To My Fellow Plutocrats: You Can Cure Trumpism

On July 18, 2017, Nick Hanauer writes on Politico:

Since Election Day, I’ve been overwhelmed by anguished calls, emails and conversations from you, my wealthy friends, who, for the first time, are confronting the real possibility that our cozy utopian, urban, pluralistic lifestyles may be in peril. I share your fear. And with good reason.

Three years ago, in these pages, I warned you that the pitchforks were coming. I argued that 30 years of rising and accelerating inequality would inevitably lead to some sort of populist revolt that would disrupt the fantastic lives we elites enjoy. I cautioned that any society which allows itself to become radically and indefensibly unequal eventually faces either an uprising or a police state—or both.

And here we are.

Our new president was swept into power through exactly the kind of populist anger I predicted. He was an historically terrible candidate, and his behavior and actions as President have confirmed my worst fears. There is a thuggish, violent undercurrent to everything he says, tweets and does. Even scarier, his supporters relentlessly attack our democratic norms and institutions. The free press (and reality itself) is under assault. But given the stunningly insufficient way in which Hillary Clinton spoke to the economic and status concerns of so many voters, it shouldn’t have surprised us that Trump won. People are hurting, and they lashed out—by voting for the guy who was lashing out too.

Don’t say I didn’t warn you. And don’t console yourself for a minute that in electing a fellow plutocrat, our side won. President Trump isn’t on any side but his own. And his strategy to make America great again by bringing back an old industrial economy that no longer exists is as substantive as his early morning tweets about Cable news hosts. After his trickle-down policies—like ripping away heath care from tens of millions of Americans so plutocrats like us can get giant tax cuts, or just enacting giant tax cuts for us, and calling it tax reform—inevitably exacerbate the already extreme inequality that helped sweep him into office, those pitchforks will be angrier than ever.

My own ideas about the effect of inequality on social instability align with the work of social scientist Peter Turchin. He and his collaborators use mathematical models to study the rise and fall of societies—an analysisthat postulates a new American civil war arriving as soon as 2021 (and in a highly-armed nation already suffering from an epidemic of gun violence, he doesn’t mean “civil war” metaphorically). For the first time in history, polls show that most Democrats and Republicans identify Americans from the opposing party as the biggest threat to our country. So yes—if you have a deep sense that something is very wrong with our nation, you are almost certainly correct.

Yet, I find myself in deep disagreement with almost everyone I talk to about Trump and Trumpism. I firmly believe that Trump, by himself, is not the problem. Indeed, the left’s maniacal focus on Trump confuses cause with effect. Yes, Trump is a manifestation of a serious civic sickness. But treating the symptom by removing Trump won’t cure the disease, even if it temporarily makes us feel better. No, to heal the body politic we must confront the disease itself.

The real threat to our republic is an alarming breakdown in social cohesion, and the cause of this breakdown is obvious: radical, rising economic inequality, and the anger and anxiety it engenders. The truth is that over the span of decades, American lawmakers (at the behest of economic elites like us!) have enacted policies that have depressed wages, stoked economic insecurity and exacerbated cultural angst and social dislocation. At the same time, a tiny minority of mostly urban elite (again, us!) have benefitted obscenely from our growing economic, political and legal power.

Our lives of ostentatious luxury might be forgiven if all boats were rising as fast as our 200-foot yachts. But they’re not. In fact, as we few continue to capture the benefits of almost all of our nation’s economic growth via a trillion dollar a year transfer of wealth from wages to profits, millions of American families are sinking out of the middle class. It is this winner-take-all economy, and the indefensible and obvious injustice it represents, that creates the justifiable anger that threatens our civility, our national cohesion and our democracy itself. A century ago, as communism and fascism threatened to overrun Europe, our nation struck a grand bargain: We plutocrats would continue to be tolerated—even celebrated—as long as broadly rising incomes meant that each new generation of Americans continued to do better than the last. But through the policies we championed in the corridors of power and through the longstanding social norms we violated in the corporate boardroom, we broke our end of that bargain. And now the pitchforks are coming for us, my friends, from both the right and the left.

I believe that we in the American political and economic elite face an extraordinarily inconvenient but undeniable truth: Our country will not get better until our fellow citizens feel better; and they will not feel better until they actually do better. And this is the hard part for many of you: The American people will not do better until they are actually paid more.

And they won’t be paid more until we change the way we manage our economy. This is the stark, simple fact at the heart of our ailing political system. Nothing is going to get better until we enact laws and standards that persuade or oblige every business to pay every worker a fair, dignified and livable wage. Everything else, from Trump on down, is a distraction or a lie.

***

Yet, when I make this case to my wealthy friends, even the progressive ones, the reaction is almost universal: You look down at your shoes, or start talking about “messaging” or “narrative”—or charter schools. When I urge you to focus your energy and resources on the kinds of direct action that can actually make a real difference to working people—like, for instance, a state or city minimum wage campaign—you roll your eyes, or prevaricate. You insist that the only way to fight Trumpism is to fight Trump. But you couldn’t be more wrong. The only effective way to fight Trumpism is to address its cause by ensuring that the middle and working class do better.

Trumpism poses a threat to all Americans, but to the superrich most of all—because we have the most to lose. Sure, estate tax repeal might at first sound like win, but permanently creating a class of entitled aristocrats out of our own kids isn’t likely to improve our democracy, Meantime, if you aren’t already planning to give away the bulk of your fortune, you’re kind of a selfish jerk. That’s why, as counterintuitive as it might sound, the single best way to advance our own interests is to put more energy and money into advancing the economic interests of others. For example: by fighting to pass a $15 an hour minimum wage.

$15? Crazy. I know.

“That’s impossible,” one retail executive told me, “you can’t pay people that much.”

“A $15 minimum wage is a job-killer,” sputtered the CEO of a large restaurant chain.

“That will destroy the economy,” a manufacturing executive tut-tutted.

Bullshit. It simply isn’t true that reasonable wages, decent labor protections and higher taxes on the rich would destroy the economy. Such were the norms back in the 1950s and 1960s when America’s growth rates were much higher—and there’s no empirical evidence to suggest that we couldn’t support similar norms today. The truth is that when economic elites like us say “We can’t afford to adopt these higher standards,” what we really mean is, “We’d prefer not to.” We like to frame our claims as objective truths, like the so-called “law” of supply and demand, but what we’re really asserting is a moral preference. We are simply defending the status quo.

In my circles, few seem to want to confront the reality that our political environment won’t improve until the actual economic circumstances of our fellow Americans improve. We rich folks crave the variety and stimulation of progressive blue cities, yet we’re often not willing to fight for basic progressive policies like higher wages and the right to organize. We pound the table, ranting about diversity and inclusion without recognizing that the 43.7 percent of Americans earning less than $15 an hour, mostly white and rural, simply cannot afford to be included in our pricey, progressive, pluralistic enclaves. We smugly #resist when an airline beats a passenger bloody, but we do so from the safety and comfort of our own private planes, literally looking down on the shuttered factories and struggling small towns of middle America as we luxuriously jet from coast to coast.

Today in America, tens of millions of lower- and middle-class workers are routinely subject to poverty wagesunpaid overtimewage theftdehumanizing scheduling practices and the constant threat of automation or off-shoring. But the plight of these workers rarely comes up in conversations with my peers. Maybe the problem isn’t sexy enough. Maybe it seems too big. Maybe it requires the uncomfortable admission that some of our outsized profits are coming at their expense. But whatever the reason, we’ve let the problem grow too large to ignore.

Many of my peers prefer to hide behind the enduring myth that today’s crisis of economic inequality and insecurity is the result of forces unleashed by unstoppable trends in technology and globalization. “It’s not my fault I have so much while others have so little,” we comfort ourselves, “it’s the economy.” That is nonsense. There’s no intrinsic reason why the social and political changes delivered by technological advances and globalization have to massively concentrate wealth in the hands of the few. We simply exploited changing circumstances to take advantage of people with less power than us.

Over the last 40 years, corporate profits as a percentage of GDP have increased from about six percent to about 11 percent, while wages as a percentage of GDP have fallen by about the same amount. That represents about a trillion dollars a year that used to go to wages, but now goes to shareholders and executives. One trick we use to keep profits high and labor costs low is to refuse to schedule workers for the 30-plus hours a week they would need to qualify for benefits. Today, an astonishing 6.4 million involuntary part-time workers are denied the full-time work they seek in order to keep our profit margins high. You can call that “the market” or you can call that “stealing,” but from the point of view of a disgruntled worker it amounts to the same thing. How could they not be angry?

Another elite excuse for inequality is “education.” If everyone had a Harvard MBA, the argument goes, then we’d all be fine. Don’t get me wrong; the better educated our citizens, the better off we all will be. But someone is still going to need to clean the hotel rooms, flip the burgers, pour the coffee, assemble the cars, cut the hair, etc. But if that job doesn’t provide a decent and dignified life, then we have made little collective progress. And while it’s true that college graduates earn more on average than those without college degrees, wages for young college graduates have stagnated since 2000, with wages for young female graduates falling 6.8 percent. Churning out more college graduates can’t close the inequality gap if wages are stagnating or falling across the board.

***

In 2014, when I last checked in with you all, my home city of Seattle had just passed a $15 minimum wage ordinance. The derision thrown my way for supporting this initiative was predictable. Pundits from the Chamber of Commerce, Forbes and AEI went crazy. “Job killer” they screamed. When wages rise, they said, employment plummets. Seattle we were told, would slide into the ocean. Restaurant closures. Epic job losses. Poverty. Economic Armageddon!

Over the last three years we have implemented the policy in stages. Today, all large employers—those with more than 500 workers on their payroll—pay their workers $15 an hour (or $13.50 for those that provide medical benefits). Small employers pay between $11 and $13. Let me remind you that this minimum wage includes tipped workers, who now earn a remarkable 700 percent more than the federal tipped minimum of $2.13—as stark an experiment in whether higher wages kills jobs as has ever been attempted. So how is Seattle doing?

When the ordinance passed in June of 2014, Seattle’s unemployment rate already stood at a healthy 4.5 percent; in April 2017, it hit a record low of 2.6 percent (basically a labor shortage). Seattle is now the fastest growing big city in America. Our restaurant industry is booming, second only to San Francisco in the number of eateries per capita, with food service industry job growth far outpacing the nation. Restaurateurs who once warned against raising wages are now complaining about how hard it is to fill the positions they have. Around the corner from my office, the sandwich chain Jimmy Johns is paying drivers $20 an hour plus tips, well above the mandated minimum rate. Are there many factors at play? Of course. But our city has proven that raising wages does not automatically kill jobs. In fact, of the 10 largest counties in the nation, King County, Washington had the largest year over year job growth in 2016 (3.8 percent), and was the only one of the 10 counties to see over-the-year growth in wages (3.5 percent).

How can this be? Because that is how capitalism works. Because when workers earn more money, businesses have more customers and hire more workers. Because a thriving middle class is the source and cause of growth in capitalist economies. Because when restaurants pay restaurant workers enough so that even they can afford to eat in restaurants, it’s great for restaurants!

But old economic prejudices die hard. A new working paper from researchers at the University of Washington recently generated gloating headlines from conservative news outlets eager to confirm their “job killer” mantra, whatever the self-evident reality is on the ground. The UW researchers analyzed payroll data at single-location employers—mostly small businesses held to the slower implementation schedule ($10.50 to $12.00 in 2016)—concluding that low-wage workers are actually worse off than workers in a hypothetical “Synthetic Seattle” where the minimum wage was never increased. But it’s hard to take these findings seriously. The UW researchers report a 30-percent decline in low-wage employment for every 10 percent increase in the minimum wage—a finding 10 times higher than the average reported in 942 published studies. It’s an extreme outlier that raises serious questions about the limitations of the UW team’s data and methodology.

