The Rise Of The Working Poor And The Non-Working Rich

Homeless in New York

There is a widening inequality between the working poor and the non-working rich. The ideal that America’s growing inequality is often justified doesn’t hold up—instead, it’s undermining the moral foundations of American capitalism.

On March 31, 2015, Robert Reich writes on Nation Of Change:

Many believe that poor people deserve to be poor because they’re lazy. As Speaker John Boehner has said, the poor have a notion that “I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around.”

In reality, a large and growing share of the nation’s poor work full time — sometimes sixty or more hours a week – yet still don’t earn enough to lift themselves and their families out of poverty.

It’s also commonly believed, especially among Republicans, that the rich deserve their wealth because they work harder than others.

In reality, a large and growing portion of the super-rich have never broken a sweat. Their wealth has been handed to them.

The rise of these two groups — the working poor and non-working rich – is relatively new. Both are challenging the core American assumptions that people are paid what they’re worth, and work is justly rewarded.

Why are these two groups growing?

The ranks of the working poor are growing because wages at the bottom have dropped, adjusted for inflation. With increasing numbers of Americans taking low-paying jobs in retail sales, restaurants, hotels, hospitals, childcare, elder care, and other personal services, the pay of the bottom fifth is falling closer to the minimum wage.

At the same time, the real value of the federal minimum wage is lower today than it was a quarter century ago.

In addition, most recipients of public assistance must now work in order to qualify.

Bill Clinton’s welfare reform of 1996 pushed the poor off welfare and into work. Meanwhile, the Earned Income Tax Credit, a wage subsidy, has emerged as the nation’s largest anti-poverty program. Here, too, having a job is a prerequisite.

The new work requirements haven’t reduced the number or percentage of Americans in poverty. They’ve just moved poor people from being unemployed and impoverished to being employed and impoverished.

While poverty declined in the early years of welfare reform when the economy boomed and jobs were plentiful, it began growing in 2000. By 2012 it exceeded its level in 1996, when welfare ended.
At the same time, the ranks of the non-working rich have been swelling. America’s legendary “self-made” men and women are fast being replaced by wealthy heirs.

Six of today’s ten wealthiest Americans are heirs to prominent fortunes. The Walmart heirs alone have more wealth than the bottom 40 percent of Americans combined.

Americans who became enormously wealthy over the last three decades are now busily transferring that wealth to their children and grandchildren.

The nation is on the cusp of the largest inter-generational transfer of wealth in history. A study from the Boston College Center on Wealth and Philanthropy projects a total of $59 trillion passed down to heirs between 2007 and 2061.

As the French economist Thomas Piketty reminds us, this is the kind of dynastic wealth that’s kept Europe’s aristocracy going for centuries. It’s about to become the major source of income for a new American aristocracy.

The tax code encourages all this by favoring unearned income over earned income.

The top tax rate paid by America’s wealthy on their capital gains — the major source of income for the non-working rich – has dropped from 33 percent in the late 1980s to 20 percent today, putting it substantially below the top tax rate on ordinary income (36.9 percent).

If the owners of capital assets whose worth increases over their lifetime hold them until death, their heirs pay zero capital gains taxes on them. Such “unrealized” gains now account for more than half the value of assets held by estates worth more than$100 million.

At the same time, the estate tax has been slashed. Before George W. Bush was president, it applied to assets in excess of $2 million per couple at a rate of 55 percent. Now it kicks in at $10,680,000 per couple, at a 40 percent rate.

Last year only 1.4 out of every 1,000 estates owed any estate tax, and the effective rate they paid was only 17 percent.

Republicans now in control of Congress want to go even further. Last Friday the Senate voted 54-46 in favor of a non-binding resolution to repeal the estate tax altogether. Earlier in the week, the House Ways and Means Committee also voted for a repeal. The House is expected to vote in coming weeks.

Yet the specter of an entire generation doing nothing for their money other than speed-dialing their wealth management advisers is not particularly attractive.

It puts more and more responsibility for investing a substantial portion of the nation’s assets into the hands of people who have never worked.

It also endangers our democracy, as dynastic wealth inevitably and invariably accumulates political influence and power.

Consider the rise of both the working poor and the non-working rich, and the meritocratic ideal on which America’s growing inequality is often justified doesn’t hold up.

That widening inequality — combined with the increasing numbers of people who work full time but are still impoverished and of others who have never worked and are fabulously wealthy — is undermining the moral foundations of American capitalism.

http://www.nationofchange.org/2015/03/31/the-rise-of-the-working-poor-and-the-non-working-rich/

Robert Reich continues his attacks on OWNERSHIP, as capital assets formed to grow the economy are OWNED by individuals and by associations of individuals––corporations. OWNING empowers people to be financially independent and freed from toil wage slavery to pursue what Aristotle called “leisure work.” This is not really work in the conventional sense but work that furthers invention, innovation, education, the arts, science, etc.

The goal should be to create an economic system and society that fosters “leisure work.” To do this will require reforming the system to provide equal opportunity for EVERY child, woman, and man to acquire personal ownership shares in the corporations growing the economy on the basis that past savings are not required nor are any reduction in wages or benefits required, using insured, interest-free capital credit extended to EVERY citizen to acquire newly issued full-dividend paying stock representing the new assets formed.

What needs to be done is to enact the proposed Capital Homestead Act, which provides for the following basic reforms:

  • Eliminate all tax loopholes and subsidies,
  • Provide an exemption of $100,000 for a family of four to meet their ordinary living needs,
  • Encourage corporations to pay out all their profits as taxable personal incomes to avoid paying corporate income taxes and to finance their growth by issuing new full-voting, full-dividend payout shares for broad-based citizen ownership,
  • Eliminate the payroll tax on workers and their employers, but
  • Pay out of general revenues for all promises for Social Security, Medicare, government pensions, health, education, rent and subsistence vouchers for the poor until their new jobs and ownership accumulations provide new incomes to substitute for the taxpayer dollars to fill these needs.
  • The tax rate would be a single rate for all incomes from all sources above the personal exemption levels so that the budget could be balanced automatically and even allow the government to pay off the growing unsustainable long-term debt, but the poor would pay the first dollar over their exemption levels as would the hedge fund operator and others now earning billions of dollars from capital gains, dividends, rents and other property incomes which under some tax proposals would be exempted from any taxes.
  • As a substitute for inheritance and gift taxes, a transfer tax would be imposed on the recipients whose holdings exceeded $1 million, thus encouraging the super-rich to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes, teachers, health workers, police, other public servants, military veterans, artists, the poor and the disabled.
  • The Federal Reserve would stop monetizing unproductive debt, including bailouts of banks “too big to fail” and Wall Street derivatives speculators, and
  • Begin creating an asset-backed currency that could enable every child, woman and man to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income.
  • The CHA would process an equal allocation of productive credit to every citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets.
  • The shares would be purchased using interest-free credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable goods and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy.
  • Risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance, but
  • Would not require citizens to reduce their funds for consumption to purchase shares.

The end result is that citizens would become empowered as owners to meet their own consumption needs and government would become more dependent on economically independent citizens pursuing “leisure work,” thus reversing current global trends where all citizens will eventually become dependent for their economic well-being on the State and whatever elite controls the coercive powers of government.

Yet Robert Reich continues to push for State solutions involving the redistribution of wealth rather than ensuring that ALL future wealth creation is broadly owned.

Support the Capital Homestead Act at 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://cesj.org/learn/capital-homesteading/ and http://cesj.org/…/uploads/Free/capitalhomesteading-s.pdf.

How Income Inequality Benefits Everybody


In a 2010 file photo, Steve Jobs, then Apple’s chief executive, holds a new iPhone. (Paul Sakuma/Associated Press)

On March 25, 2015, George F. Will writes in The Washington Post:

Every day the Chinese go to work, Americans get a raise: Chinese workers, many earning each day about what Americans spend on a Starbucks latte, produce apparel, appliances and other stuff cheaply, thereby enlarging Americans’ disposable income. Americans similarly get a raise when they shop at the stores that made Sam Walton a billionaire.

The ranks of billionaires are constantly churned. Most of the people on the original Forbes 400 list of richest Americans in 1982 were off the list in 2013. Mark Zuckerberg, Facebook’s chief executive, was not born until 1984. America needs more billionaires like him, Michael Dell, Bill Gates, Jeff Bezos and Steve Jobs. With the iPod, iPhone and iPad, unique products when introduced, Jobs’s Apple created monopolies. But instead of raising their prices, Apple has cut them because “profits attract imitators and innovators.” Which is one reason why monopolies come and go. When John D. Rockefeller began selling kerosene in 1870, he had approximately 4 percent of the market. By 1890, he had 85 percent. Did he use this market dominance to gouge consumers? Kerosene prices fell from 30 cents a gallon in 1869 to 6 cents in 1897. And in the process of being branded a menacing monopoly, Rockefeller’s Standard Oil made gasoline so cheap that Ford found a mass market for Model T’s.

Monopoly profits are social blessings when they “signal to the ambitious the wealth they can earn by entering previously unknown markets.” So “when the wealth gap widens, the lifestyle gap shrinks .” Hence, “income inequality in a capitalist system is truly beautiful” because “it provides the incentive for creative people to gamble on new ideas, and it turns luxuries into common goods.” Since 2000, the price of a 50-inch plasma TV has fallen from $20,000 to $550.

Henry Ford doubled his employees’ basic wage in 1914, supposedly to enable them to buy Fords. Actually, he did it because in 1913 annual worker turnover was 370 percent. He lowered labor costs by reducing turnover and the expense of constantly training new hires.

All these thoughts are from John Tamny, a one-man antidote to economic obfuscation and mystification. Thomas Carlyle (1795-1881), who called economics “the dismal science,” never read Tamny, a Forbes editor, editor of RealClearMarkets and now author of the cheerful, mind-opening book, “Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics.”

In the early 1970s, when the Rolling Stones were coining money and Britain’s top tax rate was 83 percent, Keith Richards, guitarist and social philosopher, said: “That’s the same as being told to leave the country.” The Stones decamped to France, leaving Britain, Tamny notes, to collect 83 percent of nothing.

