, the portion paid by insurance companies is ultimately passed on to consumers through higher premiums.

Pharmaceutical companies pay competitors to keep generic drugs out of the market, and they have successfully lobbied Congress to keep Medicare from bargaining for lower drug prices. The companies claim they need the high prices to pay for better medicines. But for every $1 they spend on basic research, they invest $19 in promotion and marketing.

4. Violent Crime Down, Prison Population Doubles

FBI statistics confirm a dramatic decline in violent crimes since 1991, yet the number of prisoners has doubled over approximately the same period.

Meanwhile, white-collar prosecutions have been reduced by over a third, and, as noted above, corporate leaders are steadily working toward 100% tolerance for their crimes.

5. One in Four Americans Suffer Mental Illness, Mental Health Facilities Cut by 90%

According to the National Alliance on Mental Illness, 25 percent of adults experience mental illness in a given year, with almost half of the homeless population so inflicted. Yet from 1970 to 2002, the per capita number of public mental health hospital bedsplummeted from over 200 per 100,000 to 20 per 100,000, and after the recession state cutbacks continued.

That leaves prison as the only option for many desperate Americans.

There exists a common theme amidst these signs of societal decay: The super-rich keep taking from the middle class as the middle class becomes a massive lower class. Yet the myth persists that we should all look up with admiration at the “self-made” takers who are ripping our society apart.


 This dire scenario is the result of the deterioration of  society that results from the absence of inclusive prosperity, inclusive opportunity, and inclusive economic justice. Bottom line is that it is increasingly becoming a depressing challenge for a vast majority of Americans to earn a decent, livable income, because they are totally dependent on low-paying jobs and decaying job opportunities that would offer far better wages.
While the vast majority of Americans suffer financially with worry and lack of opportunity to better their incomes and their family well-being, the rich continue to further concentrate wealth-creating, income-producing capital asset ownership, aided by a rigged system which they have created to enhance their ownership interests and ensure that they will OWN the future of America.
Until Americans WAKE UP and reform the system to empower EVERY child, woman, and man to acquire personal ownership stakes in the future capital asset growth of the American economy, and demand that the focus of our political discourse be on creating an OWNERSHIP CULTURE, our society will continue on its steady projectory to death, with turmoil and upheaval, if not revolution, the result.
The Unite America Party platform was created to address this crisis, with the hope that politicians across  all political spectrum would adopt the platform and build a society of inclusive prosperity, inclusive opportunity, and inclusive economic justice. A society in which technological progress is OWNED by EVERY citizen, as individuals, and acquired simultaneously with the growth of the economy, as our human and non-human inputs build a future economy that can support general affluence for EVERY citizen.

Want Innovation? Try Raising Minimum Wages


On November 23, 2015, Noah Smith writes on Bloomberg View:

I’ve spent some time talking about the downsides of minimum-wage laws. But there is a big possible upside that I haven’t mentioned, in part because it’s pretty speculative. It’s the idea that minimum wages improve productivity and innovation over the long run.

Usually, it’s detractors of the minimum wage who talk about the long term. Minimum-wage hikes tend to have only small or negligible effects on employment levels, but critics of setting pay floors have said that they slow long-term employment growth. But I’m now thinking about the even longer term, and about the effect of minimum wages on productivity rather than employment.

Minimum Wages

In the long term, productivity comes from technology. Economists often treat technology as if it just appears out of nowhere, but in fact it comes from the innovative efforts of companies and researchers.

Why do companies innovate? You might think that companies invent any technology that will make them more productive, but this isn’t actually true, for a number of reasons. First of all, innovators don’t know ahead of time which things they will be able to create — trying to innovate is risky, and companies are usually risk-averse. Second, companies may be focused on the short term, and may thus be unwilling to shell out cash for research and development that would only pay off years later. Finally, companies may simply get comfortable with what they have, and fail to engage in innovation unless they feel sufficiently intense pressure to do so.

So what happens if a company suddenly finds that it has to pay higher wages? It might just take the hit to its profit margins and continue operating as before. It might decide to downsize, laying off workers and shrinking its operations.

Or, it might decide to invest in labor-saving technology.

Forbes writer Adam Ozimek pointed this out back in 2013, in an articleentitled “Doubling McDonald’s Salaries A Great Way To Get Workers Replaced By Machines”:

“We’re hearing more and more about machines replacing workers and there are some obvious contenders for replacement within a McDonald’s…[Automated payment kiosks are] just the most obvious way for machines to replace workers. One company…is already working on robots to replace the cooks too…In the long-run such technological change makes us better off on average[.]”

In the two years since then, Ozimek’s prediction has come true. McDonald’s is installing a line of automated kiosks where people can create their own burgers.