For example, by studying only single location employers, the UW study excludes 48 percent of Seattle’s low-wage workers, while introducing an unavoidable bias into the results: When a worker moves from a single location employer to a multiple location employer (where the minimum wage was up to 24-percent higher in 2016), the study counts that as a low-wage job loss. When a successful single-location employer expands to a second location, the study counts all of its current workers as low-wage job losses. When a low-wage worker sees her wages climb over $19, the study counts that as a low-wage job loss. When a low-wage employee moves to contract or gig economy work (Uber alone estimates it has 10,000 driversin the Seattle area), the study counts that as a low-wage job loss.

These findings are also totally at odds with a recent report from economists at the University of California at Berkeley who are studying the impact of the minimum wage on restaurants—the industry with the largest number of low-wage jobs. The Berkeley researchers found that wages increased at rates “in line with the lion’s share of results in previous credible minimum wage studies,” without affecting food service employment. Wages went up, jobs did not go down. In short, the researchers conclude: “the policy achieved its goal.”

Given the obvious limitations of the UW study and the contradictory results from the economists at Berkeley, it is too soon to reach a firm conclusion on the theoretical impact of Seattle’s minimum wage. On the other hand, in practice, in real life here on planet earth, Seattle’s economy is kicking ass.

***

President Trump promises to restore the middle class to its former glory by bringing back old industrial-era jobs—as if slashing environmental regulations could somehow make coal competitive again with plummeting solar prices, let alone our fracking-induced glut of cheap natural gas. This is magical thinking. Manufacturing as a percentage of the overall economy, and of jobs, has been declining globally for decades. This trend will not reverse. Trump cannot restore the middle class with empty promises to bring manufacturing jobs back from the dead.

No, the only realistic near term way to insure Americans do better is to make existing jobs into good jobs by requiring they be paid adequately. There is no earthly reason why an entry-level job at low-wage employers like Walmart or McDonalds could not pay $15 or even $20 per hour with full benefits, the way an old factory job used to. There is nothing “unskilled” about a barista or a home health care worker, and no economic principle that prevents these workers from earning a living wage. The only difference between today’s service workers and yesterday’s manufacturing workers is that most service workers have no union, and thus have no power. People have never been paid what they are worth, despite what the trickle-downer’s will tell you. They are paid what they negotiate. And working people have lost their ability to negotiate decent wages.

Union jobs that used to pay people middle-class wages and that delivered the job security and benefits that enabled a dignified, stable and secure life have been eliminated and replaced with minimum-wage jobs. Low-wage employers tell us that this is all they can afford. That, too, is a lie. When Starbucks and Walmart and McDonalds say they cannot provide their workers with middle class wages and benefits like General Motors and IBM used to, they really mean they’d prefer not to do so. Why? Because if wages are low, profits and bonuses are high.

I want to underscore that I do not think it reasonable for any company, even the size of Walmart, to be expected to unilaterally raise the wages of their workers to double the national minimum wage. In a viciously competitive market, such an action is unrealistic. What is unforgivable (and in a sense, inexplicable) is the failure of Walmart’s leaders to lead the charge to level the playing field by raising the federal minimum wage, so that every company is required to pay their workers fairly. After all, who would get the biggest share of these extra consumer dollars? Our nation’s largest retailer: Walmart.

To be clear: raising wages simply does not kill jobs. Raising wages will no more kill jobs than eliminating slavery killed jobs, or giving women the right to vote killed democracy (both of which arguments were made at the time). In fact, the opposite is true. Despite what our good friends at the Chamber of Commerce and the National Restaurant Association (the other NRA) may tell you. If raising wages really killed jobs, the empirical evidence would be abundant. We’ve raised the federal minimum wage 22 times since 1938, and unless the economy was already in or heading into recession, employment always increased. And if you look further into the data by sector, the results are even more dramatic. The more effected the industry sector by the increase, the better it did. The lowest wage sectors had better employment effects than higher wage sectors.

The self-serving claims that if wages go up, jobs go down, aren’t a description of reality. They are a negotiating strategy, a con job, an intimidation tactic masquerading as economic theory. Threatening people’s jobs when they ask for a raise is the oldest trick in the businessperson’s wage suppression handbook—it is simply an effective way for rich people like us to negotiate wages at scale. The Chamber of Commerce doesn’t say higher wages kills jobs because it is true; they say it because it works.

Once we’ve dismissed with trickle-down nonsense, the way forward becomes clear. I’ll save a detailed policy agenda for another forum, but there’s no getting around the trillion-dollar elephant in the room: the 5 percent of GDP that used to go to wages but now goes to executive pay and record corporate profits. This isn’t money we’re shipping overseas or feeding to robots or burying in holes. The most obvious way to address our crisis of growing inequality is to reverse the policies that undermined the older, more equitable norms. This means raising the minimum wage and the overtime threshold to their inflation-adjusted peaks, and indexing them to the appropriate economic metric. This means restricting the stock buybacks that have propped up executive pay through share price manipulation. This means rethinking our benefits systems and social safety nets to meet the needs of our modern economy. And this means substantially raising taxes on plutocrats like us who continue to capture the bulk of our nation’s economic gains. And yes, by all means let’s increase the Earned Income Tax Credit, even though it effectively socializes the cost of wages onto taxpayers. But keep in mind: the EITC currently costs $60 billion’ish per year. If we want to fill the trillion dollar per year hole in workers’ pockets, we’d need to raise it by about $940 billion per year. Good luck with that.

***

Many of us wealthy folks are laudably philanthropic; we feel like we are already doing our part to improve the lives of our fellow citizens. And this is true, to some extent. But if my thesis is correct—if the only cure for what truly threatens our democracy and our capitalist economy is to enact laws and standards that ensure that businesses pay people enough to lead secure, dignified lives—then some of our effort may be misdirected. Philanthropy is useful, but only about $100 billion per year is spent on helping disadvantaged folks. Raising the minimum wage to $15 would increase income for the bottom 60 percent of Americans by about $450 billion per year. No philanthropy comes close to the scale of that one policy.

Plenty of opportunities exist for wealthy folks to get involved in state based efforts like minimum wage campaigns, the fight to increase the overtime threshold upon which so many middle-class people depend, or the fight for portable, pro-rated and universal benefits. If just 10 percent of you, my fellow plutocrats, got behind these campaigns, the anger and resentment that nurtures Trumpism would quickly dissipate as standards were raised, people’s lives improved, and inequality diminished. When you’re filthy rich like us, donating a million bucks to a minimum wage campaign is chump change. I do it. So should you.

Many smug, wealthy, highly educated liberals like myself (and let’s be honest, like many of you who have been blowing up my phone since the election) have taken to soothing ourselves with the notion that Trump was elected by stupid, racist people. And to some degree, this may be true. But like it or not, in America, even stupid racists have an equal claim to the prosperity, dignity, status and happiness that we urban economic elites hold so dear. Also, they vote. So while we should never pander to their racism, we must face the fact that if our greed prevents them from having their fair shot at happiness, they will most certainly take it from us by force. Parenthetically, I want to make clear that I am not so naïve as to believe that prosperity eliminates racism. It does not. But, it is one hell of a distraction. People who are thriving and hopeful may still be filled with hate, but they don’t have nearly as much reason to act on it.

It is true that the American experiment has proven remarkably resilient, even through periods of wrenching political realignment. During the mid-1850s, one of our two major parties, the Whigs—representing issues including high tariffs and anti-Catholic nativism—collapsed and disappeared. Examine the political climate of that time and you’ll find some startling similarities with our own. Much of the North’s popular resistance to the inequality issue of that age, the expansion of slavery, had little to do with empathy for slaves; rather, the “free labor” movement was grounded in a deep sense of economic anxiety amongst the working poor who saw both slavery and immigration as a threat to their own jobs and wages. Sound familiar? Eventually we got ourselves back on track—but only after a long and bloody Civil War.

I don’t claim to have the all the answers on how to fix our economy, but I do guarantee that if we don’t raise wages and reverse inequality, the social cohesion that makes for a stable democracy and thriving economy is impossible. And that’s not an America where we plutocrats want to live. There are plenty of countries with yawning inequality where people like us and our children can’t go out in public without fear of being kidnapped for ransom. And then there’s Russia, where no amount of wealth can save you from the prisons or assassins of an all-powerful President Putin. So, if you are wealthy, and you rightly fear for the future of your country (not to mention your own personal safety), then I ask you to consider the possibility that the best way to defend your own interests is to improve the economic interests of others. Just do that. I think you’ll be surprised by how fast things get better. But you better act quick.

The pitchforks are coming, my friends, and whether they come in the angry hands of a desperate mob or the tiny hands of an angry dictator, they’re coming for us. You may not want to believe that your great fortune has come, at least in part, at the expense of others, but the American people believe it. And they’re righteously pissed. So, you have a choice: You can either act now to help close the vast economic divide that is tearing our republic apart—or you can follow Trump’s rhetorical lead and start building huge f*cking walls. The pitchforks are at the gate, and time is running short.

http://www.politico.com/magazine/story/2017/07/18/to-my-fellow-plutocrats-you-can-cure-trumpism-215347

 

Don’t Listen To The Rich: Inequality Is Bad For Everyone

Having only a few people with most of the wealth, motivates others. This theory is actually wrong according to research. Aakkosia sosialistien lapsille (1912)/FlickrCC BY-SA

On August 6, 2017, The Conversation published:

A world where a few people have most of the wealth motivates otherswho are poor to strive to earn more. And when they do, they’ll invest in businesses and other areas of the economy. That’s the argument for inequality. But it’s wrong.

Our study of 21 OECD countries over more than a 100 years shows income inequality actually restricts people from earning more, educating themselves and becoming entrepreneurs. That flows on to businesses who in turn invest less in things like plant and equipment.

Inequality makes it harder for economies to benefit from innovation. However, if people have access to credit or the money to move up, it can offset this effect.

We measured the impact of this by looking at the number of patents for new inventions and then also looking at the Gini coefficient and the income share of the top 10%. The Gini coefficient is a measure of the distribution of income or wealth within a nation.

How inequality reduces innovation

From 1870 to 1977, inequality measured by the Gini coefficient fell by about 40%. During this time people actually got more innovative and productivity increased, incomes also increased.

But inequality has increased in recent decades and it’s having the opposite effect.


Author provided/The ConversationCC BY-ND

Inequality is preventing people with less income and wealth from reaching their potential in terms of education and invention. There’s also less entrepreneurship.

Inequality also means the market for new goods shrinks. One studyshows that if incomes are more equal among people, people who are less well off, buy more. Having this larger market for new products, incentivises companies to create new things to sell.

If wealth is concentrated among only a small group of people, it actually increases demand for imported luxuries and handmade products. In contrast to this, distributed incomes means more mass produced goods are manufactured.

What’s been driving inequality since the 1980s is changes to economies – countries trading more with each other and advances in technology. As this happens old products and industries fade while new ones take their place.

These changes have delivered significant net benefits to society. Reducing trade and innovation will only make everyone poorer.

The declining number of people in unions has also contributed to inequality, as workers lose collective bargaining power and some rights. At the same time, unions can adversely affect innovation within firms.

Unions discourage innovation when they resist the adoption of new technology in the workplace. Also if innovation creates profits for firms but some of these are taken up by higher wages (lobbied for by unions), these reduced profits provide less incentive for firms to innovate.

Where workers’ jobs are protected, for example with union membership, there’s often less resistance to innovation and technological change.


Author provided/The ConversationCC BY-ND

Giving people access to credit could change this

Most countries have much higher levels of inequality than the OECD average. This combination of high inequality and low financial development is a major obstacle to economic prosperity.