Americans execrate “outsourcing,” which supposedly involves sending “American jobs” overseas. Well. Nike employs 40 times more manufacturing workers in Vietnam than in the United States, but it could not afford as many American workers as it has without the efficiencies of outsourcing. Tamny cites Enrico Moretti, an economist at the University of California at Berkeley, who says that when Americans buy an iPhone online, it is shipped from China and the only American who touches it is the UPS delivery person. Is it regrettable that Americans are not doing the assembly jobs for which Chinese are paid the “latte wage”?

Actually, Americans incessantly “outsource” here at home by, for example, having Iowans grow their corn and dentists take care of their teeth, jobs at which Iowans and dentists excel and the rest of us do not. LeBron James could be an adequate NFL tight end, but why subtract time from being a superb basketball player? The lesson, says Tamny, is that individuals — and nations — should do what they do better than others and let others do other things.

Millions of jobs, he says, would be created if we banned computers, ATMs and tractors. The mechanization of agriculture destroyed millions of jobs performed with hoes and scythes. Was Cyrus McCormick — founder of what would later become the International Harvester Co. — a curse?

The best way to (in Barack Obama’s 2008 words to Joe the Plumber) “spread the wealth around,” is, Tamny argues, “to leave it in the hands of the wealthy.” Personal consumption absorbs a small portion of their money and the remainder is not idle. It is invested by them, using the skill that earned it. Will it be more beneficially employed by the political class of a confiscatory government?

“Nothing,” Tamny demonstrates, “is easier to understand than economics. It is everywhere you look.” Readers of his book will subsequently look at things differently.

 

http://www.washingtonpost.com/opinions/how-income-inequality-benefits-everybody/2015/03/25/1122ee02-d255-11e4-a62f-ee745911a4ff_story.html?postshare=5991427715848773

Michael D. Greaney:
“This is simply a rehash of Adam Smith’s idea that the labor of the poor serves to distribute the wealth of the earth just as broadly as if capital were broadly owned. Unfortunately, it fails to take into account that advancing technology enables the wealthy to satisfy their needs and wants without the labor of the poor, as it replaces human labor productiveness with capital productiveness. As Jean-Baptiste Say pointed out a generation later, it is only by producing that we can consume. Kelso and Adler pointed out that if capital is overtaking human labor in productive power, then it is essential that (as Pope Leo XIII explained) ‘as many as possible of the people . . . become owners.’ (Rerum Novarum, § 46.)”

Help Make A Political Revolution

On March 29, 2015 Senator Bernie Sanders writes:

Dear Gary,

Thank you so much for the political and financial support you have given me over the years. It is much appreciated. As the longest serving independent in American congressional history, I am writing now to ask you, in these very difficult times, to stand with me again as we continue the struggle for social and economic justice and environmental sanity.

The good news is that the economy today is much better than it was six years ago when George W. Bush left office. The bad news is that, despite these improvements, the 40-year decline of the American middle class continues. Real unemployment is much too high, 35 million Americans continue to have no health insurance and more of our friends and neighbors are living in poverty than at almost any time in the modern history of our country.

Meanwhile, as the rich become much richer, the level of income and wealth inequality has reached obscene and unimaginable levels. In the United States, we have the most unequal level of wealth and income distribution of any major country on earth, and worse now then at any other time since the 1920s. Today, the top one-tenth of 1 percent of our nation owns almost as much wealth as the bottom 90 percent, and one family owns more wealth than the bottom 42 percent. In terms of income, 99 percent of all new income is going to the top 1 percent.

This is what a rigged economic system looks like. At a time when millions of American workers have seen declines in their incomes and are working longer hours for lower wages, the wealth of the billionaire class is soaring in a way that few can imagine. If you can believe it, between 2013 and 2015, the 14 wealthiest individuals in the country saw their net worth increase by over $157 billion dollars. Children go hungry, veterans sleep out on the streets, senior citizens cannot afford their prescription drugs — and 14 individuals saw a $157 billion dollar increase in their wealth over a two-year period.

The time to fight back is now.

The grotesque level of income and wealth inequality we are experiencing is not just a moral and economic issue, it is a political issue as well. As a result of the disastrous Citizens United Supreme Court decision, billionaires are now able to spend unlimited sums of money to buy the candidates they want. The Koch brothers, an extreme right-wing family, recently announced that they were prepared to spend some $900 million in the next election cycle. This is likely more money than either the Democratic or Republican parties will spend. If you think that it is an accident that the Republican Party has become a far-right party, think again. The Koch brothers’ agenda — ending Social Security, Medicare, Medicaid, the U.S. Postal Service, the Environmental Protection Agency and all campaign finance limitations — has become the agenda of the Republican candidates they fund.

And, by the way, if you think that the Republican Party’s refusal to acknowledge that climate change is real, is caused by human activity and is a severe threat to our planet, is not related to how we finance campaigns, you would be sorely mistaken. With the Koch brothers (who make much of their money in the fossil fuel industry) and big energy companies pouring huge amounts into Republican campaigns, it should not surprise anyone that my Republican colleagues reject the views of the overwhelming majority of scientists who study climate issues.

With Republicans now controlling both houses of Congress, let me briefly touch on some of the battles that I will be helping to lead in this extreme right-wing environment. In my view, with so many of our fellow citizens demoralized about the political process, it is absolutely imperative that we establish a strong progressive agenda that Americans can rally around. It must be an agenda that reflects the real needs of the working families of our country. It must be an agenda that engages people in a political struggle that they are prepared to fight for.

Join me now in the struggle for the progressive vision we share.

Jobs, Jobs, Jobs: The truth is that real unemployment in our country is not the “official” and widely-reported 5.5 percent. Counting those who are under-employed and those who have given up looking for work, real unemployment is 11 percent. Even more disturbingly, youth unemployment is close to 17 percent and African-American youth unemployment is much higher than that.

If we are truly serious about reversing the decline of the middle class and putting millions of people back to work, we need a major federal jobs program. There are a number of approaches which can be taken, but the fastest way to create jobs is to rebuild our crumbling infrastructure — roads, bridges, dams, levees, airports, rail, water systems and wastewater plants.

In that regard, I have introduced legislation which would invest $1 trillion over 5 years to modernize our country’s physical infrastructure. This legislation would create and maintain at least 13 million good-paying jobs. It would also make our country more productive, efficient and safe.

I will also continue my opposition to our current trade policies and vote against fast tracking the Trans-Pacific Partnership.  Simply put, our trade policies have failed. Permanent normal trade relations with China have led to the loss of more than 3.2 million American jobs. The North American Free Trade Agreement has led to the loss of nearly 1 million jobs. The Korean Free Trade Agreement has led to the loss of some 60,000 jobs.

We have got to fundamentally rewrite our trade rules so that American jobs are no longer our No.1 export. Corporate America must start investing in this country, not China.

As we struggle for decent-paying jobs, we must also rebuild the trade union movement. Throughout the country, millions of workers want to join unions but are meeting fierce opposition from their employers. We need legislation that makes it easier, not harder, for unions to flourish.

Raising Wages: Today millions of Americans are working for starvation wages. The current federal minimum wage of $7.25 an hour is totally inadequate. In fact, the real value of today’s minimum wage has declined by one-third since 1968. By raising the minimum wage to a living wage we can provide an increase in income for those people who need it the most. Our goal must be that no full-time worker in this country lives in poverty.

We must also bring about pay equity. There is no rational reason why women should be earning 78 cents on the dollar compared to men who perform the same work.

Further, we have got to expand overtime protections for millions of workers. It is absurd that “supervisors” who earn $25,000 a year are currently forced to work 50 or 60 hours a week with no overtime pay. Raising the income threshold to at least $56,680 from the absurdly low level of $23,660 a year for overtime will mean increased income for many millions of salaried workers.

Addressing Wealth and Income Inequality: Today the richest 400 Americans own more than $2.3 trillion in wealth, more than the bottom 150 million Americans combined. Meanwhile, nearly half of Americans have less than $10,000 in savings and have no idea how they will be able to retire with dignity.

We need real tax reform which makes the rich and profitable corporations begin to pay their fair share of taxes. It is absurd that in 1952 corporate income taxes provided 32 percent of federal revenue while in 2014 they provided 11 percent. It is scandalous that major profitable corporations like General Electric, Verizon, Citigroup and JP Morgan have, in a given recent year, paid nothing in federal income taxes. It is fiscally irresponsible that the U.S. Treasury loses about $100 billion a year because corporations and the rich stash their profits in the Cayman Islands, Bermuda and other tax havens.

Warren Buffett is honest. He has pointed out the unfairness that he, a multi-billionaire, pays a lower effective tax rate than his secretary. It is disgraceful that millionaire hedge fund managers are able to pay lower tax rates than truck drivers or nurses because they take advantage of a variety of tax loopholes that their lobbyists wrote.

This must end. We need a tax system which is fair and progressive. Children should not go hungry in this country while profitable corporations and the wealthy avoid their tax responsibilities.

Reversing Climate Change: The United States must lead the world in reversing climate change and make certain that this planet is habitable for our children and grandchildren. We must transform our energy system away from fossil fuels and into energy efficiency and sustainable energies. Millions of homes and buildings need to be weatherized, our transportation system needs to be energy efficient and we need to greatly accelerate the progress we are already seeing in wind, solar, geothermal and other forms of sustainable energy. Transforming our energy system will not only protect the environment, it will create good-paying jobs.

Health Care for All: The United States remains the only major country on earth that does not guarantee health care for all as a right. Despite the modest gains of the Affordable Care Act, 35 million Americans continue to lack health insurance and many more are under-insured. Yet, we continue paying far more per capita for health care than any other nation. The United States must move toward a Medicare-for-All single-payer system.

Protecting Our Most Vulnerable: Today the United States has more people living in poverty than at almost any time in the modern history of our country. We have the highest rate of childhood poverty of any major nation, 35 million Americans still lack health insurance and millions of seniors and disabled people struggle to put food on the table because of insufficient Social Security benefits.

The Republican response to the economic pain of so many of our people was to make a bad situation much worse. The recently-passed Republican budget throws 27 million Americans off of health insurance, cuts Medicare, makes huge cuts to nutrition and makes it harder for working class families to afford college or put their kids in the Head Start program.