Of course, Ozimek is a dogged minimum-wage opponent, and is trying to make workers worried that minimum wages will cost them their jobs. But I am not sure that workers should be so afraid of being replaced by this kind of technological improvement. Ultimately, it may make them more productive, and actually help them earn more.

In the past, when companies implemented labor-saving technology — whether assembly lines or computers — their workers didn’t simply go on the unemployment rolls. They became more productive than before, and commanded higher wages. If they got laid off, they eventually found jobs at other companies — and since the economy overall was more productive because of the innovation, more new companies were started. In the past, automation has always complemented human beings instead of making them irrelevant. That might change in the future, but so far the old pattern is still holding.

For workers to become more productive in order to take advantage of new technologies, they often have to improve their skills. Workers have always been able to do this quite successfully. When the Industrial Revolution demanded that people learn to read, they learned to read. When the Information Revolution forced people to use computers, they learned how. Low-skilled workers might have skimped on education because they were focused on the short term; the pressures of a technologically advancing workplace may force them to think longer term and develop new skills.

So minimum-wage laws, by forcing us to abandon low-skilled labor, might actually increase technological innovation. Some people even speculate that this effect might have started the Industrial Revolution itself! Economic historian Robert Allen has argued that the Industrial Revolution began in Europe, rather than in China, because European employers were forced to pay more for labor. Since labor was more expensive, companies invested in technology, which then raised productivity so much that it boosted wages even higher, forcing companies to invest more in technology, even as their increased incomes allowed them to make those investments. A 1987 theory by growth economics pioneer Paul Romer operated on a similar principle — expensive labor causes an upward spiral of technological improvement.

So in the very long term, minimum-wage laws might force companies to do what they otherwise wouldn’t do — make risky bets on new technologies. And as workers raise their own skill levels, that new technology would raise their wages as well. The entire economy, including any workers who temporarily lost their low-wage jobs, would benefit in the long run. Of course, this theory is fairly speculative — theories that play out over years or decades are hard to test with real-world data. But it’s a potential benefit of the minimum wage that is worth thinking about.


“So what happens if a company suddenly finds that it has to pay higher wages? It might just take the hit to its profit margins and continue operating as before. It might decide to downsize, laying off workers and shrinking its operations.

“Or, it might decide to invest in labor-saving technology.”

Which, in turn, eliminates jobs no longer necessary.

Anyone with any ability to reason should deduce from the beginnings of mankind, picking up the first stick or stone, that most changes in the productive capacity of the world since the beginning of time can be attributed to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. People invented “tools” to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive––the core function of technological invention and innovation.

Technology is about reducing the necessity for human input, particularly human toil and enabling otherwise impossible production, all the while increasing efficiency of production at lower costs. The reason the economy is stalled, despite the never-before-seen extent of technological prowess, is not because technology is failing us, but instead because there is not enough “customers with money” necessary for creating demand for products and services. To expect that as technological invention and innovation excels that the human input should earn more as labor workers assumes wrongly that non-human capital “enhances” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary. The result of technological invention and innovation has created tectonic shifts in the technologies of production, which is rapidly spreading throughout the world, destroying jobs and devaluing the worth of labor as more and more people must compete for fewer and fewer decent paying jobs. Wages have been slashed in many areas and in other cases entire industries have been outsourced to countries where corporations can pay workers pennies on the dollar.

What needs to be addressed is that productive capital is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. But because the ownership of productive capital assets are vastly concentrated among a tiny minority of wealthy people, the vast majority of Americans are finding it increasingly more challenging to earn decent wages from a job to be able to afford the products and services they need and desire.

Technological change makes tools, machines, structures, and processes ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). The technology industry is always changing, evolving and innovating. The result is that primary distribution through the free market economy, whose distributive principle is “to each according to his production,” delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor.

Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment––thus the political focus on job creation and redistribution of wealth rather than on equal opportunity to produce, full production and broader capital ownership accumulation. This is manifested in the myth that labor work is the ONLY way to participate in production and earn income, and that individual talent and effort are what distinguish the wealthy from the non-wealthy. Long ago that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Physical capital provides not less than 90 to 95 percent of the input. Full employment as the means to distribute income is not achievable. When the “tools” of capital owners replace labor workers (non-capital owners) as the principal suppliers of products and services, labor employment alone becomes inadequate. Thus, we are left with government policies that redistribute income in one form or another.

If we postulate that if both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then logically equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. Yet, sadly, the American people and its leaders still pretend to believe that labor is becoming more productive, and ignore the necessity to broaden personal ownership of wealth-creating, income-producing capital assets simultaneously with the growth of the American economy.