When financial markets work well, everyone gets access to the amount of credit they can afford and can invest as much as they need. We found that for a nation with a credit-to-GDP ratio of more than 108%, low income earners are less discouraged by not having a share of the wealth. There’s less of a dampening affect on innovation.

Unfortunately, most countries (including many in the OECD) are far from this threshold. In 2016, the credit-to-GDP ratio averaged 56% across all countries, and only 28% for the least developed. Until 2005, Australia was also below this threshold.

This means governments should look at providing more people with more access to credit, especially to the poor, to stimulate growth.

For financially developed nations like Australia, increased inequality actually has less of an effect on innovation and growth. So tackling inequality might not be as easy as increasing access to credit.

Spending and taxing are already historically high and growing inequality makes it harder to further raise taxes. Countries like Australia are not unequal societies in the sense of having significant barriers to people improving their income.

Australia is a relatively egalitarian nation. In 2016, the top 1% owned 22% of the wealth in Australia, compared to 42% in the USA, and 74% in Russia.

Governments in more developed nations can instead try to maintain a stable financial sector to improve growth or by training and education.

https://theconversation.com/dont-listen-to-the-rich-inequality-is-bad-for-everyone-81952

 

How “Shareholder Value” Is Killing Innovation

On July 31, 2017, William Laconic writes  on the blog of the Institute for New Economic Thinking:

The prevailing stock market ideology enriches value extractors, not value creators

Conventional wisdom holds that the primary function of the stock market is to raise cash that companies use to invest in productive capabilities. The conventional wisdom is wrong. Academic research on corporate finance shows that, compared with other sources of funds, stock markets in advanced countries have in fact been insignificant suppliers of capital to corporations. What, then, is their function? If we are to understand employment opportunity, income distribution, and productivity growth, we need an accurate analysis of the role of the stock market in the corporate economy.

The insignificance of the stock market as a source of real investment capital exposes as fallacious the fundamental assumptions of the prevailing ideology that, for the sake of economic efficiency, a business corporation should be run to “maximize shareholder value” (MSV). As a rule, public shareholders do not invest in a corporation’s productive capabilities; they simply buy shares outstanding on the market, hoping to extract value that they have played no role in helping to create. And in practice, MSV advocates modes of corporate resource allocation that undermine innovative enterprise and result in unstable employment, inequitable incomes, and sagging productivity.

The most obvious manifestations of the corporate misbehavior that MSV incentivizes are the lavish, stock-based incomes of top corporate executives and the massive distributions of corporate cash to shareholders in the form of stock buybacks, coming on top of already-ample dividends. Indeed, with stock-based pay incentivizing senior executives to do stock buybacks—i.e., having a company repurchase its own shares to give manipulative boosts to its stock price—over the past three decades the stock market has had a negative cash function. On the whole, U.S. business corporations fund the stock market, not vice versa.

My INET paper, “The Functions of the Stock Market and the Fallacies of Shareholder Value,” provides an analysis of the evolving role of the stock market in the U.S. corporate economy over the past century. I ask how the changing functions of the stock market have influenced the processes of value creation (hence, the size of the economic pie), as well as the relation between value creation and value extraction (hence, the distribution of the economic pie). This essay is part of an ongoing projectaimed at making “The Theory of Innovative Enterprise” central to an economic analysis that comprehends institutions’ and organizations’ roles in supporting or undermining stable and equitable economic growth.

The Theory of Innovative Enterprise posits that three social conditions of innovative enterprise—strategic control, organizational integration, and financial commitment—determine whether a business can generate goods and services that are higher quality and lower cost than those previously available. The process of value creation enabled by innovative enterprise enhances the performance of both the company and the economy of which it is a part. Once armed with a theory of innovative enterprise, we can analyze the relation between those who contribute to the processes of value creation and those who reap incomes through value extraction. We can discern how “predatory value extractors,” who make little if any contribution to value creation, use their power to dominate the distribution of income.

In terms of the three social conditions of innovative enterprise: Strategic controlgives decision makers the power to allocate the firm’s resources to transform technologies and access new markets to generate higher-quality, lower-cost products; organizational integration creates incentives for people working together to engage in the collective learning that is the essence of the value-creation process; financial commitment secures funds to sustain the cumulative learning process, from the time when investments in productive capabilities are made until innovative products generate financial returns.

The functions of the stock market may support or undermine the social conditions of innovative enterprise. The functions of the stock market go well beyond “cash” to include four others, which can be summarized as “control,” “creation,” “combination,” and “compensation.” Historically, as the U.S. economy grew to become the world’s largest and most powerful, the key function of the stock market was control. Specifically, the stock market enabled the separation of managerial control over the allocation of corporate resources from the ownership of the shares in the company.

Yet, assuming that the key function of the stock market is cash, academic economists known as agency theorists see this separation of control from ownership as the “original sin” of American capitalism. They argue that the evils of managerial control can be overcome by incentivizing or, if necessary, compelling corporate managers as “agents” to maximize the value of the stock possessed by corporate shareholders as “principals.” The agency-theory mantra is that the key role of managers is to “disgorge” the “free” cash flow to shareholders in the forms of dividends and buybacks.

What is missing from the agency theory argument is a theory of how a firm creates value—that is, a theory of innovative enterprise. The functions of the stock market may support the types of strategic control, organizational integration, and financial commitment that can result in the generation of higher quality products at lower unit costs—the economic definition of innovation. It is possible, however, that the functions of the stock market may undermine the types of strategic control, organizational integration, and financial commitment that the innovation process requires.

Indeed, by following the prescriptions of agency theory—that senior executives should be incentivized by stock-based pay to “create value” for shareholders—corporate managers have undermined the conditions of innovative enterprise in U.S. corporations over the past three decades. Consider each of the three social conditions:

Strategic control: Senior executives who are willing to waste hundreds of millions or billions of dollars annually on buybacks to manipulate their companies’ stock prices can lose the capacity to determine what types of organizational and technological investments are required to remain innovative in their industries. Instead, the current structure of stock-based executive remuneration—as prescribed by agency theory—creates incentives for senior executives to allocate resources in ways that boost stock prices and increase their take-home pay. The stock buyback is a powerful tool at the disposal of corporate executives for manipulating the stock market for their personal gain.

Organizational integration: Collective and cumulative learning about the technologies, markets, and competitors relevant to a particular industry is the foundation for generating the higher-quality, lower-cost goods and services that result in productivity growth. What I call “collective and cumulative careers” are essential for organizational learning, especially in industries that are technologically and organizationally complex. Organizational learning depends on a “retain-and-reinvest” regime. In such an arrangement, senior executives make corporate resource-allocation decisions that, by retaining people and profits in the company, permit reinvestment in the productive capabilities that can generate competitive (high-quality, low-cost) products. Our research supports the hypothesis that, as part of a corporate resource-allocation regime that downsizes the U.S. labor force and distributes corporate cash to shareholders, stock buybacks are done at the expense of investments in collective and cumulative careers. For working people who are the real value creators, the “disgorged” cash flow is far from “free.”

Financial commitment: The cash flow that MSV calls “free” can deprive the business enterprise of the foundational finance for investment in innovative enterprise. Stock buybacks represent a depletion of internally-controlled finance that could be used to support investment in the company’s productive capabilities. Every once in a while, a major company that has done massive buybacks over a period of years hits a financial wall. At that point the billions of dollars it wasted on buybacks are not available to support the restructuring needed for it to become innovative once again. The process of predatory value extraction that destroys innovative enterprise is irreversible. It must be stopped before it starts.

https://www.ineteconomics.org/perspectives/blog/shareholder-value-is-killing-innovation

 

Elon Musk Is Right. ULA Receives $1B From The Government, But Is It A Subsidy?

On July 17, 2017, Futurism posted the following:

THE BILLION DOLLAR MYTH?

On July 13, Elon Musk posted a graph on Twitter that showed SpaceX was completely cornering the commercial rocket market. Musk specifically highlighted the fact that his venture is entirely privately funded while other major companies listed get billions of dollars in grants each year despite a profound lack of launches.

About 11 years ago, two of these companies — Boeing and Lockheed Martin — merged to become the United Launch Alliance (ULA). Tory Bruno, President and CEO of the ULA, disagreed with Musk on Twitter, calling the billion dollar subsidy a “myth.” The tweet has since been deleted. Futurism reached out to ULA for comment at 1:53PM ET, and noted the presence of the tweet not long after. It was removed by 2:30 PM ET.

*5* Data Supports Elon Musk’s Claim that ULA Receives “Billion Dollar Subsidy”
The tweet from Bruno that was later deleted. Credit: Twitter

Today, Futurism received documentation that shows ULA does indeed receive this amount of money. According to the Department of Defense Fiscal Year (FY) 2018  Budget Estimates:

  • The Air Force budgeted $737.273M for ULA’s ELC in FY17 and $918.609M in FY18 (p. 105).
  • These Air Force contributions represent only 75 percent of the total ELC funding to ULA. The National Reconnaissance Office (NRO) funds the remaining 25 percent.
  • Thus, the full combined AF/NRO ELC financial contribution to ULA is $983.031M in FY17 and $1.224B in FY18.

It would seem that the biggest argument here isn’t about cost, though. It’s more about the definition of a subsidy. Is the $1.224B indeed a subsidy as Musk originally asserted?

AN OPPOSING ARGUMENT

One of the primary reasons this funding is needed, as discussed in the 2016 ELC contract itself, is the high cost of maintaining a large workforce and the constant depreciation of launch vehicles. An article from Teslarati points out the specifics:

“Due to contracting, ULA is required to maintain both the workforce and facilities necessary to produce and launch Delta vehicles, in spite of having nearly no ‘business’ thanks to Atlas V. Maintaining a workforce and set of facilities that is in part or whole redundant is not efficient or cost-effective, but it is contractually required. So, while the ELC contract Musk deemed a nearly pointless subsidy does have some major flaws, inefficiencies, and illogical aspects, it is not technically correct to label it a subsidy.”

Futurism reached out to ULA for a comment on the tweet and above data. A ULA representative referred us to a 2016 op-ed for SpaceNews on the topic in which Bruno addressed the criticism:

“Critics have asserted that ULA receives $800 million per year in a contract ‘for doing nothing,’ stating that it was a ‘retainer’ or ‘subsidy’ for ULA to “stay in business” for the Air Force. This is untrue and reveals a fundamental lack of understanding of this innovative contracting mechanism.”

Whether or not ULA would still receive this payment despite a lack of actual launches is not clear.

Regardless of how the money is labeled, however, SpaceX is still leading the launch race. In addition to launching rockets with an ever-increasing frequency over the next few years, Musk also plans to launch 4,000 satellites to provide the world with unilateral internet coverage and continue work on his mission to terraform Mars.

Elon Musk Is Right. ULA Receives $1B From the Government, but Is It a Subsidy?

Gary Reber Comments:

While I am opposed to subsidies and tax loopholes, as long as they are in place they should require the corporations receiving the grants, loan guarantees, tax breaks, etc. be fully employee owned using justice-managed Employee Stock Ownership Plans (ESOPs). Otherwise, taxpayer dollars are used to further concentrate the ownership of technological capital wealth among the already wealthy capital ownership class.

Optimally, we should eliminate all subsidies and tax loopholes. We should finance all future productive capital expansion of the economy by issuing and selling new stock with full-dividend earning payout requirements to the new owners. EVERY citizen would qualify to receive an equal Capital Homestead Account (ACA), a sorta IRA-account, with the requirement of past pavings to pledge as loan security for the banks. Such capital credit would be extended to EVERY citizen annually to specifically invest in qualified, viable corporations that are growing the economy. The full-payout of earnings dividend would first go to pay off the annual capital credit, and once paid would go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.