In my view, we have a moral responsibility to make certain that no American goes hungry or sleeps out on the streets. We must also make certain that seniors and people with disabilities can live in dignity. Not only must we vigorously oppose Republican attacks on the social safety net, we must expand benefits for those in need. That is why I have recently introduced legislation which would increase the solvency of Social Security until 2065, while expanding benefits for those who need them the most.

Making College Affordable for All: We live in a highly competitive global economy. If this country is to do well economically, we need to have the best-educated workforce in the world. Yet today many Americans cannot get a higher education, not because they are unqualified, but because they simply cannot afford it. Millions of others who do graduate from college or graduate school are drowning in debt. According to the Consumer Financial Protection Bureau, the total amount of outstanding student loan debt in the United States has tripled in the last 10 years, and has now reached $1.2 trillion.

The United States must join many other countries in understanding that investing in our young people’s education is investing in the future of our nation. I will soon be introducing legislation to make tuition in public colleges and universities free, as well as substantially lower interest rates on student loans.

And these are just SOME of the issues we are dealing with.

Let me conclude this letter by stating the obvious. This country is in serious trouble. Our economic system benefits the rich and large corporations and leaves working families behind. Our political system is dominated by billionaire campaign contributors and their lobbyists and is moving us in the direction of oligarchy. Our media system, owned by the corporate world, spends enormous time and energy diverting our attention away from the most important issues facing us. Climate change threatens the planet and we have a major political party denying its reality.

Clearly, the struggle to create a nation and world of economic and social justice and environmental sanity is not an easy one. But this I know: despair is not an option if we care about our kids and grandchildren. Giving up is not an option if we want to prevent irreparable harm to our planet.

We must stand up and fight back. We must launch a political revolution which engages millions of Americans from all walks of life in the struggle for real change. This country belongs to all of us, not just the billionaire class.

Please stand with me. Please join the grass-roots revolution that we desperately need.

Sincerely,

U.S. Senator Bernie Sanders

Senator Bernie Sanders has accurately described the problems at the forefront facing the American people. But his solutions are REDISTRIBUTIVE and debt financed, which will expand the nation’s debt unless there is a significant reduction in military expenditures (which would cause enormous unemployment) or far greater taxation.

I am not opposed to either reduced military expenditures or to significantly greater taxation of corporate profits. But there should be a caveat to increased taxes corporate profits and that is the tax on a corporation would be eliminated if the corporation paid out fully its earnings as dividends taxed at the personal tax rate. This would eliminate double taxation and incentivize corporations to finance new growth by issuing and selling new stock to represent investment in new asset-backed projects that are expected to pay for themselves within a reasonable time period, and once paid for to continue to generate profits to the corporation, which would then be fully paid out to the stockholders as personal dividend earnings.

The fundamental challenge to be solved, and one that Senator Sanders does not address, is how do we reinvent and redesign our economic institutions to keep pace with job destroying and labor devaluing technological innovation and invention so not all of the benefits of owning FUTURE productive capacity accrues to today’s wealthy 1 percent ownership class, and ownership is broadened so that EVERY American earns income through full-payout stock ownership dividends so they can afford to purchase the products and services produced by the economy.

Even if Senator Sanders achieves the passage of a debt-finance $1 trillion to be spent on funding infrastructure project, both renewal and new infrastructure, he does not stipulate that the corporations bidding and award the actual construction contracts by 100 percent employee owned, so that the growth of those companies benefits its employees additionally as OWNERS as well as creating new job opportunities. Anyone who has observed modern-day infrastructure construction understands that “machines” are employed to do the “heavy” work. These “machines” and all the other physical capital assets of companies are OWNED by people.

None of this is new from a macro-economic viewpoint as productive capital is increasingly the source of the world’s economic growth. The role of physical productive capital is to do ever more of the work of producing more products and services, which produces income to its owners.

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.

Furthermore, because productive capital is increasingly the source of the world’s economic growth it should become the source of added property ownership incomes for all. Put another way, if both labor and capital are interdependent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then 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, such as Senator Sanders, still only see a job as the means to earn wage income, and ignore the structural reform necessary to ensure that we simultaneously create new owners with the growth of the economy and with ALL government spending.

Senator Sanders should introduce a National Right To Capital Ownership Bill that restores the American dream of property ownership. This should be advocated by both the progressive movement and the conservative movement, as such legislation would address solutions to the reality of Americans facing job opportunity deterioration and devaluation due to tectonic shifts in the technologies of production and the wage cost-saving pressure resulting from globalization.

The solution, which Senator Sanders should advocate, would result in double-digit economic growth and simultaneously broaden private, individual ownership so that EVERY American can benefit from significant income growth, providing the means to support themselves and their families with an affluent lifestyle. The Just Third Way Master Plan for America’s future is published at http://foreconomicjustice.org/?p=5797.

The solution is obvious but our leaders, academia, conventional economist and the media are oblivious to the necessity to broaden ownership in the new capital formation of the future simultaneously with the growth of the economy, which then becomes self-propelled as increasingly more Americans accumulate ownership shares and earn a new source of full-dividend income derived from their capital ownership in the “machines” that are replacing them or devaluing their labor value. This can be accomplished without taking from those who already own and can be the one-up solution to poverty wage competition on a global scale.

The solution will require the reform of the Federal Reserve Bank to create new owners of future productive capital investment in existing and new businesses simultaneously with the growth of the economy from financing viable projects. The solution to broadening private, individual ownership of America’s future capital wealth requires that the Federal Reserve stop monetizing unproductive debt, including bailouts of banks “too big to fail” and Wall Street derivative speculators, and begin creating an asset-backed currency that could enable every child, woman and man to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing full-dividend-bearing stock portfolio to supplement or replace their incomes from work and all other sources of income. Policies need to insert American citizens, without the requirement of past savings, into the low or no-interest investment money loop to enable non- and undercapitalized Americans, including the working class and poor, to acquire capital with the earnings of capital and build wealth, and become “customers with money.” The proposed Capital Homestead Act would produce this result.

Over a relatively short period of time, the result would be to create jobs as every able body American would be needed to build a future economy that can support general affluence for every child, woman and man. Not only would wages raise but a new source of income would be created in the form of dividend earnings from every child, woman and man owning stock in America’s future. This approach would abate the further concentration of capital ownership, the cause of wealth and income inequality. We could heal the planet’s climate because people will become more affluent with the income to support the purchase of costlier products that are produced using sustainable resource technologies that do not pollute the planet and conserve resources as well as renew resources. As our nation’s tax base expands with an abundant tax revenue from individuals earning far greater incomes, we will be able to implement a national health care system that provides superior health services to every child, woman, and man. As EVERY child, woman, and man would become an owner, without the requirement of past savings or any reduction in wages or benefits, we would no longer have anyone living in poverty. As part of this solution, all tax loopholes and subsidies would be eliminated. There would also be provided a tax exemption of $100,000 for a family of four to meet their ordinary living needs. All promises for Social Security, Medicare, government pensions, health, education, rent and subsistence vouchers for the poor would be paid out general revenues until their new jobs and ownership accumulations provide new incomes to substitute for the taxpayer dollars to fill these needs.  As for education, we would be able to return to a non-tution-based, fully taxpayer funded public higher education system to educate our young people how to think and inspire them to further invent and innovate to achieve a future affluent society where the productive capacity is OWNED by every child, woman, and man, as individual citizens.

Support the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm

See the 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. And also “Second Income Plan” at http://www.huffingtonpost.com/gary-reber/second-income-plan_b_3625319.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.

Also see “Financing Economic Growth With ‘FUTURE SAVINGS': Solutions To Protect America From Economic Decline” at NationOfChange.org http://www.nationofchange.org/financing-future-economic-growth-future-savings-solutions-protect-america-economic-decline-137450624 and “The Income Solution To Slow Private Sector Job Growth” at http://www.nationofchange.org/income-solution-slow-private-sector-job-growth-1378041490.

Guess What’s Destroying The Middle Class?

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On March 25, 2015, Noah Smith writes on Bloomberg View:

Perhaps the biggest question in American political economy right now is why middle-class wages have been falling. There are three main hypotheses. Roughly, these are: Robots, unions and China.

The robots theory gets by far the most play in the news media, since it’s by far the scariest — if automation is replacing big chunks of the human workforce, things are only going to get worse as robots become more capable and efficient. This interpretation has tentatively been embraced by many on the political right, since it doesn’t imply a need for substantial government intervention in the economy (though it might imply a need for redistribution). The unions theory is favored by the political left, since it implies that giving more institutional power to this traditional liberal power bloc would shift the distribution of national income toward workers.

Neither side really wants to blame China. The right generally represents business interests and capital owners who have made a lot of money off of China, and hope to make a lot more. The left is afraid to go against the free-trade orthodoxy that has dominated postwar American economic thinking, and also fears a potential cold war with China.

But there’s just one problem: The evidence may point to least favored answer being the right one.

A new National Bureau of Economic Research paper by economists Avraham Ebenstein, Ann Harrison and Margaret McMillan examines the impact of offshoring to China. They compare industries and occupations based on their exposure to Chinese offshoring after China’s accession to the World Trade Organization in 2001. They find that when exposure is greater, wage declines are much bigger. They also find that competition from Chinese imports affects wages, but to a much smaller degree.

Another paper, by economists Michael Elsby, Bart Hobijn and Aysegul Sahin looks at the China story from a different angle. They ask why the share of income going to labor has decreased in the U. S. They examine two variants of the robots story and also the unions story, and find that these explain only a small part of the decline in the labor share. But when they look at industries exposed to imports, they find that import competition is responsible for most of the variation in the payroll share of value added. Our biggest new source of imports, of course, has been China.

And then there is the famous 2013 paper by economists David Autor, David Dorn and Gordon Hanson, entitled “The China Syndrome: Local Labor Market Effects of Import Competition in the United States.” They compare areas of the U.S. based on how exposed they were to Chinese import competition from 1990 to 2007. Their abstract states their conclusion in no uncertain terms:

Rising imports cause higher unemployment, lower labor force participation, and reduced wages in local labor markets that house import competing manufacturing industries…[I]mport competition explains one-quarter of the contemporaneous aggregate decline in US manufacturing employment.