To put this in context, it is important to briefly note that throughout history, man has endeavored to overpower the time constraints of physical and biological processes. It is now an accepted fact that accelerated scientific and technological innovation has directly led to a speeding up of all physical and social processes in the name of progress. The competitive drive has led to a frantic national and international chase for more efficient methods of production and distribution. In the process, humanity has pushed to develop even more powerful technologies, on the assumption that such technologies would accomplish more and more useful functions in less time. The results have been a dramatic acceleration of change and concentration of wealth ownership.

The solution is to create a democratic growth economy, wherein the ownership of productive capital assets would be spread more broadly as the economy grows, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate wealth. Instead, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader, benefiting EVERY citizen, including the traditionally disenfranchised poor and working and middle class. Thus, productive capital income, from full earnings dividend payouts, would be distributed more broadly and the demand for products and services would be distributed more broadly from the earnings of capital and result in the sustentation of consumer demand, which will promote economic growth and more profitable enterprise. That also means that society can profitably employ unused productive capacity and invest in more productive capacity and green technologies to service the demands of a growth economy. As a result, our business corporations would be enabled to operate more efficiency and competitively, while broadening wealth-creating ownership participation, creating new capitalists and “customers with money” to support the products and services being produced.

“Hoggism,” today’s capitalism, is about the ability of greedy rich people to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership. Our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success––always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent are not the people who do the overwhelming consuming. The result is the consumer populous is not able to earn the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption made possible by “customers with money.” It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.

Top 10 Energy Sources Of The Future

These are ten most promising alternative energy sources of tomorrow.

It’s a really exciting time to be alive. We have a front row seat to the only known transformation of a world powered by dirty fossil fuels, to a planet that gets its energy from renewable, clean sources. It’s happening just once, right now.

Humans Need Not Apply

This is a MUST VIEW video on the impact of tectonic shifts in the technologies of production that eliminates the necessity for mass labor.

This video presents a problem, that will constantly intensify. The solution is to finance economic growth to enable every citizen to participate as an owner in the unlimited frontier of ever-advancing information and robotic technologies.

Visiting the home page of the Center for Economic and Social Justice Web site at www.cesj.org to appreciate the comprehensive array of monetary, financial, tax and other system reforms under CESJ’s proposed “Capital Homestead Act.” For the United States the name is based on The Homestead Act signed by Lincoln in 1862.  In other countries interested in Kelsonian Binary Economic Theory and the “Just Third Way” paradigm of political economy CESJ calls the comprehensive array of vital system reforms “The Economic Democracy Act.”

See the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797, http://www.cesj.org/resources/articles-index/the-just-third-way-basic-principles-of-economic-and-social-justice-by-norman-g-kurland/, http://www.cesj.org/wp-content/uploads/2014/02/jtw-graphicoverview-2013.pdf and http://www.cesj.org/resources/articles-index/the-just-third-way-a-new-vision-for-providing-hope-justice-and-economic-empowerment/.

See Monetary Justice at http://capitalhomestead.org/page/monetary-justice.

See the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/. See http://www.cesj.org/learn/capital-homesteading/ch-vehicles/.


Major Study Finds The US Is An Oligarchy


On April 16, 2014, Zachary Davies Boren writes on Business Insider:

The U.S. government does not represent the interests of the majority of the country’s citizens, but is instead ruled by those of the rich and powerful, a new study from Princeton and Northwestern universities has concluded.

The report, “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens” (PDF), used extensive policy data collected between 1981 and 2002 to empirically determine the state of the U.S. political system.

After sifting through nearly 1,800 U.S. policies enacted in that period and comparing them to the expressed preferences of average Americans (50th percentile of income), affluent Americans (90th percentile), and large special interests groups, researchers concluded that the U.S. is dominated by its economic elite.

The peer-reviewed study, which will be taught at these universities in September, says: “The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on US government policy, while mass-based interest groups and average citizens have little or no independent influence.”

Researchers concluded that U.S. government policies rarely align with the preferences of the majority of Americans, but do favour special interests and lobbying organizations: “When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the US political system, even when fairly large majorities of Americans favour policy change, they generally do not get it.”

The positions of powerful interest groups are “not substantially correlated with the preferences of average citizens,” but the politics of average Americans and affluent Americans sometimes does overlap. This is merely a coincidence, the report says, with the interests of the average American being served almost exclusively when it also serves those of the richest 10%.

The theory of “biased pluralism” that the Princeton and Northwestern researchers believe the U.S. system fits holds that policy outcomes “tend to tilt towards the wishes of corporations and business and professional associations.”

The study comes after McCutcheon v. Federal Election Commission, a controversial piece of legislation passed in the Supreme Court that abolished campaign-contribution limits, andrecord low approval ratings for the U.S. Congress.