Still, there is at least a theoretical chance, and sometimes a very real chance, that the investment might not pay for itself, or it might not pay for itself in the projected time period. So, there is a business risk. In addition to determining that the investment is viable and that the business corporation is credit worthy and reliably expected to make loan repayments, there needs to be security against default. Thus, for the lender to make the loan security must be provided. Loan security can be facilitated with private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept). The promissory note can be offset to the government’s central Federal Reserve Bank in return for the cash equivalent of the amount of the loan, less an administrative fee. The only cost to the direct lending bank in making a loan to CHA user accounts would be the administrative fee, or about 2 percent of the loan’s principal and then another 2 percent for capital credit insurance, with an additional quarter of a percent paid to the Federal Reserve Bank to monetize the loan and give the lender the same cash as it would have had if it had actually loaned money to the corporation. The lender’s cash loaned to the CHAa is replenished with the Federal Reserve Bank cash. When the company pays the CHAs enough money to enable the CHAs to repay the lender, the lender has to retrieve the note and pay back the Federal Reserve Bank. Thus, the loan cost would be essentially not more than 5 percent to allow ownership broadening financial capital to be invested in ownership broadening CHAs to create new capitalists. Thus, national capital credit insurance replaces the requirement past savings to pledge security.

Bad News for Automakers: The Average US Household Can’t Afford A New Car

On June 28, 2017, Sarah O’Brien writes on CNBC:

As wages stagnate and the cost of living continues to rise, paying for a new car is a challenge for consumers, according to a new study.

The report by Bankrate.com shows that in all but one of the 25 largest U.S. metro areas, households with median incomes cannot afford the average price of a new car. In six of the surveyed areas, they can afford less than half the amount.

“The [average] household can’t comfortably afford to buy a new vehicle,” said Claes Bell, a Bankrate.com analyst. “That means a lot of households are overextending themselves on car costs, and that can potentially crowd out other priorities such as saving for retirement.”

As a way to measure affordability, the study applied the so-called 20/4/10 rule: a 20 percent down payment, a four-year loan, and payments and insurance comprising 10 percent of a household’s gross (pre-tax) income.

With the average new-car price at more than $33,000 in May, according to the latest data from Kelley Blue Book, only the Washington, D.C., metro area’s nearly $100,000 median income could qualify.

In the worst market for affordability — Miami/Fort Lauderdale/West Palm Beach — a median-income household (around $51,000) could afford a $13,577 car, while the average new car there would cost more than double that ($35,368 including local sales tax), according to Bankrate data.

“This issue of affordability isn’t just about the price of cars. It’s about the stagnation of wages,” Bell said. “Car costs are not rising all that quickly over time, but things like health care and college costs are going up and wages aren’t [keeping up]. Budgets are being stretched.”

Auto loan delinquencies — when payments are 30 or more days overdue — rose more than other types of household debt in last year’s fourth quarter, according to the American Bankers Association. Separately, data from the Federal Reserve Bank of New York shows that 90-day delinquencies stood at 3.8 percent of all loans as of March 31.

“People fall in love with cars they can’t afford, and that’s how they get in trouble,” said John Gajkowski, a certified financial planner and co-founder of Money Managers Financial Group.

Lured by low interest rates and dealer incentives, consumers now carry close to $1.2 trillion in auto debt including both loans and leases. While high, it’s only about 10 percent of the $12.73 trillion that households carry in total debt, according to the Federal Reserve.

Part of what causes people to overextend themselves when it comes to car buying, Bell said, is lack of planning.

“People should prepare for a car purchase by saving for a down payment,” Bell said. “Sometimes people impulsively go to a car lot and get sold on buying a new car. But if they don’t have a sufficient down payment saved, it will be hard to fit the payment into their budget.”

https://www.thefiscaltimes.com/2017/06/28/Bad-News-Automakers-Average-US-Household-Cant-Afford-New-Car

Gary Reber Comments:

Automobile purchases are part of the massive consumer debt problem in the United States. As the study  notes, “lured by low interest rates and dealer incentives, consumers now carry close to $1.2 trillion in auto debt including both loans and leases.”

As the factory picture shows, 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. Companies strive to achieve cost efficiencies to maximize profits for the owners, thus keeping labor input and other costs at a minimum. 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 in order to generate profits and thus return on investment (ROI).

Furthermore, 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. 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. Yet, sadly, the American people and its leaders still pretend to believe that labor is becoming more productive, and ignore the necessity to broaden personal ownership of wealth-creating, income-producing capital assets simultaneously with the growth of the economy.

This is why tectonic shifts in the technologies of production and competitive globalization destroys jobs and devalues the worth of labor, leaving the vast majority of Americans struggling week to week and month to month.

But instead of broadening capital ownership and sharing the opportunity among all Americans to be productive and earn income through capital ownership, institutionalizes greed (creating concentrated capital ownership, monopolies, and special privileges) empowers 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.

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.

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.

For putting us on the path to inclusive prosperity, inclusive opportunity and inclusive economic justice, see my article “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11.

For how to make EVERY citizen PRODUCTIVE see my article “What Is Needed To Resolve The Destruction Of American Jobs Problem?” published by The Huffington Post at http://www.huffingtonpost.com/entry/593adb89e4b0b65670e569e9.

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

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

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

 

 

Globalization: The Rise And Fall Of An Idea That Swept The World

It’s not just a populist backlash – many economists who once swore by free trade have changed their minds, too. How had they got it so wrong?

The annual January gathering of the World Economic Forum in Davosis usually a placid affair: a place for well-heeled participants to exchange notes on global business opportunities, or powder conditions on the local ski slopes, while cradling champagne and canapes. This January, the ultra-rich and the sparkling wine returned, but by all reports the mood was one of anxiety, defensiveness and self-reproach.

The future of economic globalisation, for which the Davos men and women see themselves as caretakers, had been shaken by a series of political earthquakes. “Globalisation” can mean many things, but what lay in particular doubt was the long-advanced project of increasing free trade in goods across borders. The previous summer, Britain had voted to leave the largest trading bloc in the world. In November, the unexpected victory of Donald Trump, who vowed to withdraw from major trade deals, appeared to jeopardise the trading relationships of the world’s richest country. Forthcoming elections in France and Germany suddenly seemed to bear the possibility of anti-globalisation parties garnering better results than ever before. The barbarians weren’t at the gates to the ski-lifts yet – but they weren’t very far.

In a panel titled Governing Globalisation, the economist Dambisa Moyo, otherwise a well-known supporter of free trade, forthrightly asked the audience to accept that “there have been significant losses” from globalisation. “It is not clear to me that we are going to be able to remedy them under the current infrastructure,” she added. Christine Lagarde, the head of the International Monetary Fund, called for a policy hitherto foreign to the World Economic Forum: “more redistribution”. After years of hedging or discounting the malign effects of free trade, it was time to face facts: globalisation caused job losses and depressed wages, and the usual Davos proposals – such as instructing affected populations to accept the new reality – weren’t going to work. Unless something changed, the political consequences were likely to get worse.

The backlash to globalisation has helped fuel the extraordinary political shifts of the past 18 months. During the close race to become the Democratic party candidate, senator Bernie Sanders relentlessly attacked Hillary Clinton on her support for free trade. On the campaign trail, Donald Trump openly proposed tilting the terms of trade in favour of American industry. “Americanism, not globalism, shall be our creed,” he bellowed at the Republican national convention last July. The vote for Brexit was strongest in the regions of the UK devastated by the flight of manufacturing. At Davos in January, British prime minister Theresa May, the leader of the party of capital and inherited wealth, improbably picked up the theme, warning that, for many, “talk of greater globalisation … means their jobs being outsourced and wages undercut.” Meanwhile, the European far righthas been warning against free movement of people as well as goods. Following her qualifying victory in the first round of France’s presidential election, Marine Le Pen warned darkly that “the main thing at stake in this election is the rampant globalisation that is endangering our civilisation.”

It was only a few decades ago that globalisation was held by many, even by some critics, to be an inevitable, unstoppable force. “Rejecting globalisation,” the American journalist George Packer has written, “was like rejecting the sunrise.” Globalisation could take place in services, capital and ideas, making it a notoriously imprecise term; but what it meant most often was making it cheaper to trade across borders – something that seemed to many at the time to be an unquestionable good. In practice, this often meant that industry would move from rich countries, where labour was expensive, to poor countries, where labour was cheaper. People in the rich countries would either have to accept lower wages to compete, or lose their jobs. But no matter what, the goods they formerly produced would now be imported, and be even cheaper. And the unemployed could get new, higher-skilled jobs (if they got the requisite training). Mainstream economists and politicians upheld the consensus about the merits of globalisation, with little concern that there might be political consequences.

Back then, economists could calmly chalk up anti-globalisation sentiment to a marginal group of delusional protesters, or disgruntled stragglers still toiling uselessly in “sunset industries”. These days, as sizable constituencies have voted in country after country for anti-free-trade policies, or candidates that promise to limit them, the old self-assurance is gone. Millions have rejected, with uncertain results, the punishing logic that globalisation could not be stopped. The backlash has swelled a wave of soul-searching among economists, one that had already begun to roll ashore with the financial crisis. How did they fail to foresee the repercussions?

In the heyday of the globalisation consensus, few economists questioned its merits in public. But in 1997, the Harvard economist Dani Rodrikpublished a slim book that created a stir. Appearing just as the US was about to enter a historic economic boom, Rodrik’s book, Has Globalization Gone Too Far?, sounded an unusual note of alarm.

Rodrik pointed to a series of dramatic recent events that challenged the idea that growing free trade would be peacefully accepted. In 1995, France had adopted a programme of fiscal austerity in order to prepare for entry into the eurozone; trade unions responded with the largest wave of strikes since 1968. In 1996, only five years after the end of the Soviet Union – with Russia’s once-protected markets having been forcibly opened, leading to a sudden decline in living standards – a communist won 40% of the vote in Russia’s presidential elections. That same year, two years after the passing of the North American Free Trade Agreement (Nafta), one of the most ambitious multinational deals ever accomplished, a white nationalist running on an “America first” programme of economic protectionism did surprisingly well in the presidential primaries of the Republican party.

What was the pathology of which all of these disturbing events were symptoms? For Rodrik, it was “the process that has come to be called ‘globalisation’”. Since the 1980s, and especially following the collapse of the Soviet Union, lowering barriers to international trade had become the axiom of countries everywhere. Tariffs had to be slashed and regulations spiked. Trade unions, which kept wages high and made it harder to fire people, had to be crushed. Governments vied with each other to make their country more hospitable – more “competitive” – for businesses. That meant making labour cheaper and regulations looser, often in countries that had once tried their hand at socialism, or had spent years protecting “homegrown” industries with tariffs.

Anti-globalisation protesters in Seattle, 1999
 Anti-globalisation protesters in Seattle, 1999. Photograph: Eric Draper/AP

These moves were generally applauded by economists. After all, their profession had long embraced the principle of comparative advantage – simply put, the idea countries will trade with each other in order to gain what each lacks, thereby benefiting both. In theory, then, the globalisation of trade in goods and services would benefit consumers in rich countries by giving them access to inexpensive goods produced by cheaper labour in poorer countries, and this demand, in turn, would help grow the economies of those poorer countries.

But the social cost, in Rodrik’s dissenting view, was high – and consistently underestimated by economists. He noted that since the 1970s, lower-skilled European and American workers had endured a major fall in the real value of their wages, which dropped by more than 20%. Workers were suffering more spells of unemployment, more volatility in the hours they were expected to work.