In other words, there is a growing body of research showing that globalization — and, in particular, the rise of China — has been the biggest factor hollowing out the American middle class. Naturally, supporters of the robots explanation have challenged some of this research, but the papers keep piling up.

Meanwhile, the robots hypothesis is also starting to get serious pushback on other fronts. Celebrity economist Larry Summers, who has expressed concern over the possibility of automation replacing human jobs, has hedged his bets. He points out that productivity hasn’t surged as fast as one might expect from a robot revolution. He also notes that if robots were replacing humans, we’d expect to see a temporary boom in human labor, since people would be needed to build and install the robots. We haven’t seen that. Although Summersstill believes robots are a factor, he points out some reasons to be skeptical of the story.

So if the U.S. middle class has been gutted because of China instead of robots or de-unionization, what do we do? Reshoring initiatives are becoming popular, but so far they have had limited effect. Trade barriers against China are unlikely to do much, since offshoring investment will just shift to other low-wage countries — as it is already doing as Chinese wages rise. And the globalization cat is already out of the bag — now that markets and supply chains are global, walling off American industry will probably just cut American companies out of fast-growing global markets, and lead to slower growth in the U.S.

The only solution to the problem of globalization may be to wait. Chinese wages have risen a lot, and only India is big enough to take China’s place. As global economic convergence proceeds, the U.S. will look more attractive as an investment destination, and reshoring will increase. That isn’t an answer that people want to hear, but it may be the right one.

http://www.bloombergview.com/articles/2015-03-25/what-s-destroying-middle-class-wages-china

The problem is that for-profit corporations, whether the productive property is private sector owned or State-owned as is often the case in communist China, are increasingly operating on a global scale.  The inherant nature of the business corporation, which produces or distributes products, as well as service businesses, is to constantly seek the lowest cost labor work force and/or invest in non-human intelligent and non-intelligent means to produce products and services in order to gain efficiencies, reduce production costs including saving labor, and maximize profit.
With respect to China, the country has hundreds of millions of people who will labor for survival at significantly lower costs than an equivalent worker in America.  This translates to the ability of a business corporation to produce its products at significantly lower costs, which means they effectively gain a competitive advantage over their competitors who continue to produce in America at higher costs. As such, our nation is experiencing an exodus of business corporation production to other countries, such as China in order to save costs and maintain a competitive position. This has resulted in a domino effect causing a majority of products consumed by Americans to be produced in China or other extremely low-wage countries with less regulation of the manufacturing processes involved in producing products (for air quality, pollution, worker safety, healthcare and other benefits, etc). The American consumer is driving this push for a race to buying products that are the least expensive (Walmart, etc.), not understanding that their ONLY means within the current system to earning an income is a job, which they are undermining.  But it doesn’t end there. Because the profit motive is the function of business corporations, lower cost labor is not enough, and the emphasis is shifting to replacing labor workers with sophisticated “tools” and “machines” that can operate 24/7 and require minimum labor worker maintenance while producing even more efficiently with exacting precision (as in quality).
Such tectonic shifts in the technologies of production is exponentially replaceing the need for masses of human labor. This is a steady progression of transition from human-intensive labor to non-human intensive physical capital––tools, machines, super-automation, robotics, digital computerization, etc.

This transition should surprise no one who is conscious and who has even causally observed the constant shift to non-human productive inputs in the manufacturing, distribution, and sale of products, as well as the delivery of services, that has been occurring during their lifetime. The first burst of this phenomena was the Industrial Revolution. But now we are in an age of technology sophistication that is permeating every sector of industry and our day-to-day lives. For a glimpse into today’s technology see “How It’s Made,” which airs on the Discovery Science Channel.

One would have to be blind not to come to an awaken understanding, but unbelievably, economist and former Labor Secretary Robert Reich made a statement recently regarding Amazon’s decision to employ 15,000+ robots in its fulfillment centers: “PS: Here’s who’s filling your Amazon orders (if you’re using Amazon). Amazon now has over 15,000 of these robots at its ‘fulfillment’ centers and is planning far more. It’s also making plans to replace its drivers with commercial drones. But once Amazon (and every other company) replaces their employees with robots, who’s going to buy their stuff? Robots?”

Reich, as is evidently Noah Smith, the author of this article, is totally oblivious to the concept of broadened, universal individual OWNERSHIP of the capital assets––”robots, machines, automation, computerization”––that are replacing the need for labor workers. This is occurring even in China at a rapid pace in those industries that are shifting production from a labor intensive reliance to a capital intensive reliance. Companies globally are striving to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological invention and innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both.

Progressive businessmen and businesswomen understand that technological change makes physical capital ever more productive. Corporate decision makers know this, whether in the United States or China, or anywhere organized assemblies of people engage in production. Technology is an easier and faster way to get a job done. Because technology increases the profitability of companies throughout the world, technology always has the advantage over human labor when the costs of them are the same. But because this is not well understood, what we as a society have been doing is to continually shift the work burden from people labor to real physical capital while distributing the earning capacity of physical capital’s work (via capital ownership of stock in corporations) to non-owners through taxpayer-funded make-work job creation, minimum wage requirements, and redistributive welfare programs. Such policies do not function effectively.

Those who can only see earning income through a job (and through redistributed earnings of others) totally ignore the fact that the reason that rich people are rich is because they are OWNERS of wealth-creating, income-producing capital assets (such as the “15,000 robots”). It is wealth inequality that is the core problem.  If we really want to abate wealth inequality, then the objective should be to empower EVERY child, woman and man (citizens) to acquire individual ownership shares in the FUTURE capital asset growth of the economy using insured, interest-free pure capital credit loans repayable out of the FUTURE earnings generated by the project investments in our nation’s economic growth. This would create a new source of income tied directly to the tectonic shifts in the technologies of production that are replacing the need for humans with non-human physical capital, and simultaneously create unprecedented double-digit economic growth with plentiful employment opportunities necessary to building a FUTURE economy within the United States that can support general affluence for EVERY citizen.

There’s nothing new about machines replacing people, but the rate of replacement is exponential and the result is that productivity gains lead to more wealth for the OWNERS of the non-human factor of production increasingly doing the actual work. But for others, who have always been dependent on jobs as their source of income, there has been wage stagnation or a steady decline to poverty-level labor incomes, underemployment and unemployment, not withstanding global outsourcing.

What must be understood (which unfortunately is not understood by conventional economists) is that there are two independent factors of production––human or labor workers and non-human or physical productive capital. Fundamentally, economic value is created through human and non-human contributions.

Also what needs to be understood is that human productivity has not advanced (our human abilities are limited by physical strength and brain power––and relatively constant), but that the productiveness of the non-human factor of production––productive capital––is the reason that private sector corporations, majority owned by the “1 percent,” are utilizing the non-human factor of production increasingly to create efficiencies and save labor and other costs. It is the function of technology to save labor from toil and to enable us to do things that otherwise is humanly impossible without non-human input. The critical question becomes who should own productive capital? The issue of OWNERSHIP is unbelievably overlooked by those in academia and politics. Yet we live in a country founded upon private property rights.

But what about China, the place where all the manufacturing jobs are supposedly going? True, China has added manufacturing jobs over the past 15 years. But now it is beginning its shift to super-robotic automation. Foxconn, which manufactures the iPhone and many other consumer electronics and is China’s largest private employer, has plans to install over one million manufacturing robots within three years. Thus, in reality off-shoring of manufacturing will eventually be replaced by human-intelligent super-robotic automation.

The pursuit for lower and lower cost production that relies on slave wage labor will eventually run out of places to chase. Eventually, “rich” countries, whose productive capital capability is owned by its citizens (though presently concentrated), will be forced to “re-shore” manufacturing capacity, and result in ever-cheaper “robotic” manufacturing.

“The era we’re in is one in which the scope of tasks that can be automated is increasing rapidly, and in areas where we used to think those were our best skills, things that require thinking,” says David Autor, a labor economist at Massachusetts Institute of Technology.

Businesses are spending more on technology now because they spent so little during the Great Recession. Yet total capital expenditures are still barely running ahead of replacement costs. “Most of the investment we’re seeing is simply replacing worn-out stuff,” says economist Paul Ashworth of Capital Economics.

Yet, while the problem is one that no one can no longer ignore, the solution also is one starring them in the face but they just can’t see the simplicity of it.

The fundamental challenge to be solved is how do we reinvent and redesign our economic institutions to keep pace with job destroying and labor devaluing technological innovation and invention so not all of the benefits of owning FUTURE productive capacity accrues to today’s wealthy 1 percent ownership class, and ownership is broadened so that EVERY American earns income through full-payout stock ownership dividends so they can afford to purchase the products and services produced by the economy.

None of this is new from a macro-economic viewpoint as productive capital is increasingly the source of the world’s economic growth. The role of physical productive capital is to do ever more of the work of producing more products and services, which produces income to its owners. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum. Private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role, as well as manufacturing outsourcing seeking the lowest production costs. Besides the outsourcing, over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital worker input has been rapidly changing at an exponential rate of increase for over 235 years in step with the Industrial Revolution (starting in 1776) and had even been changing long before that with man’s discovery of the first tools, but at a much slower rate. Up until the close of the nineteenth century, the United States remained a working democracy, with the production of products and services dependent on labor worker input. When the American Industrial Revolution began and subsequent technological advances amplified the productive power of non-human capital, plutocratic finance channeled its ownership into fewer and fewer hands, as we continue to witness today with government by the wealthy evidenced at all levels.

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. Binary economist Louis Kelso attributed most changes in the productive capacity of the world since the beginning of the Industrial Revolution to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital, in Kelso’s terms, does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary. Because of this undeniable fact, Kelso asserted that, “free-market forces no longer establish the ‘value’ of labor. Instead, the price of labor is artificially elevated by government through minimum wage legislation, overtime laws, and collective bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.”

Furthermore, according to Kelso, 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. Kelso postulated that if both labor and capital are interdependent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then 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.

A National Right To Capital Ownership Bill that restores the American dream should be advocated by both the progressive movement and the conservative movement, which addresses the reality of Americans facing job opportunity deterioration and devaluation due to tectonic shifts in the technologies of production and the wage cost-saving pressure resulting from globalization.