While many economists attributed much of the insecurity to technological change – sophisticated new machines displacing low-skilled workers – Rodrik suggested that the process of globalisation should shoulder more of the blame. It was, in particular, the competition between workers in developing and developed countries that helped drive down wages and job security for workers in developed countries. Over and over, they would be held hostage to the possibility that their business would up and leave, in order to find cheap labour in other parts of the world; they had to accept restraints on their salaries – or else. Opinion polls registered their strong levels of anxiety and insecurity, and the political effects were becoming more visible. Rodrik foresaw that the cost of greater “economic integration” would be greater “social disintegration”. The inevitable result would be a huge political backlash.

As Rodrik would later recall, other economists tended to dismiss his arguments – or fear them. Paul Krugman, who would win the Nobel prize in 2008 for his earlier work in trade theory and economic geography, privately warned Rodrik that his work would give “ammunition to the barbarians”.

It was a tacit acknowledgment that pro-globalisation economists, journalists and politicians had come under growing pressure from a new movement on the left, who were raising concerns very similar to Rodrik’s. Over the course of the 1990s, an unwieldy international coalition had begun to contest the notion that globalisation was good. Called “anti-globalisation” by the media, and the “alter-globalisation” or “global justice” movement by its participants, it tried to draw attention to the devastating effect that free trade policies were having, especially in the developing world, where globalisation was supposed to be having its most beneficial effect. This was a time when figures such as the New York Times columnist Thomas Friedman had given the topic a glitzy prominence by documenting his time among what he gratingly called “globalutionaries”: chatting amiably with the CEO of Monsanto one day, gawking at lingerie manufacturers in Sri Lanka the next. Activists were intent on showing a much darker picture, revealing how the record of globalisation consisted mostly of farmers pushed off their land and the rampant proliferation of sweatshops. They also implicated the highest world bodies in their critique: the G7, World Bank and IMF. In 1999, the movement reached a high point when a unique coalition of trade unions and environmentalists managed to shut down the meeting of the World Trade Organization in Seattle.

In a state of panic, economists responded with a flood of columns and books that defended the necessity of a more open global market economy, in tones ranging from grandiose to sarcastic. In January 2000, Krugman used his first piece as a New York Times columnist to denounce the “trashing” of the WTO, calling it “a sad irony that the cause that has finally awakened the long-dormant American left is that of – yes! – denying opportunity to third-world workers”.

Where Krugman was derisive, others were solemn, putting the contemporary fight against the “anti-globalisation” left in a continuum of struggles for liberty. “Liberals, social democrats and moderate conservatives are on the same side in the great battles against religious fanatics, obscurantists, extreme environmentalists, fascists, Marxists and, of course, contemporary anti-globalisers,” wrote the Financial Times columnist and former World Bankeconomist Martin Wolf in his book Why Globalization Works. Language like this lent the fight for globalisation the air of an epochal struggle. More common was the rhetoric of figures such as Friedman, who in his book The World is Flat mocked the “pampered American college kids” who, “wearing their branded clothing, began to get interested in sweatshops as a way of expiating their guilt”.

Arguments against the global justice movement rested on the idea that the ultimate benefits of a more open and integrated economy would outweigh the downsides. “Freer trade is associated with higher growth and … higher growth is associated with reduced poverty,” wrote the Columbia University economist Jagdish Bhagwati in his book In Defense of Globalization. “Hence, growth reduces poverty.” No matter how troubling some of the local effects, the implication went, globalisation promised a greater good.

The fact that proponents of globalisation now felt compelled to spend much of their time defending it indicates how much visibility the global justice movement had achieved by the early 2000s. Still, over time, the movement lost ground, as a policy consensus settled in favour of globalisation. The proponents of globalisation were determined never to let another gathering be interrupted. They stopped meeting in major cities, and security everywhere was tightened. By the time of the invasion of Iraq, the world’s attention had turned from free trade to George Bush and the “war on terror,” leaving the globalisation consensus intact.

Above all, there was a widespread perception that globalisation was working as it was supposed to. The local adverse effects that activists pointed to – sweatshop labour, starving farmers – were increasingly obscured by the staggering GDP numbers and fantastical images of gleaming skylines coming out of China. With some lonely exceptions – such as Rodrik and the former World Bank chief and Columbia University professor Joseph Stiglitz – the pursuit of freer trade became a consensus position for economists, commentators and the vast majority of mainstream politicians, to the point where the benefits of free trade seemed to command blind adherence. In a 2006 TV interview, Thomas Friedman was asked whether there was any free trade deal he would not support. He replied that there wasn’t, admitting, “I wrote a column supporting the Cafta, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: free trade.”

In the wake of the financial crisis, the cracks began to show in the consensus on globalisation, to the point that, today, there may no longer be a consensus. Economists who were once ardent proponents of globalisation have become some of its most prominent critics. Erstwhile supporters now concede, at least in part, that it has produced inequality, unemployment and downward pressure on wages. Nuances and criticisms that economists only used to raise in private seminars are finally coming out in the open.

A few months before the financial crisis hit, Krugman was already confessing to a “guilty conscience”. In the 1990s, he had been very influential in arguing that global trade with poor countries had only a small effect on workers’ wages in rich countries. By 2008, he was having doubts: the data seemed to suggest that the effect was much larger than he had suspected.

In the years that followed, the crash, the crisis of the eurozone and the worldwide drop in the price of oil and other commodities combined to put a huge dent in global trade. Since 2012, the IMF reported in its World Economic Outlook for October 2016, trade was growing at 3% a year – less than half the average of the previous three decades. That month, Martin Wolf argued in a column that globalisation had “lost dynamism”, due to a slackening of the world economy, the “exhaustion” of new markets to exploit and a rise in protectionist policies around the world. In an interview earlier this year, Wolf suggested to me that, though he remained convinced globalisation had not been the decisive factor in rising inequality, he had nonetheless not fully foreseen when he was writing Why Globalization Works how “radical the implications” of worsening inequality “might be for the US, and therefore the world”. Among these implications appears to be a rising distrust of the establishment that is blamed for the inequality. “We have a very big political problem in many of our countries,” he said. “The elites – the policymaking business and financial elites – are increasingly disliked. You need to make policy which brings people to think again that their societies are run in a decent and civilised way.”

That distrust of the establishment has had highly visible political consequences: Farage, Trump, and Le Pen on the right; but also in new parties on the left, such as Spain’s Podemos, and curious populist hybrids, such as Italy’s Five Star Movement. As in 1997, but to an even greater degree, the volatile political scene reflects public anxiety over “the process that has come to be called ‘globalisation’”. If the critics of globalisation could be dismissed before because of their lack of economics training, or ignored because they were in distant countries, or kept out of sight by a wall of police, their sudden political ascendancy in the rich countries of the west cannot be so easily discounted today.

Over the past year, the opinion pages of prestigious newspapers have been filled with belated, rueful comments from the high priests of globalisation – the men who appeared to have defeated the anti-globalisers two decades earlier. Perhaps the most surprising such transformation has been that of Larry Summers. Possessed of a panoply of elite titles – former chief economist of the World Bank, former Treasury secretary, president emeritus of Harvard, former economic adviser to President Barack Obama – Summers was renowned in the 1990s and 2000s for being a blustery proponent of globalisation. For Summers, it seemed, market logic was so inexorable that its dictates prevailed over every social concern. In an infamous World Bank memo from 1991, he held that the cheapest way to dispose of toxic waste in rich countries was to dump it in poor countries, since it was financially cheaper for them to manage it. “The laws of economics, it’s often forgotten, are like the laws of engineering,” he said in a speech that year at a World Bank-IMF meeting in Bangkok. “There’s only one set of laws and they work everywhere. One of the things I’ve learned in my short time at the World Bank is that whenever anybody says, ‘But economics works differently here,’ they’re about to say something dumb.”

Over the last two years, a different, in some ways unrecognizable Larry Summers has been appearing in newspaper editorial pages. More circumspect in tone, this humbler Summers has been arguing that economic opportunities in the developing world are slowing, and that the already rich economies are finding it hard to get out of the crisis. Barring some kind of breakthrough, Summers says, an era of slow growth is here to stay.

In Summers’s recent writings, this sombre conclusion has often been paired with a surprising political goal: advocating for a “responsible nationalism”. Now he argues that politicians must recognise that “the basic responsibility of government is to maximise the welfare of citizens, not to pursue some abstract concept of the global good”.

One curious thing about the pro-globalisation consensus of the 1990s and 2000s, and its collapse in recent years, is how closely the cycle resembles a previous era. Pursuing free trade has always produced displacement and inequality – and political chaos, populism and retrenchment to go with it. Every time the social consequences of free trade are overlooked, political backlash follows. But free trade is only one of many forms that economic integration can take. History seems to suggest, however, that it might be the most destabilising one.

Nearly all economists and scholars of globalisation like to point to the fact that the economy was rather globalised by the early 20th century. As European countries colonised Asia and sub-Saharan Africa, they turned their colonies into suppliers of raw materials for European manufacturers, as well as markets for European goods. Meanwhile, the economies of the colonisers were also becoming free-trade zones for each other. “The opening years of the 20th century were the closest thing the world had ever seen to a free world market for goods, capital and labour,” writes the Harvard professor of government Jeffry Frieden in his standard account, Global Capitalism: Its Fall and Rise in the 20th Century. “It would be a hundred years before the world returned to that level of globalisation.”

In addition to military force, what underpinned this convenient arrangement for imperial nations was the gold standard. Under this system, each national currency had an established gold value: the British pound sterling was backed by 113 grains of pure gold; the US dollar by 23.22 grains, and so on. This entailed that exchange rates were also fixed: a British pound was always equal to 4.87 dollars. The stability of exchange rates meant that the cost of doing business across borders was predictable. Just like the eurozone today, you could count on the value of the currency staying the same, so long as the storehouse of gold remained more or less the same.

When there were gold shortages – as there were in the 1870s – the system stopped working. To protect the sanctity of the standard under conditions of stress, central bankers across the Europe and the US tightened access to credit and deflated prices. This left financiers in a decent position, but crushed farmers and the rural poor, for whom falling prices meant starvation. Then as now, economists and mainstream politicians largely overlooked the darker side of the economic picture.

In the US, this fuelled one of the world’s first self-described “populist” revolts, leading to the nomination of William Jennings Bryan as the Democratic party candidate in 1896. At his nominating convention, he gave a famous speech lambasting gold backers: “You shall not press down upon the brow of labour this crown of thorns, you shall not crucify mankind upon a cross of gold.” Then as now, financial elites and their supporters in the press were horrified. “There has been an upheaval of the political crust,” the Times of London reported, “and strange creatures have come forth.”

Businessmen were so distressed by Bryan that they backed the Republican candidate, William McKinley, who won partly by outspending Bryan five to one. Meanwhile, gold was bolstered by the discovery of new reserves in colonial South Africa. But the gold standard could not survive the first world war and the Great Depression. By the 1930s, unionisation had spread to more industries and there was a growing worldwide socialist movement. Protecting gold would mean mass unemployment and social unrest. Britain went off the gold standard in 1931, while Franklin Roosevelt took the US off it in 1933; France and several other countries would follow in 1936.

The prioritisation of finance and trade over the welfare of people had come momentarily to an end. But this wasn’t the end of the global economic system.

The trade system that followed was global, too, with high levels of trade – but it took place on terms that often allowed developing countries to protect their industries. Because, from the perspective of free traders, protectionism is always seen as bad, the success of this postwar system has been largely under-recognised.

Over the course of the 1930s and 40s, liberals – John Maynard Keynes among them – who had previously regarded departures from free trade as “an imbecility and an outrage” began to lose their religion. “The decadent international but individualistic capitalism, in the hands of which we found ourselves after the war, is not a success,” Keynes found himself writing in 1933. “It is not intelligent, it is not beautiful, it is not just, it is not virtuous – and it doesn’t deliver the goods. In short, we dislike it, and we are beginning to despise it.” He claimed sympathies “with those who would minimise, rather than with those who would maximise, economic entanglement among nations,” and argued that goods “be homespun whenever it is reasonably and conveniently possible”.

The international systems that chastened figures such as Keynes helped produce in the next few years – especially the Bretton Woods agreement and the General Agreement on Tariffs and Trade (Gatt) – set the terms under which the new wave of globalisation would take place.

The key to the system’s viability, in Rodrik’s view, was its flexibility – something absent from contemporary globalisation, with its one-size-fits-all model of capitalism. Bretton Woods stabilised exchange rates by pegging the dollar loosely to gold, and other currencies to the dollar. Gatt consisted of rules governing free trade – negotiated by participating countries in a series of multinational “rounds” – that left many areas of the world economy, such as agriculture, untouched or unaddressed. “Gatt’s purpose was never to maximise free trade,” Rodrik writes. “It was to achieve the maximum amount of trade compatible with different nations doing their own thing. In that respect, the institution proved spectacularly successful.”

Construction workers in Beijing, China
 Construction workers in Beijing, China. Photograph: Ng Han Guan/AP

Partly because Gatt was not always dogmatic about free trade, it allowed most countries to figure out their own economic objectives, within a somewhat international ambit. When nations contravened the agreement’s terms on specific areas of national interest, they found that it “contained loopholes wide enough for an elephant to pass”, in Rodrik’s words. If a nation wanted to protect its steel industry, for example, it could claim “injury” under the rules of Gatt and raise tariffs to discourage steel imports: “an abomination from the standpoint of free trade”. These were useful for countries that were recovering from the war and needed to build up their own industries via tariffs – duties imposed on particular imports. Meanwhile, from 1948 to 1990, world trade grew at an annual average of nearly 7% – faster than the post-communist years, which we think of as the high point of globalisation. “If there was a golden era of globalisation,” Rodrik has written, “this was it.”

Gatt, however, failed to cover many of the countries in the developing world. These countries eventually created their own system, the United Nations conference on trade and development (UNCTAD). Under this rubric, many countries – especially in Latin America, the Middle East, Africa and Asia – adopted a policy of protecting homegrown industries by replacing imports with domestically produced goods. It worked poorly in some places – India and Argentina, for example, where the trade barriers were too high, resulting in factories that cost more to set up than the value of the goods they produced – but remarkably well in others, such as east Asia, much of Latin America and parts of sub-Saharan Africa, where homegrown industries did spring up. Though many later economists and commentators would dismiss the achievements of this model, it theoretically fit Larry Summers’s recent rubric on globalisation: “the basic responsibility of government is to maximise the welfare of citizens, not to pursue some abstract concept of the global good.”

The critical turning point – away from this system of trade balanced against national protections – came in the 1980s. Flagging growth and high inflation in the west, along with growing competition from Japan, opened the way for a political transformation. The elections of Margaret Thatcher and Ronald Reagan were seminal, putting free-market radicals in charge of two of the world’s five biggest economies and ushering in an era of “hyperglobalisation”. In the new political climate, economies with large public sectors and strong governments within the global capitalist system were no longer seen as aids to the system’s functioning, but impediments to it.

Not only did these ideologies take hold in the US and the UK; they seized international institutions as well. Gatt renamed itself as the World Trade Organization (WTO), and the new rules the body negotiated began to cut more deeply into national policies. Its international trade rules sometimes undermined national legislation. The WTO’s appellate court intervened relentlessly in member nations’ tax, environmental and regulatory policies, including those of the United States: the US’s fuel emissions standards were judged to discriminate against imported gasoline, and its ban on imported shrimp caught without turtle-excluding devices was overturned. If national health and safety regulations were stricter than WTO rules necessitated, they could only remain in place if they were shown to have “scientific justification”.

The purest version of hyperglobalisation was tried out in Latin America in the 1980s. Known as the “Washington consensus”, this model usually involved loans from the IMF that were contingent on those countries lowering trade barriers and privatising many of their nationally held industries. Well into the 1990s, economists were proclaiming the indisputable benefits of openness. In an influential 1995 paper, Jeffrey Sachs and Andrew Warner wrote: “We find no cases to support the frequent worry that a country might open and yet fail to grow.”

But the Washington consensus was bad for business: most countries did worse than before. Growth faltered, and citizens across Latin America revolted against attempted privatisations of water and gas. In Argentina, which followed the Washington consensus to the letter, a grave crisis resulted in 2002, precipitating an economic collapse and massive street protests that forced out the government that had pursued privatising reforms. Argentina’s revolt presaged a left-populist upsurge across the continent: from 1999 to 2007, leftwing leaders and parties took power in Brazil, Venezuela, Bolivia and Ecuador, all of them campaigning against the Washington consensus on globalisation. These revolts were a preview of the backlash of today.

Rodrik – perhaps the contemporary economist whose views have been most amply vindicated by recent events – was himself a beneficiary of protectionism in Turkey. His father’s ballpoint pen company was sheltered under tariffs, and achieved enough success to allow Rodrik to attend Harvard in the 1970s as an undergraduate. This personal understanding of the mixed nature of economic success may be one of the reasons why his work runs against the broad consensus of mainstream economics writing on globalisation.

“I never felt that my ideas were out of the mainstream,” Rodrik told me recently. Instead, it was that the mainstream had lost touch with the diversity of opinions and methods that already existed within economics. “The economics profession is strange in that the more you move away from the seminar room to the public domain, the more the nuances get lost, especially on issues of trade.” He lamented the fact that while, in the classroom, the models of trade discuss losers and winners, and, as a result, the necessity of policies of redistribution, in practice, an “arrogance and hubris” had led many economists to ignore these implications. “Rather than speaking truth to power, so to speak, many economists became cheerleaders for globalisation.”

In his 2011 book The Globalization Paradox, Rodrik concluded that “we cannot simultaneously pursue democracy, national determination, and economic globalisation.” The results of the 2016 elections and referendums provide ample testimony of the justness of the thesis, with millions voting to push back, for better or for worse, against the campaigns and institutions that promised more globalisation. “I’m not at all surprised by the backlash,” Rodrik told me. “Really, nobody should have been surprised.”

But what, in any case, would “more globalisation” look like? For the same economists and writers who have started to rethink their commitments to greater integration, it doesn’t mean quite what it did in the early 2000s. It’s not only the discourse that’s changed: globalisation itself has changed, developing into a more chaotic and unequal system than many economists predicted. The benefits of globalisation have been largely concentrated in a handful of Asian countries. And even in those countries, the good times may be running out.

Statistics from Global Inequality, a 2016 book by the development economist Branko Milanović, indicate that in relative terms the greatest benefits of globalisation have accrued to a rising “emerging middle class”, based preponderantly in China. But the cons are there, too: in absolute terms, the largest gains have gone to what is commonly called “the 1%” – half of whom are based in the US. Economist Richard Baldwin has shown in his recent book, The Great Convergence, that nearly all of the gains from globalisation have been concentrated in six countries.

Barring some political catastrophe, in which rightwing populism continued to gain, and in which globalisation would be the least of our problems – Wolf admitted that he was “not at all sure” that this could be ruled out – globalisation was always going to slow; in fact, it already has. One reason, says Wolf, was that “a very, very large proportion of the gains from globalisation – by no means all – have been exploited. We have a more open world economy to trade than we’ve ever had before.” Citing The Great Convergence, Wolf noted that supply chains have already expanded, and that future developments, such as automation and the use of robots, looked to undermine the promise of a growing industrial workforce. Today, the political priorities were less about trade and more about the challenge of retraining workers, as technology renders old jobs obsolete and transforms the world of work.

Rodrik, too, believes that globalisation, whether reduced or increased, is unlikely to produce the kind of economic effects it once did. For him, this slowdown has something to do with what he calls “premature deindustrialisation”. In the past, the simplest model of globalisation suggested that rich countries would gradually become “service economies”, while emerging economies picked up the industrial burden. Yet recent statistics show the world as a whole is deindustrialising. Countries that one would have expected to have more industrial potential are going through the stages of automation more quickly than previously developed countries did, and thereby failing to develop the broad industrial workforce seen as a key to shared prosperity.

For both Rodrik and Wolf, the political reaction to globalisation bore possibilities of deep uncertainty. “I really have found it very difficult to decide whether what we’re living through is a blip, or a fundamental and profound transformation of the world – at least as significant as that one brought about the first world war and the Russian revolution,” Wolf told me. He cited his agreement with economists such as Summers that shifting away from the earlier emphasis on globalisation had now become a political priority; that to pursue still greater liberalisation was like showing “a red rag to a bull” in terms of what it might do to the already compromised political stability of the western world.

Rodrik pointed to a belated emphasis, both among political figures and economists, on the necessity of compensating those displaced by globalisation with retraining and more robust welfare states. But pro-free-traders had a history of cutting compensation: Bill Clinton passed Nafta, but failed to expand safety nets. “The issue is that the people are rightly not trusting the centrists who are now promising compensation,” Rodrik said. “One reason that Hillary Clinton didn’t get any traction with those people is that she didn’t have any credibility.”

Rodrik felt that economics commentary failed to register the gravity of the situation: that there were increasingly few avenues for global growth, and that much of the damage done by globalisation – economic and political – is irreversible. “There is a sense that we’re at a turning point,” he said. “There’s a lot more thinking about what can be done. There’s a renewed emphasis on compensation – which, you know, I think has come rather late.”

https://www.theguardian.com/world/2017/jul/14/globalisation-the-rise-and-fall-of-an-idea-that-swept-the-world

Gary Reber Comments:

Globalization is the pursuit of dominating the ownership of productive capital throughout the world by an already wealthy capital asset ownership class. The system has been rigged to facilitate this world dominance.

And yet author Nikil Saval does not once use the phrase “concentrated capital ownership” in his analysis nor does he advocate for any solutions except for “more redistribution,” as called for by the World Economic Forum.

My citing that the system has been rigged to further the constant acquisition interests of the already capital asset ownership class, I am referring to the monetary system, tax laws, non-existent tariffs (protectionism) and dismantled protective regulations. Failed trade unions, who never fought for workers owning the corporations who employed them, became easy targets to be crushed. Governments, not by or for the people but controlled by the elite wealthy capital asset ownership class vie with each other to be more “competitive” for attracting businesses, providing taxpayer subsidies, tax loopholes, reduced cost or no-cost resources and reduced or no regulations.

In a nutshell, 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, often forced to slavery in sweatshops, 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 all other economies, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being. Without a correctional course, soon there will not be enough “customers with money” to support sustainable economic growth with slow growth here to stay.

And while some conventional economists argue that economic growth reduces poverty, this is a false argument as economic growth financed to further concentrate capital asset ownership among the already wealthy capital ownership class does not reduce poverty; instead it makes the rich even more rich and the non-propertyless, in the capital asset sense, less- or non-productive, as they own no wealth-creating, income-producing capital assets, and more dependent for their economic well-being on businesses who benefit from the increasing downward pressure on wages with more and more workers competing for jobs and on the State and whatever elites control the coercive powers of government. The elites are the wealthy policymaking business and financial individuals and their lobbyists who buy and control elections and occupy and control representation in government.

Morally, those who seek to own productive power that they cannot or won’t use for consumption are beggaring their neighbor — the equivalency of mass murder — the impact of concentrated capital ownership.

Nearly 60 years ago, 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 sustainable economic growth.