There is a solution, which will result in double-digit economic growth and simultaneously broaden private, individual ownership so that EVERY American can benefit from significant income growth, providing the means to support themselves and their families with an affluent lifestyle. The Just Third Way Master Plan for America’s future is published at http://foreconomicjustice.org/?p=5797.

The solution is obvious but our leaders, academia, conventional economist and the media are oblivious to the necessity to broaden ownership in the new capital formation of the future simultaneously with the growth of the economy, which then becomes self-propelled as increasingly more Americans accumulate ownership shares and earn a new source of full-dividend income derived from their capital ownership in the “machines” that are replacing them or devaluing their labor value. This can be accomplished without taking from those who already own and can be the one-up solution to poverty wage competition on a global scale.

The solution will require the reform of the Federal Reserve Bank to create new owners of future productive capital investment in existing and new businesses simultaneously with the growth of the economy from financing viable projects. The solution to broadening private, individual ownership of America’s future capital wealth requires that the Federal Reserve stop monetizing unproductive debt, including bailouts of banks “too big to fail” and Wall Street derivative speculators, and begin creating an asset-backed currency that could enable every child, woman and man to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing full-dividend-bearing stock portfolio to supplement or replace their incomes from work and all other sources of income. Policies need to insert American citizens, without the requirement of past savings, into the low or no-interest investment money loop to enable non- and undercapitalized Americans, including the working class and poor, to acquire capital with the earnings of capital and build wealth, and become “customers with money.” The proposed Capital Homestead Act would produce this result.

Support the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm

See the 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. And also “Second Income Plan” at http://www.huffingtonpost.com/gary-reber/second-income-plan_b_3625319.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.

Also see “Financing Economic Growth With ‘FUTURE SAVINGS': Solutions To Protect America From Economic Decline” at NationOfChange.org http://www.nationofchange.org/financing-future-economic-growth-future-savings-solutions-protect-america-economic-decline-137450624 and “The Income Solution To Slow Private Sector Job Growth” at http://www.nationofchange.org/income-solution-slow-private-sector-job-growth-1378041490.

Aspiration Without Opportunity Leads To Violence Says Venture Capitalist Nick Hanauer

On March 25, 2015, speaks about economic inequality on the BBC:

Aspiration without legitimate opportunity creates anger, resentment and violence, the multi-millionaire venture capitalist Nick Hanauer has told BBC HARDtalk.

Mr Hanauer added that he believes an increase in wealth inequality could lead to social unrest in the United States.

I wonder what motivates these super-rich advocates for abating economic inequality.. They, including Nick Hanauer, cannot believe in genuine equality of economic power. without recognizing that their own freedom and power come from their OWNERSHIP of productive capital assets. Are they blind to what makes 99 percent of non-owning world citizens so victimized and powerless by systemic barriers to equal ownership opportunities? Wake up!

Hanauer acknowledges that corporate profits in the U.S. are at all-time highs, which they rightly conclude is increasing income inequality.

Let’s face it, if the top 10 percent of American families own 90 percent of the stocks, then they will take a greater share of those corporate profits and there’s less wealth for the rest of society.

Americans should be demanding REAL solutions to economic inequality. But, sadly, the problem is Americans have been so ill-educated that all they are likely to understand, based on their ONLY experience is “create jobs that pay a living wage.”

This is NOT the solution to economic inequality.

The REAL solution is to lift all legal barriers to universal capital ownership access by every child, woman, and man as a fundamental right of citizenship and the basis of personal liberty and empowerment. The goal should be to enable every child, woman, and man to become an owner of ever-advancing labor-displacing technologies, new and sustainable energy systems, new rentable space, new enterprises, new infrastructure assets, and productive land and natural resources as a growing and independent source of their future incomes, without the requirement of past savings or any reduction in wages or benefits.

The conventional thinking is the result of being stuck, as is the entire playing field of advocates for change, in one-factor thinking––that is, the labor worker, and they, who have gained their wealth through capital ownership, are oblivious to the most powerful and increasingly productive factor––non-human physical capital (the land, structures, tools, machines and robotics, computerization, etc.) that is responsible for 90 percent of the production of the products and services needed and wanted by society.

Hanger should be demanding that the politicians running for the office of President focus on broadening personal ownership of capital asset formation simultaneously with financing the growth of the economy, instead of allowing the continued concentration of capital ownership. Hanger and these politicians now in representative office or seeking such should grasp this idea instantly, because, after all, their millionaire wealth is the result of their OWNING productive capital assets.

What they should really being doing, including Hanauer and his advocate friend Robert Reich and other academics, leading up to and in the 2016 presidential election year, is leading a national discussion on the topic of the importance of capital ownership and how we can expand the base of private capital ownership simultaneously with the creation of new physical capital formation, with the aim of building long-term financial security for all Americans through accumulating a viable capital estate.

Robert Reich On The One Percent’s Inequality Love Affair

Published on Mar 25, 2015

The WTH crew features an exclusive interview with former U.S. Secretary of Labor, Robert Reich, about the sources of mass wealth inequality in the United States, and what we can do to stop it.

While Robert Reich envisions a dire result as the technological revolution advances and less and less human labor is required to produce and distribute the products and services needed and wanted by society, with just a tiny few reaping ALL of the financial rewards, he poses the same old redistribution approach that results in socialism, instead of making EVERY citizen individually productive through their personal ownership stakes in the wealth-creating, income-producing capital assets resulting from technological invention and innovation. Rather than address the issue of concentrated ownership, as he alludes to in this article without ever using the therm OWNERSHIP, his ONLY solution is a redistribution of income and wealth from the rich owners of breakthrough technologies to the rest of us.

I wish Reich would use his communication talent to advocate for making EVERY person a productive contributor to societal development through their personal ownership stakes in the productive capacity of our future. This can be accomplished without the requirement of past savings or a reduction in wages (if one is employed) or benefits using insured, interest-free capital credit to finance technological invention and innovation with the credit extended paid off out of the future earnings generated by the investments. In this way, we can build a future economy to support general affluence for EVERY child, woman and man, while at the same time generating, over the short-term (say a generation), virtual full employment and simultaneously creating new private property sector capital owners, who will benefit from growing purchasing power and financial security, and not dependent on a job that is being replaced by “machines” or a welfare State of elites determining who gets what.

The problem is that technological invention and innovation––change––makes the non-human means of producing––tools, machines, structures, and computerized processes––ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). This means that fewer and fewer people are necessary to produce the products and services needed and wanted by society. But when a job is one’s ONLY way to be productive and earn an income and when jobs are disappearing and the worth of labor is being devalued, we have a problem.  The problem is magnified by the fact that upward of 95 percent of the products and services are produced by physical productive capital––the non-human factor––which is owned by less than 10 percent of the population and highly concentrated among less than 1 percent of the population. 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. 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, such as a proposed universal basic income.

The capitalism practiced today is what, for a long time, I have termed “Hoggism,” propelled by greed and the sheer love of power over others. “Hoggism” institutionalizes greed (creating concentrated capital ownership, monopolies, and special privileges). “Hoggism” 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 get 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, not to a hand-out derived from government coercion that takes from those who make productive contributions as workers and capital owners and gives to those who are unable to earn a minimum sustainable income.

Binary economist Louis Kelso postulated: “When consumer earning power is systematically acquired in the course of the normal operations of the economy by people who need and want more consumer goods and services, the production of goods and services should rise to unprecedented levels; the quality and craftsmanship of goods and services, freed of the corner-cutting imposed by the chronic shortage of consumer purchasing power, should return to their former high levels; competition should be brisk; and the purchasing power of money should remain stable year after year.”

Without this necessary balance hopeless poverty, social alienation, and economic breakdown will persist, even though the American economy is ripe with the physical, technical, managerial, and engineering prerequisites for improving the lives of the 99 percent majority. Why? Because there is a crippling organizational malfunction that prevents making full use of the technological prowess that we have developed. The system does not fully facilitate connecting the majority of citizens, who have unsatisfied needs and wants, to the productive capital assets enabling productive efficiency and economic growth.

America has tried the Republican “cut spending, cut taxes, and cut ‘entitlements,’ eliminate government dependency and shift to private individual responsibility” and the Democrat “protect ‘entitlements,’ provide tax-payer supported stimulus, lower middle and working class taxes, tax the rich and redistribute” through government brands of economic policy, as well as a mixture of both. Republican ideology aims to revive hard-nosed laissez-faire appeals to hard-core conservatives but ignores the relevancy of healing the economy and halting the steady disintegration of the middle class and working poor.

Some conservative thinkers have acknowledged the damaging results of a laissez-faire ideology, which furthers the concentration of productive capital ownership. They are floundering in search of alternative thinking as they acknowledge the negative economic and social realities resulting from greed capitalism. This acknowledgment encompasses the realization that the troubling economic and social trends (global capitalism, free-trade doctrine, tectonic shifts in the technologies of production and the steady off-loading of American manufacturing and jobs) caused by continued concentrated ownership of productive capital will threaten the stability of contemporary liberal democracies and dethrone democratic ideology as it is now understood.

Without a policy shift to broaden productive capital ownership simultaneously with economic growth, further development of technology and globalization will undermine the American middle class and make it impossible for more than a minority of citizens to achieve middle-class status.

We are absent a national discussion of where consumers earn the money to buy products and services and the nature of capital ownership, and instead argue about policies to redistribute income or not to redistribute income. If Americans do not demand that the contenders for the office of the presidency of the United States, the Senate, and the Congress address these issues, we will have wasted the opportunity to steer the American economy in a direction that will broaden affluence. We have adequate resources, adequate knowhow, and adequate manpower to produce general affluence, but we need as a society to properly and efficiently manage these resources while protecting and enhancing the environment so that our productive capital capability is sustainable and renewable. Such issues are the proper concern of government because of the human damage inflicted on our social fabric as well as to economic growth in which every citizen is fairly included in the American dream.

Our current system is rigged to continually concentrate the ownership of capital in the 1 to 5 percent of the population. The current system is presently propelled by greed in our society, which creates dire moral implications. A new system that would ensure equal opportunity for every child, woman, and man to acquire productive capital with the earnings of capital and broaden its ownership universally does not require people to be any better than they presently are, but it does enable our society to leverage both greed and generosity in a way that honestly recognizes and harnesses productive capital as the factor that exponentially produces the wealth in a technologically advanced society.