Kelso said, “We are a nation of industrial sharecroppers who work for somebody else and have no other source of income. If a man owns something that will produce a second income, he’ll be a better customer for the things that American industry produces. But the problem is how to get the working man [and woman] that second income.”

Economic democracy has yet to be tried.

Economic democracy, or what could be termed economic personalism, is founded on the principal that economic power has to be universally distributed amongst individual citizens and never allowed to concentrate. It is a value system based on the importance and dignity of every human person. America was founded on the principle that the basic responsibility of government is to maximize the welfare of its citizens. The “pursuit of happiness” phrase in the Declaration of Independence was interchangeable in those times with the word “property.” The original phrasing was “the right to life, liberty and property.” “The pursuit of happiness” phrase was a substitute for the “property” phrase. In the forerunner of the Declaration of Independence and Bill of Rights, the 1776 Virginia Declaration of Rights declared that securing “Life, Liberty, with the means of acquiring and possessing Property” is the highest purpose for which any just government is formed. Democratizing economic power will return us to the innocence and economic power diffusion we had in a pre-industrial society where labor was the principal factor in the creation of wealth.

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.

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

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

Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment — thus the political focus on job creation and redistribution of wealth rather than on equal opportunity to produce, full production and broader capital ownership accumulation. This is manifested in the myth that labor work is the ONLY way to participate in production and earn income, and that individual talent and effort are what distinguish the wealthy from the non-wealthy. Long ago that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Physical capital provides not less than 90 to 95 percent of the input. Full employment as the means to distribute income is not achievable, except while building a future economy that can support general affluence for EVERY citizen. 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.

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.

For putting us on the path to inclusive prosperity, inclusive opportunity and inclusive economic justice, see my article “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11.

For how to make EVERY citizen PRODUCTIVE see my article “What Is Needed To Resolve The Destruction Of American Jobs Problem?” published by The Huffington Post at http://www.huffingtonpost.com/entry/593adb89e4b0b65670e569e9.

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

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

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

Norman Kurland, President Center for Economic and Social Justice (www.cesj.org) Comments:

Please find the time to read the article below that just appeared in the UK’s paper The Guardian.

It reveals the complete confusion among academic economists globally and academia generally to the moral basis of “private property.” It ignores the logic of the four pillars of a just global market economy, as well as the basic principles for promoting global justice from the bottom-up by lifting monetary, tax, trade and other systemic barriers for every child, woman and man, no matter how poor or in what country in the world, to gain an equal opportunity to acquire and contribute as a future owner of ever-advancing productive capital to a more just and prosperous future global economy.  Note its total silence to Article 17 of the Universal Declaration of Human Rights or any of the publications presented at the websites of CESJ or the Just Third Way version of the “Global Justice Movement.”

Compare the moral blindness of the short-sighted version of global justice peddled by the so-called “scholarly community” with that presented by the Global Justice Movement launched by Dan Parker in Alberta, Canada at www.globaljusticemovement.org.

Why Capitalism Is Just Shitbag Science

On July 14, 2017, Holly Wood writes on Renegade Inc.:

Pure capitalism is beginning to look really similar to pure feudalism. Renegade sociologist, Holly Wood explores how we’ve passively accepted the private expropriation of public wealth. 

Illustration by Rachael Bolton

Capitalism is very simple. Capitalism as an economic system is essentially defined as the process of private expropriation of public wealth. Technically, the Earth is every creature’s inheritance but we in our late modern wisdom have conceded that only a select handful of people will get to profit from its resources while the rest are forced by either gunpoint or starvation to serve them forever or die.

But of course, ironically, defining capitalism for what it is has you thinking me perfectly barbaric. What, no, you gasp and sputter. Surely, capitalism is the most just and fair distribution system of all time! No one could dream of a better, more equitable, more efficient, more beautiful social machinery than that which is spontaneously engineered by the invisible hand of the free market!

Right, the invisible hand fracking our water supply.

The invisible hand that makes our rivers flammable.

The invisible hand that cooks the ocean.

The invisible hand that is melting Antartica.

The invisible hand that chains teenage girls to sewing machines

The invisible hand that traffics children into sex slavery.

You know, the invisible hand holding humanity down by the throat.

That one.

Good stuff that, apparently.

Remember about ten years ago, the government rewarded failed banks trillions of dollars for irreparably fucking up the economy? Remember how virtually no individual responsible for the collapse lost their jobs? In fact, most of them were rewarded with very large bonus checks from their shareholder boards for demonstrating their genius in making the American taxpayer clean up the mess when they all shat the floor.

My god, it was brilliant. Hardly capitalist in the traditional, value-producing sense, but nevertheless masterful in the new capitalist art of shitbag science.

Brava, Goldman Sachs. Brava.

Have you ever stopped to consider that the majority of the wealthiest people don’t actually perform any kind of employment whatsoever? Sure, a few wealthy people run companies and shit, but most don’t. They don’t have to. Being rich means you never have to work. You earn money sitting on the toilet.
The most typical rich person lives on the compounding interest of their forebears’ estates. They don’t manage this estate portfolio themselves, no, dear god, because that would mean working. It would mean researching opportunity horizons and studying futures. Taking investment seriously would mean having to learn shit. While there are many Brahmin sons who live for investment, most of the rich kids I know waste their inheritance flitting from one rehab to the next until they shit out a kid who then wastes their share of the inheritance flitting from one rehab to the next. Rehab migration: the natural lifecycle of the bourgeoisie.

But between stints “recuperating” from doing absolutely fuck all with their lives, these shitbirds outsource their financial obligations to wealth management firms and hedge funds who take their money and make hundreds of little gambles in an effort to make them more money. And with their money so well-taken care of, the rich go back to doing fuck all while earning thousands of dollars a day in passive investment income for absolutely no godly reason.

And because the wealthy truly do not give a fuck about what these wealth managers do with their piles of money so long as those piles get appreciably bigger over time, these wealth managers in turn simply invest in shit they know will keep making money. Like deforestation. And pipelines. Or Israeli bullets that will scream through Palestinian children. Whatever sells. It’s not exactly hard to make money if you’re willing to invest in the strangling of the planet.

All this so Shitbird Jr. can Snapchat his first nervous breakdown on a yacht anchored in Ibiza.
Innovation is a distraction. Don’t kid yourself thinking our GDP grows because smart inventors are getting rich off good ideas. No. Most money is still made the old-fashioned way — through sheer violence.

Rich people force poor people to work for them for wages. The poor do not get to negotiate these wages. Wages are what the market dictates is a fair price for one hour of their labor. Though a cashier at McDonald’s handles easily hundreds of dollars in an hour, she will be paid $7.25 an hour regardless of what her employer earns from her labor and they will insist this is fair. She may hate her job and cry every night on her mother’s pullout couch wishing she could find a better, higher-paying job, but all of this suffering is her choice, obviously.

Oh, that’s right — a lot of people think that if you’re not being coerced to work by top-heavy goons by gunpoint, you’re somehow not being coerced to work. They like to spin these weird pretzels of logic where those without money or resources are actually free to live in a world where the rich have now privatized the commons and kicked out the ladder. When confronted with the reality that single moms work because if they don’t their kids are taken away, they shrug and insist those moms shouldn’t have had kids. When confronted with the bleak dilemma that many millions of chronically ill people face staying in horrible jobs every day to keep their health insurance, they shrug and insist it’s their own fault for getting sick in a country where medical care is prohibitively expensive. So on and so forth.
Capitalist shitbag science means the rationalizations for injustice never end. No, unless you’re literally being held down by gunpoint, none of this will ever qualify as coercion. They always win because you’re always free to choose something else — apparently.

Before Capitalism, what is now the United States was just a sandbox of tribes living off little more than the fish, nuts and berries they found in the woods for thousands of years. Where I live now in Northeast Pennsylvania, the Delaware tribe lived long, healthy lives primarily eating the same kind of deer that today live to fuck up my garden.

Now Capitalism has my neighbors spending most of their days driving to a job that I know pays them less than they need to feed their kids. But surely this isn’t coercion. They are free to work. And, of course, their kids are free to starve.

For reasons that lay beyond my comprehension, we call this situation progress because whatever this shitbaggery is, it more closely approximates “pure capitalism” than what the Delaware were doing.
That the deer are more free than my neighbors taunts me.

So in sum, Capitalists believe that civilization is an asymptotic function where humanity is approaching but will never reach capitalist perfection. They insist that any economic system occurring before ours must be bad since ours more obviously approximates the yet unmet capitalist ideal. They insist that because we have never achieved “pure capitalism,” the problems of modern society can and will be solved by further freeing regulated markets.

This is shitbag science. This is the argument that because we have never quite achieved perfect capitalism, none of the consequences of contemporary capitalism are problems we should solve. Instead, we should think of society as on the mend, improving as we approach greater, purer capitalism.

But the true capitalist ideal isn’t an ideal you would really want. The endgame of capitalism would be the massive expropriation of the world’s resources into the hands of a few obscenely wealthy people, leaving the vast, vast majority of Earth’s denizens propertyless and without access to the necessities for life. There would be constant violence as those at the bottom drown each other, gulping for air. We’d be seeing armed security employed in the sad work of mowing down the dispossessed. Children would be selling themselves on the street for bread and shelter. Grandparents would be swallowing the last of their pills to spare their children the extra mouth to feed.

But of course none of that is happening now because we have yet to reach “pure capitalism.”

Can’t wait to see what that looks like.

Why Capitalism Is Just Shitbag Science

Gary Reber Comments:

This author is angry and frustrated. Yes “pure capitalism” is similar to feudalism in term of who owns and controls the non-human means of production.

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.

Nearly 60 years ago, 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.

Kelso said, “We are a nation of industrial sharecroppers who work for somebody else and have no other source of income. If a man owns something that will produce a second income, he’ll be a better customer for the things that American industry produces. But the problem is how to get the working man [and woman] that second income.”

Economic democracy has yet to be tried.

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.

For putting us on the path to inclusive prosperity, inclusive opportunity and inclusive economic justice, see my article “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11.

For how to make EVERY citizen PRODUCTIVE see my article “What Is Needed To Resolve The Destruction Of American Jobs Problem?” published by The Huffington Post at http://www.huffingtonpost.com/entry/593adb89e4b0b65670e569e9.

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

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

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

Minimum Wage Hikes Are An Act Of Cruelty

San Francisco’s minimum wage hike to $15 an hour was followed by a slew of restaurant closures. (Photo: iStock Photos)

On July 12, 2017, Walter E. Williams writes on The Daily Signal:

There are political movements to push the federal minimum hourly wage to $15.

Raising the minimum wage has popular support among Americans. Their reasons include fighting poverty, preventing worker exploitation, and providing a living wage.

For the most part, the intentions behind the support for raising the minimum wage are decent. But when we evaluate public policy, the effect of the policy is far more important than intentions.

So let’s examine the effects of increases in minimum wages.

The average wage for a cashier is around $10 an hour, about $21,000 a year. That’s no great shakes, but it’s an honest job for full- or part-time workers and retirees wanting to earn some extra cash.

In anticipation of a $15-an-hour wage becoming federal law, many firms are beginning the automation process to economize on their labor usage.

Panera Bread, a counter-serve cafe chain, anticipates replacing most of its cashiers with kiosks. McDonald’s is rolling out self-service kiosks that allow customers to order and pay for their food without ever having to interact with a human.

Momentum Machines has developed a meat-flipping robot, which can turn out 360 hamburgers an hour. These and other measures are direct responses to rising labor costs and expectations of higher minimum wages.

Here’s my question to supporters of higher minimum wages: How compassionate is it to create legislation that destroys an earning opportunity?

Again, making $21,000 a year as a cashier is no great shakes, but it’s better than going on welfare, needing unemployment compensation, or idleness. Why would anybody work for $21,000 a year if he had a higher-paying alternative?