The resulting impact of our current approaches has been plutocratic government and concentration of capital ownership, which denies every citizen his or her pursuit of economic happiness (property). Market-sourced income (through concentrated capital ownership) has concentrated in individuals and families who will not recycle it back through the market as payment for consumer products and services. They already have most of what they want and need so they invest their excess in new productive power, making them richer and richer through greater capital ownership. This is the source of the distributional bottleneck that makes the private property, market economy ever more dysfunctional. The symptoms of dysfunction are capital ownership concentration and inadequate consumer demand, the effects of which translate into poverty and economic insecurity for the 99 percent majority of people who depend entirely on wages from their labor or welfare and cannot survive more than a week or two without a paycheck. The production side of the economy is under-nourished and hobbled as a result.

While Americans believe in political democracy, political democracy will not work without a property-based free market system of economic democracy. The system is the problem, but it can and must be overhauled. The two prerequisites are political power, which is the power to make, interpret, administer, and enforce laws, and economic power, the power to produce products and services, whether through labor power or productive capital.

Kelso wrote: “In the distribution of social power, whether it be political power or economic power, all things are relative. The essence of economic democracy lies in the elimination of differences of earning power resulting from denial of equality of economic opportunity, particularly equal access to capital credit. Differences of economic status resulting from differences in advantages taken and uses made of differences based on inequality of economic opportunity, particularly those that give access to capital credit to the already capitalized and deny it to the non- or -undercapitalized, are flagrant violations of the constitutional rights of citizens in a democracy.”

We need a recognition in America that we should deliberately begin to broaden the capital ownership base in a way that is consistent with the laws of property and the Constitutional safeguards of the rights of men and women to own property and be productive.

What needs to be adjusted is the opportunity to produce, not the redistribution of income after it is produced.

The government should acknowledge its obligation to make productive capital ownership economically purchasable by capital-less Americans using insured, interest-free capital credit, and, as Kelso stated, “substantially assume financial responsibility for the economy through establishing and supervising the implementation of an economic, labor and business policy of democratized economic power.” Historically, capital has been the primary engine of industrialization. But as used, as Kelso has argued, has, as well, “been the chief cause of the institutional deformities that have created and maintained two incompatible classes: the overcapitalized and the undercapitalized.”

We cannot balance the budget without cutting out coerced taxpayer-dependent redistribution of the earnings of capital workers, which if we did at this juncture would collapse the economy and ruin lives, resulting in social strife, personal suffering and degradation, the erosion of freedom, and ultimately anarchy, which will bring on totalitarian government. While welfare, private charity, boondoggle employment and other redistribution measures are now seen as necessary, they do not have to be sustained indefinitely. There are policies that can be adopted and executed to reverse the ultimate direction of collapse of the American market economy system. Such policies are based on the recognition that as the production of products and services changes from labor intensive to capital intensive, the way in which every human being––not just a few, but every person––earns his or her income must change in the same way. At the core of this quiet revolution is the understanding and commitment to broadening the ownership of productive capital.

We need new justice-committed leaders, especially those who want to end the corruption built into our exclusionary system of monopoly capitalism––the main source of corruption of any political system, democratic or otherwise. We need to advocate the need to radically overhaul the Federal tax system and monetary policies and institute proposals to get money power to the 99 percent of American citizens who now only rely on their labor worker earnings. Under the Just Third Way’s (http://foreconomicjustice.org/?p=5797) more just and simple tax system, access to ownership of the means of production in the future would by provided to every child, woman and man by requiring the government to lift all existing legal and institutional barriers to private property stakes as a fundamental human right. The system was made by people and can be changed by people. Guided by the right principles of economic justice, “we the people” can organize and demand that the system be reorganized to make true economic democracy the new foundation for true political democracy. The result of this movement of new justice-committed leaders leaders and activists will be inclusive prosperity, inclusive opportunity, and inclusive economic justice.

The proposed Capital Homestead Act would achieve this objective. Support the Capital Homestead Act at 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://cesj.org/learn/capital-homesteading/ and http://cesj.org/…/uploads/Free/capitalhomesteading-s.pdf.

 

Wage Plan Can’t Fix Poverty In L.A.

Dolores Huerta speaking at downtown L.A. rally

On March 25, 2015, Christopher Thornberg writes in the Los Angeles Times:

Confronting unyielding poverty rates and economic inequality, Los Angeles city and county political leaders are debating whether hiking the minimum wage is a good idea. My firm, Beacon Economics, analyzed the effects of a jump from the current $9 state minimum wage to $13.25 within the city by 2017 as proposed by Los Angeles Mayor Eric Garcetti.

Our report was underwritten by the Los Angeles Area Chamber of Commerce, which will certainly lead some to accuse us of acting as a mouthpiece for the profit-minded business community. But that’s not the case. Lifting families out of poverty ultimately helps everyone — including business owners. The focus of this debate should be on whether higher minimum wage is an efficient way of achieving this laudable goal.

It is true that many of the working poor here have low-paying jobs. But this does not by extension mean that all workers earning less than $13.25 an hour are among the city’s or county’s poorest households. In fact, half of such workers live in households where total earnings are above $55,000 per year — the county’s median income. They may be teenagers working part-time jobs, or servers or salespeople who earn much more in commissions or tips.

A citywide minimum wage isn’t targeted well enough to have much of an effect. Many working poor Angelenos hold jobs outside the city limits, and they wouldn’t see any benefits from a higher minimum wage. Similarly, half of those who would get a wage hike don’t live within the city of Los Angeles. While the latter are indeed among the working poor, helping them should be the purview of their local government, not L.A.’s.

How does this all add up? Under the city’s current proposal, less than one dollar out of every four would end up in low-income households in the city of Los Angeles. No matter how you look at it, that’s a low rate of return.

That might not matter if the economic costs were small. But they aren’t. Food service firms will see their base costs rise 8% to 12% as a portion of total revenues, as will social assistance firms (5% to 7%) and retail operations (3% to 5%). These firms will have no choice but to raise prices and reduce the size of their workforce to stay in business.

These problems are magnified because local businesses will have competitors in cities not subject to the new minimum wage. More than one-third of businesses in Los Angeles are within two miles of the city’s border. Companies considering opening or expanding business in the region will, over time, settle where labor costs are lower.

If other parts of the county also raised their minimum wage, that might mitigate a portion of the damage. But unincorporated areas of Los Angeles County and a handful of cities still represent only a small fraction of the broader regional economy.

Our model doesn’t suggest that, on net, Los Angeles will lose jobs if the minimum wage goes up, but rather that job growth here will take a substantial hit. That would be a blow to a region still trying to climb out of the fiscal hole formed during the Great Recession.

Other researchers looking at the mayor’s proposal suggest that somehow a minimum wage increase will grow the Los Angeles economy. This flies in the face of logic. At its core, an increase in the minimum wage is a transfer of wealth from one group (employers and their customers) to another (workers with hourly pay below a certain level). Such transfers may be fair, even socially desirable, but they do not increase the size of the economic pie. When it comes to raising the minimum wage, economists debate the magnitude of the negative impact, but there is no generally accepted literature suggesting such moves ever measurably increase economic activity.

Los Angeles’ working poor do need help, and our political leaders should explore ways to assist them directly and alleviate poverty. But the current minimum wage proposal won’t accomplish that. The benefits are far too diffuse and the costs to economic growth are far too high.

http://www.latimes.com/opinion/op-ed/la-oe-0325-thornberg-minimum-wage-20150325-story.html

What we, as a society, need is to look at the economic inequality problem from a different perspective. That perspective includes the realization that the purpose of a for-profit business corporation is to “maximize profit” by striving to keep labor input and other costs at a minimum in order to maximize profits for the owners or to stay competitive. They strive to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.

The result is that the price of products and services are extremely competitive as consumers will always seek the lowest cost/quality/performance alternative, and thus for-profit companies are constantly competing with each other (on a local, national and global scale) for attracting “customers with money” to purchase their products or services.

But seeking the lowest labor cost results in millions of people who, dependent solely on their wage incomes, suffering financially because they can not earn more than the competitive rate of wages, and struggling to avoid falling into poverty conditions. As a result we have a problem because the vast majority of the population are wage slaves because they have no other means to earn income.

While the role of business corporations is to efficiently produce products and services, which produces wealth and thus income to those who own the corporations, business corporations should also act justly and serve and enhance the community well-being. This should be a proper function of government regulation to ensure that corporations do not disregard the health and welfare of the people and their communities. This then is the moral basis upon which a minimum wage boost is advocated.

The problem that advocates for solutions to economic inequality have is that their mind-set is limited by ONLY thinking in terms of human productive input––as in labor’s contribution––while failing to understand that fundamentally, economic value is created through human and non-human contributions. Those who OWN business corporations know that the productive capital factor input represents upward of 98 percent of the total contributions. In concentrated capital ownership terms, roughly 1 percent own 50 percent of the corporate wealth with 10 percent owning 90 percent. This leaves 90 percent of the people scrambling for the last 10 percent, with them dependent ONLY on their labor worker wages to purchase capital assets. Thus, we have the great bulk of the people providing a mere 10 percent or less of the productive input. Contrast that to the less than 5 percent who own all the productive capital providing 90 percent or more of the productive input, and who initiate and oversee most of the technological advances that replace labor work with capital work.

As a result, the trend has been to diminish the importance of employment with productive capital ownership concentrating faster than ever, while technological change makes physical capital ever more productive. Corporate decision makers know this, whether in the United States or China, or anywhere organized assemblies of people engage in production. Technology is an easier and faster way to get a job done. Because technology increases the profitability of companies throughout the world, technology always has the advantage over human labor when the costs of them are the same. But because this is not well understood, what we as a society have been doing is to continually shift the work burden from people labor to real physical capital while distributing the earning capacity of physical capital’s work (via capital ownership of stock in corporations) to non-owners through make-work job creation, minimum wage requirements, and welfare programs. Such policies do not function effectively.

Boosting the minimum wage will result in either increasing prices, reducing job opportunities, or replacing labor completely with “machines,” which are becoming more and more sophisticated every day. While there is no question that people need a livable income, and the greater the more financial secure and affluent one can be, but to put the focus entirely on boosting the minimum wage is not the solution we should be seeking.

The REAL solution is to lift all legal barriers to universal capital ownership access by every child, woman, and man as a fundamental right of citizenship and the basis of personal liberty and empowerment. The goal should be to enable every child, woman, and man to become an owner of ever-advancing labor-displacing technologies, new and sustainable energy systems, new rentable space, new enterprises, new infrastructure assets, and productive land and natural resources as a growing and independent source of their future incomes. This would enable our business corporations 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. This can be achieved with any reduction in wages or benefits.

The thinking of those advocating ONLY a boost in the minimum wage is the result of being stuck in one-factor thinking––that is, the labor worker. While they often tiptoe around an understanding the relationship between economic inequality and concentrated ownership of productive capital asset wealth, they remain, at least publicly, oblivious to the most powerful and increasingly productive factor––non-human physical capital (the land, structures, tools, machines and robotics, computerization, etc.) that is responsible for 90 percent of the production of the products and services needed and wanted by society. Their focus should be on broadening personal ownership of capital asset formation simultaneously with financing the growth of the economy, instead of just talking about the continued concentration of capital ownership and the dire consequences for labor workers or the limited financial good that a minimum wage boost would create.

We desperately need a national discussion on the topic of the importance of capital ownership and how we can expand the base of private capital ownership simultaneously with the creation of new physical capital formation, with the aim of building long-term financial security for all Americans through accumulating a viable capital estate.

This is the approach necessary for business corporations to best serve their constituencies — customers, owners, and employees — instead of just constantly concentrating more wealth ownership among a tiny minority.

 

Bernie Sanders Stands Up For The Middle Class By Dropping A Huge Fact Bomb On The Senate

On March 26, 2015, Jason Easley writes on Politicus USA:

Bernie Sanders minimum wage

In the midst of a Senate budget vote-a-rama that Republicans are filling with anti-Obamacare and economy killing votes, Senator Bernie Sanders took the Senate floor and dropped the fact bomb that raising the minimum wage is real job creator.

Sen. Sanders said, “The simple truth is that in America people working full time should not be living in poverty. Since 1968, the real value of the federal minimum wage has fallen by close to thirty percent, and people all over this country and in state after state on their own have voted to raise the minimum wage. And, by the way, in state after state where the minimum wage has gone up, more jobs have been created. Let us stand today with the tens of millions of workers who are struggling to put food on the table to take care of their families.”

The Sanders amendment to raise the federal minimum wage failed to pass 48-52. The good news for Democrats and the left is that Sen. Sanders fell just three votes short of passage as just a simple majority of fifty-one votes are required to pass budget amendments.

Labor Department data for the first six months of 2014 revealed that the 13 states that raised their minimum wage created more jobs than the 37 that didn’t, “In the 13 states that boosted their minimums at the beginning of the year, the number of jobs grew an average of 0.85% from January through June. The average for the other 37 states was 0.61%.”

There are decades worth of data and studies that confirm what Sen. Sanders was saying. The Republican opposition to raising the minimum wage is ideological. The anti-minimum wage position lacks credible non-partisan statistics and data to support its claims. Republicans hang their opposition on a myth that raising the minimum wage kills jobs, but 64 studies have proven that the Republican talking point to be false.

Sen. Sanders dropped a dose of reality on Senate Republicans today. If the 52 Republican Senators who voted no really wanted to boost the economy, the first thing they should do is reverse course and support raising the minimum wage.

http://www.politicususa.com/2015/03/26/bernie-sanders-stands-middle-class-dropping-huge-fact-bomb-senate.html

Senator Bernie Sanders needs to look at the economic inequality problem from a different perspective. That perspective includes the realization that the purpose of a for-profit business corporation is to “maximize profit” by striving to keep labor input and other costs at a minimum in order to maximize profits for the owners or to stay competitive. They strive to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.

The result is that the price of products and services are extremely competitive as consumers will always seek the lowest cost/quality/performance alternative, and thus for-profit companies are constantly competing with each other (on a local, national and global scale) for attracting “customers with money” to purchase their products or services.

But seeking the lowest labor cost results in millions of people who, dependent solely on their wage incomes, suffering financially because they can not earn more than the competitive rate of wages, and struggling to avoid falling into poverty conditions. As a result we have a problem because the vast majority of the population are wage slaves because they have no other means to earn income.

While the role of business corporations is to efficiently produce products and services, which produces wealth and thus income to those who own the corporations, business corporations should also act justly and serve and enhance the community well-being. This should be a proper function of government regulation to ensure that corporations do not disregard the health and welfare of the people and their communities. This then is the moral basis upon which a minimum wage boost is advocated.

The problem that Sanders and others have advocating for solutions to economic inequality is that their mind-set is limited by ONLY thinking in terms of human productive input––as in labor’s contribution––while failing to understand that fundamentally, economic value is created through human and non-human contributions. Those who OWN business corporations know that the productive capital factor input represents upward of 98 percent of the total contributions. In concentrated capital ownership terms, roughly 1 percent own 50 percent of the corporate wealth with 10 percent owning 90 percent. This leaves 90 percent of the people scrambling for the last 10 percent, with them dependent ONLY on their labor worker wages to purchase capital assets. Thus, we have the great bulk of the people providing a mere 10 percent or less of the productive input. Contrast that to the less than 5 percent who own all the productive capital providing 90 percent or more of the productive input, and who initiate and oversee most of the technological advances that replace labor work with capital work.

As a result, the trend has been to diminish the importance of employment with productive capital ownership concentrating faster than ever, while technological change makes physical capital ever more productive. Corporate decision makers know this, whether in the United States or China, or anywhere organized assemblies of people engage in production. Technology is an easier and faster way to get a job done. Because technology increases the profitability of companies throughout the world, technology always has the advantage over human labor when the costs of them are the same. But because this is not well understood, what we as a society have been doing is to continually shift the work burden from people labor to real physical capital while distributing the earning capacity of physical capital’s work (via capital ownership of stock in corporations) to non-owners through make-work job creation, minimum wage requirements, and welfare programs. Such policies do not function effectively.

Boosting the minimum wage will result in either increasing consumer prices, reducing job opportunities, or replacing labor completely with “machines,” which are becoming more and more sophisticated every day.  While there is no question that ALL people need a livable income, and the greater the income the more financially secure and affluent one can be, but to put the focus entirely on the government boosting the minimum wage is not the solution we should be seeking.

The REAL solution is to lift all legal barriers to universal capital ownership access by every child, woman, and man as a fundamental right of citizenship and the basis of personal liberty and empowerment. The goal should be to enable every child, woman, and man to become an owner of ever-advancing labor-displacing technologies, new and sustainable energy systems, new rentable space, new enterprises, new infrastructure assets, and productive land and natural resources as a growing and independent source of their future incomes. This would enable our business corporations 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. This can be achieved without any reduction in wages or benefits.

Sander’s thinking is the result of being stuck, as is the entire playing field of advocates for change, in one-factor thinking––that is, the labor worker. While he tiptoes around an understanding with previous statements that tie economic inequality to concentrated ownership of productive capital asset wealth, he remains, at least publicly, oblivious to the most powerful and increasingly productive factor––non-human physical capital (the land, structures, tools, machines and robotics, computerization, etc.) that is responsible for 90 percent of the production of the products and services needed and wanted by society. Sanders focus should be on broadening personal ownership of capital asset formation simultaneously with financing the growth of the economy, instead of just talking about the continued concentration of capital ownership and the dire consequences for labor workers or the limited financial good that a minimum wage boost would create.

What Sanders should really being doing, this year and in the upcoming  2016 presidential election year, if he REALLY wants to get traction and national media attention and reduce EVERY OTHER politician to shame, is leading a national discussion on the topic of the importance of capital ownership and how we can expand the base of private capital ownership simultaneously with the creation of new physical capital formation, with the aim of building long-term financial security for all Americans through accumulating a viable capital estate.

This is the approach necessary for business corporations to best serve their constituencies — customers, owners, and employees — instead of just constantly concentrating more wealth ownership among a tiny minority.

Meet The 26-Year-Old Who’s Taking On Thomas Piketty’s Ominous Warnings About Inequality


French economist and academic Thomas Piketty. REUTERS/Charles Platiau

On March 19, 2015, Jim Tankersley writes in The Washington Post:

It was 2:45 a.m. on a Thursday last April. Matthew Rognlie was still awake, like a lot of graduate students. He had just finished typing 459 words and a few equations. They totaled six paragraphs, which he posted to the comments section of a popular economics blog.

Thus begins the unlikely story of, arguably, the most-influential critique of the most influential economics book of this century.

Rognlie’s comment on the blog Marginal Revolution was a response to the provocative argument laid out by the French economist Thomas Piketty in his bestselling book on wealth inequality, “Capital in the Twenty-First Century.”

Piketty had worried in his book that wealth inequality could soon explode at such a velocity that it would continue to widen essentially on autopilot. Wealthy people would accumulate more capital in the form of stocks, real estate and other assets, would continue to earn high returns on them, and then would have more capital to invest. As more and more money became concentrated among the wealthy, less and less would be available to workers. The book turned Piketty into an international celebrity.

Rognlie, however, wrote in his blog post that the French economist’s argument “misses a subtle but absolutely crucial point.” Piketty, he said, might have got the pattern in reverse. Instead of the returns to capital increasing in perpetuity, Rognlie said, they might be poised to decline.

With that quick post, Rognlie was challenging the most politically earthshaking prediction about inequality and the economy in recent memory.

The comment blossomed into a near-unprecedented career opportunity for a student who just recently turned 26 years old, and who remains a year away from earning his doctoral degree. It will culminate on Friday morning at the Brookings Institution in Washington, where Rognlie will present a research paper before an often-cutthroat audience of all-star economists, including a Nobel Prize winner, Robert Solow, who will critique Rognlie’s analysis.

Organizers say it will almost certainly be the first paper at the prestigious Brookings Papers on Economic Activity that was commissioned based on a blog comment. It is also a rare honor for a graduate student to present a sole-authored paper there; a quick scan of Brookings records shows a similar appearance by the now-renowned economist Jeffrey Sachs when he was a doctoral student in 1979.

“It’s made Matt famous,” said Tyler Cowen, the George Mason University economist who runs the Marginal Revolution blog, and who elevated Rognlie’s comment into a standalone post on his site. “It was brilliantly reasoned and right on target. And very elegant.”

There are two concepts at the heart of Rognlie’s Brookings paper.

One is that Piketty drew too broad a conclusion about the nature of capital in this era than he should have based on the evidence. Piketty assumed that the returns to capital were increasing across the economy. Rognlie found the trend to be almost entirely isolated to the housing sector.

Yes, some investments with a high level of intellectual property, like computer software, had become extremely valuable in the hands of the wealthy. But some of those assets were unlikely to remain valuable for very long, like a software program that needs to be replaced in a few years with a new version. When adjusting for that depreciation, most of the rest of the increase in capital came in housing, a single sector that, while important, might not shape the entire future of inequality as Piketty assumed.

The second  finding was that Piketty probably overestimated how high the returns to capital would be in the future. For his fears to come true, wealthy people who amass more and more capital would need to keep earning a high return on that capital. But, Rognlie’s research suggests, the returns to capital will decline over time unless it is very easy for the economy to substitute capital (like robots) for labor (workers) – far easier, in fact, than historical evidence suggests is normal. Thus, if history is a guide, the wealth-inequality autopilot will slow itself down over time.

“Piketty’s story has multiple steps to it. I’m sort of showing that one of the steps does the reverse of what he says it does,” Rognlie said in an interview. Those findings, he added, suggest “there doesn’t seem to be a big need for panic” over Piketty’s predictions.

Rognlie grew up in West Linn, Ore., a Portland suburb, the son of a librarian and a data analyst for an insurance company. He was drawn to economics at a young age, because it unified his interests: math and computer science and public policy. He earned a full academic scholarship to Duke, blemished his grade-point average with exactly one A-minus, and chose M.I.T.’s economics doctoral program, one of the country’s most prestigious.

For a while Rognlie kept his own economics blog; his last entry, from 2011, argued that professional sports teams and then-Texas Gov. Rick Perry “use the same shady economic methodology to promote their policies.” In recent years, he focused more on class and research, and he occasionally left comments on popular econ blogs. He was one of the first Americans to see Piketty’s Capital before it took the wonk world by storm. His officemate, a native of France, had a French-language copy before the book was translated into English.

Rognlie had just finished reading the English version of the book last year when he read a Marginal Revolution post about economist (and New York Times columnist) Paul Krugman’s review of Piketty. The labor-capital substitution problem was nagging at him. He posted his comment on Cowen’s blog.

After Cowen elevated the comment, other economists began to write about it. Rognlie soon spun this thoughts into a 23-page paper posted on his student website.

Justin Wolfers, the University of Michigan economist who co-chairs the Brookings confab, said Rognlie’s critique was “easily the clearest” one of Piketty that he had read. “As I read the paper,” he said, “I found myself learning about stuff that I should have known.”

Wolfers asked Rognlie to broaden his research even more and present it at Brookings. All of the BPEA papers are critiqued by a roomful of economists, starting with a discussant chosen by the chairmen. Rognlie’s discussant will be Solow, a Nobelist who teaches at M.I.T.

Piketty won’t be there, but he and Rognlie have debated over email. Responding to a reporter’s questions this week, Piketty said “there is some misunderstanding” about his book and Rognlie’s critique of it. He said he never predicted inequality would “rise forever” — only that it could reach “higher levels than what we have today, and that this is sufficiently important to be concerned.”

He also said Rognlie could be underestimating the ease of substitutions, because technology is making it easier for companies to switch from workers to machines. (As an example, he cited drones potentially replacing delivery workers at Amazon.)

Rognlie was about to fly to Washington when a reporter sent him Piketty’s response. He wrote back, saying Piketty was more or less missing the broader point. To justify predictions of growing inequality, even caveated ones, he said, you need to show a “concrete argument” that it will be far easier in the future than it has been in the past to swap out capital and labor. Piketty, he said, had not done that.

The full e-mail was wonky and dense. It summed to about 1,800 words — or about four blog comments.

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/03/19/meet-the-26-year-old-whos-taking-on-thomas-pikettys-ominous-warnings-about-inequality/

http://www.brookings.edu/about/projects/bpea/papers/2015/land-prices-evolution-capitals-share

https://medium.com/the-ferenstein-wire/a-26-year-old-mit-graduate-is-turning-heads-over-his-theory-that-income-inequality-is-actually-2a3b423e0c

Matthew Rognlie is attacking the idea that rich capitalists have an unfair ability to turn their current wealth into a lazy dynasty of self-reinforcing investments. This theory, made famous by French economist Thomas Piketty, argues that wealth is concentrating in the 1% because more money can be made by investing in machines and land (capital) than paying people to perform work (wages). Because capital is worth more than wages, those with an advantage to invest now in capital become the source of long-term dynasties of wealth and inequality.

Rognlie’s rebuttal to Piketty is that “recent trends in both capital wealth and income are driven almost entirely by housing.” Software, robots, and other modern investments all depreciate in price as fast as the iPod. Technology doesn’t hold value like it used to, so it’s misleading to believe that investments in capital now will give rich folks a long-term advantage.

Land/housing is really one of the only investments that give wealthy people a long-term leg up. According to the Economist, this changes how we should rethink policy related to income inequality.

Rognlie does not address the fact that a house is for consumption and that any increase in value is only realized when one sells the house or uses the equity value to borrow against as a form of savings to pledge as security, when borrowing to purchase products or services for consumption or for a capital asset investment. Capital acquisition, on the other hand, takes place on the logic of self-financing and asset-backed credit for productive uses. People invest in capital ownership on the basis that the investment will pay for itself. The basis for the commitment of loan guarantees, that I advocate, is the fact that nobody who knows what he or she is doing buys a physical capital asset or an interest in one unless he or she is first assured, on the basis of the best advice one can get, that the asset in operation will pay for itself within a reasonable period of time––5 to 7 or, in a worst case scenario, 10 years (given the current depressive state of the economy). And after it pays for itself within a reasonable capital cost recovery period, it is expected to go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.

Piketty is correct in his assessment that the role of physical productive capital is to do ever more of the work, which produces wealth and thus income to those who own productive capital assets.

But unlike Piketty’s call for a global wealth tax and redistribution, his and Rognlie’s reasoning is faulty as to the solutions. The reasoning should be that if productive capital is increasingly the source of the world’s economic growth, therefore, productive capital should become the source of added property ownership incomes for all. If both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then 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.

 

Profits Are People

Wall-St-bull

On March 22, 2015, Fred E. Foldvary writes on Progress.org:

Some people who fancy themselves to be “progressive” or “liberal” have a slogan, “people over profits.” Some organizations proclaim that they are serving people rather than seeking profits. The implication is that there is something bad about “profits,” or that there are profits at the expense of people.

Profit is revenues minus cost. From an economic perspective, profit is net of all costs, explicit and implicit. Costs include normal returns on assets and the normal wages of the self-employed. Therefore, in the long run, after competitors have entered or left the industry to avoid losses or seek gains above normal, a competitive company makes zero economic profits. It remains in business because it is covering its costs, including normal yields on its investments.

If a company is making an economic profit, the firm has gains beyond costs. Is that bad for society? The eternal economist answer is, “it depends.”

Profits come from several sources. Entrepreneurial profits are the gains from innovation, such as new products, better marketing, and improved reputation. Usually, entrepreneurial profits are temporary, as competitors copy the innovation, the price drops, and the economic profit is gone. Entrepreneurial profits are good for society, for they promote improvements and efficiency.

If a company has losses, that implies that it is not successful in meeting the desires of the customers, and market dynamics make such firms leave the industry. Profits indicate good management and entrepreneurship, and losses indicate errors in judgment, or changed conditions the firm cannot successfully respond to.

Another source of profit is monopoly. Profits from government-created monopolies, such as from patents and copyrights, can be good if they stimulate art and inventions, and bad if they offer excessive protection. Those opposed to profits from intellectual property rights should focus their opposition to the government that protects the monopoly profits.

Natural monopolies such as utilities, having high fixed costs and low variable costs, are usually regulated, and opposition to those profits should be addressed to the regulators.

The view that profits are bad sometimes is due to the thought that the “profit” is gained through fraud, such as with false advertising or the lack of disclosure of bad effects. But the concept of the market presumes ethical competition, not theft, so the gains from fraud and deception are not really profit in the economic sense, but loot from theft.

Another source of profit antagonism is the thought that the firm is profiting by exploiting their workers. If the firm is using slave labor or forced labor, the gains are again not really profit, but the theft of the labor of the workers. If the labor is voluntary and the firm is paying the prevailing wages, then the low wages are the fault of the economy, not the firm, because the workers are employed there due to worse opportunities elsewhere. Protesters should direct their opposition to the government which has stifled economic growth and development.

Genuine profits are people. People earn the profits and make the profit by serving customers, investors, and society. Profit-seeking is the source of growth and innovation.

Just as theft is not genuine profit, neither are gains from subsidies. If the government gives millions of dollars to a corporate farm, or protects the company from foreign competition, the gains do not come from the non-existing free market, but from governmental favors. Government is stealing funds from taxpayers and giving them to the special interests. Protesters should focus their opposition on the subsidies, because one cannot really blame a dog from biting and swallowing a piece of red meat dangled by its nose.

Some subsidies are provided indirectly and implicitly. Such is the case with gains from higher rent and land value. The public goods provided by government – streets, highways, schools, security, transit, and parks – generate higher rent. If the land holders pay only a small part of the cost, then they are receiving gains – rent and land value- that appear to be profit, but are actually subsidies. Those opposed to such subsidies should direct their protests to the government, because one cannot blame real estate speculators and owners for playing by the rules.

We can see that much of what is called “profit” is really theft, subsidies, and government-protected gains. Much of the negative attitude about profit is misplaced, for when business is taking advantage of subsidies, it is government that is allowing this theft from the public. If companies profit from low wages, they are providing better opportunities, and the fault is with the economic policy that keeps wages so low. Genuine profits from business and entrepreneurship is a social good, so those who sneer at profits should redirect their derision to the real culprit – defective government economic policy.

http://www.progress.org/views/editorials/profits-are-people/