Obviously, the $21,000-a-year job is his best-known opportunity. How compassionate is it to call for a government policy that destroys a person’s best opportunity? I say it’s cruel.

San Francisco might give us some evidence for what a $15 minimum wage does.

According to the East Bay Times, about 60 restaurants around the Bay Area closed between September and January.

A recent study by Michael Luca of Harvard Business School and Dara Lee Luca of Mathematica Policy Research calculated that for every $1 hike in the minimum hourly wage, there is a 14 percent increase in the likelihood that a restaurant rated 3 1/2 stars on Yelp will go out of business.

Fresno Bee reporter Jeremy Bagott says that even some of San Francisco’s best restaurants fall prey to higher minimum wages. One saw its profit margins fall from 8.5 percent in 2012 to 1.5 percent by 2015.

Most restaurants are thought to require profit margins between 3 and 5 percent to survive.

Some think that it’s greed that motivates businessmen to seek substitutes for labor, such as kiosks, as wages rise. But don’t blame businessmen; just look in the mirror.

Suppose both McDonald’s and Burger King are faced with higher labor costs as a result of higher minimum wages. McDonald’s lowers its labor costs by installing kiosks and laying off workers, but Burger King decides to not automate but instead keep the same amount of labor.

To cover its higher labor costs, Burger King must charge higher prices for its meals, whereas McDonald’s gets by while charging lower prices.

Which restaurant do you think people will patronize? I’m guessing McDonald’s. What customers want is an important part of a company’s decision-making.

But there are other actors to whom companies are beholden. They are the companies’ investors, who are looking for returns on their investments.

If one company responds appropriately to higher labor costs, it will produce a higher investor return than one that does not.

That means “buy” signals for the stock of a company that responds properly and “sell” signals for the stock of one that does not, as well as possible outside takeover attempts for the latter.

The best way to help low-wage workers earn higher wages is to make them more productive, and that’s not accomplished simply by saying they are more productive by mandating higher wages.

Minimum Wage Hikes Are an Act of Cruelty

Gary Reber Comments:

Professor of Economics Walter Williams nails it when he concludes an alternative to raising the minimum wage: “The best way to help low-wage workers earn higher wages is to make them more productive, and that’s not accomplished simply by saying they are more productive by mandating higher wages.”

But, as with virtually all articles that address economic inequality, Professor Williams puts forth no concrete policies or financial mechanisms to make people more productive. Virtually every article concludes with either raise the minimum wage or provide an Unconditional Basic Income.

What Professor Williams is pointing out, which should be obvious to anyone with common sense, a minimum wage increase is fundamentally a wage cost increase to business owners without increasing productivity on the part of the people employed.

For centuries technological change has make tools, machines, structures, and processes ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power — and relatively constant). The technology industry is always changing, evolving and innovating. And as businesses are faced with increased costs and competitive forces to maintain competitive pricing of their goods, products and services, they are in constant search for solutions to lower their operational costs, which ultimately translates to employing the non-human means of production. 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 owners of productive capital and progressively less to workers who make their contribution through labor.

Furthermore, if businesses cannot offset increased costs outside of their control, the result is they raises prices, which results in inflation, and if they lose customers as a result, they face going out of business.

Unfortunately, those who are not business owners themselves say so what, what is a few cents or dollars more?

And while the price of goods, products and services produced by industries that employ low-wage workers isn’t completely determined by minimum-wage workers and what they make, other factors have to do with the cost of building or franchise leases, the cost of raw materials, transport and taxes and other non-human factors. And these other factors are under the same pressure to reduce costs. So, I think that people forget that full employment or paying above market pricing for labor is not an objective of businesses nor is conducting business statically in terms of geographical location. Companies strive to achieve cost efficiencies to maximize profits for the owners, at times, where profit margins are competitively low, thus keeping labor input and other costs at a minimum. 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 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. 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 good, products or services in order to generate profits and thus return on investment (ROI).

Over the past century there has been an ever-accelerating shift to productive capital (efficient use of land, structures, mechanism, automation, robotics, computerization, etc.) — 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 239 years in step with the Industrial Revolution (starting in 1776) and had even been changing long before that with man’s discovery and use 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 goods, 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, resulting in 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 goods, products and services are produced from labor intensive to capital intensive — the core function of technological invention and innovation. The reality is that most changes in the productive capacity of the world since the beginning of the Industrial Revolution can be attributed to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Productive capital 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, binary economist Louis Kelso asserted more than 60 years ago 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.”

At some point, hopefully people will wake up and grasp the wisdom (today’s word for yesterday’s common sense) of what the late labor statesman Walter Reuther pointed out half a century ago in his testimony before the Joint Economic Committee of Congress, February 20, 1967:

The breakdown in collective bargaining in recent years is due to the difficulty of labor and management trying to equate the relative equity of the worker and the stockholder and the consumer in advance of the facts. . . . If the workers get too much, then the argument is that that triggers inflationary pressures, and the counter argument is that if they don’t get their equity, then we have a recession because of inadequate purchasing power. We believe this approach (progress sharing) is a rational approach because you cooperate in creating the abundance that makes the progress possible, and then you share that progress after the fact, and not before the fact.  Profit sharing would resolve the conflict between management apprehensions and worker expectations on the basis of solid economic facts as they materialize rather than on the basis of speculation as to what the future might hold. . . . If the workers had definite assurance of equitable shares in the profits of the corporations that employ them, they would see less need to seek an equitable balance between their gains and soaring profits through augmented increases in basic wage rates. This would be a desirable result from the standpoint of stabilization policy because profit sharing does not increase costs. Since profits are a residual, after all costs have been met, and since their size is not determinable until after customers have paid the prices charged for the firm’s products, profit sharing as such cannot be said to have any inflationary impact upon costs and prices. . . . Profit sharing in the form of stock distributions to workers would help to democratize the ownership of America’s vast corporate wealth.”

Louis Kelso’s Employee Stock Ownership Plan (ESOP) was one step on the path Reuther laid out. Capital Homesteading is another. Perhaps it’s time world leaders took economic reality and common sense into account. . . .

Instead of engaging in inflationary bandaids and capping earnings of workers by solely focusing on wage levels, the logical answers are to think outside the one-factor LABOR/WAGE box and begin to think how to make EVERY citizen PRODUCTIVE through OWNING interests in the corporations growing the economy and employing fewer and fewer people. To acquire OWNERSHIP, financial mechanism are needed to provide interest-free capital credit without the requirement of “past savings” (loan default security), repayable out of the future earnings of the investments in our economy’s growth and the building of a future economy that can support quality, affluent living standards. How to solve the “past savings” security collateral problem to make good on the relatively few bad loans that are inevitable, is to insure banks against such risks using commercial capital credit insurance and reinsurance (ala the Federal Housing Administration concept).

Researchers should start with this proposal and study its impact.

For how to make EVERY citizen PRODUCTIVE see my article “What Is Needed To Resolve The Destruction Of American Jobs Problem?” published by The Huffington Post at http://www.huffingtonpost.com/entry/593adb89e4b0b65670e569e9.

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

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

Seattle Shows The Way To Higher Pay

People demonstrating for a $15 minimum wage in Seattle, in 2014.

On July 8, 2017, the Editorial Board of The New York Times writes:

A recent study on Seattle’s $15-an-hour minimum wage law reignited the debate over whether higher minimums help workers by lifting pay or harm them by leading employers to cut hours. The study, by University of Washington researchers, found more harm than good, a result that was at odds with a large body of previous research and was challenged by other economists who saw flaws in the study.

The dispute has been healthy. The critics have been specific and data driven, not ideological. The study’s authors have said they welcome criticism and have acknowledged that other conclusions are plausible. The dispute could actually advance the cause for higher minimums and give them a better chance of delivering the desired benefits.

For starters, the debate has underscored the validity of decades of rigorous research and real-life experience showing that moderate increases in the minimum raise the pay of low-wage workers without reducing job growth or work hours. The only question is whether big increases would also work. The federal minimum is a mere $7.25 an hour and most of the 30 states with higher minimums require less than $10 an hour. Large minimum-wage increases are generally defined as those calling for $12 to $15 an hour.

In Seattle, the minimum rose in 2015 from $9.47 an hour to either $10 or $11, depending mainly on the size of a business. In 2016 it rose to a range of $10.50 to $13. (The period studied covers 2015 and 2016.) In 2017, it hit $11 to $15. By 2021, all Seattle businesses will pay at least $15.

In attempting to assess the effects of the increase, the Seattle study excluded workers at businesses that also have locations outside the city, including chains and franchises like Starbucks and McDonald’s. The intent was to isolate the impact on Seattle employers, independent of outside business concerns. But the consequence was to overlook — and most likely underestimate — the experiences of employers who can best afford the raises. Similarly, the study blames the minimum wage increase for a decline in low-wage work in Seattle, when a likely cause is the city’s strong economy in which competition, not the minimum wage, bids up pay.

Seen in that light, it seems safe to conclude that Seattle has tolerated its minimum wage increase well and that, by extension, other strong economies could do so. It also suggests that a key to successful large increases is a gradual phase-in that gives businesses time to adjust and experts time to study the impacts as they unfold.

Caution is advisable, because large increases are largely untested. What is not acceptable is to do nothing in the face of uncertainty. Minimum wages have to go up: If the federal minimum of $7.25 had simply kept pace over the decades with inflation, it would be nearly $10 an hour today. If it had kept pace with other relevant benchmarks, like average wages and productivity growth, it would be $11 to nearly $19 today. Cities and states are experimenting with higher minimums because Congress has failed to raise the federal minimum. The experiment appears to be working.

https://mobile.nytimes.com/2017/07/08/opinion/sunday/seattle-minimum-wage.html?smprod=nytcore-iphone&smid=nytcore-iphone-share&referer=https%3A%2F%2Ft.co%2Fgr2z2QVDzx%3Famp%3D1

Gary Reber Comments:

The squabbling debate between pro minimum-wage advocates and free market advocates continues.

The real issue we should be addressing is how to empower EVERY citizen to earn more income through ownership of the non-human factor of production – technological invention and innovation that results in more efficient “tools” (what economists call productive physical capital) that reduce or eliminate the necessity for human labor.

Yet, it appears that no leaders or media or conventional economists are willing to say: “Stop, there is a better way to increasing earnings of EVERY citizen by focusing on financial mechanism that create wealth-creating, income-producing capital asset ownership simultaneously with the future capital asset formation of the future.”

But no, they are stuck in one-factor thinking – labor – as the ONLY way to increasing earnings of the vast majority of Americans who are locked out of the system to become a substantial capital owner.

Just the other day I commented on a Harvard study (http://www.foreconomicjustice.org/?p=17155) that points to minimum wage increases resulting in worker layoffs, increased pricing and hour-cuts for existing workers, resulting in reduced employment. Furthermore, as profit margins are further squeezed, those with the ability to automate are doing so and those who don’t are closing their doors. All this is happening and yet the minimum wage of $15 set by some cities won’t become law until, at the earliest, July of 2018.

But raising the minimum wage was supposed not to kill jobs or create operational costs that would squeeze profit margins and result in business closures. Wasn’t it?

Using common sense, if raising the minimum wage will not kill jobs then why not raise the minimum wage to $25.00 or $50.00 or $100.00 per hour? Of course there are consequences that either are reflected in job elimination, increased prices or business closures. Virtually never are the OWNERS of corporations willing to reduce profits, which often are marginal.

Competition drives businesses to constantly figure out ways to reduce operational costs. Full employment is not an objective of businesses nor is conducting business statically in terms of geographical location. Companies strive to achieve cost efficiencies to maximize profits for the owners, thus keeping labor input and other costs at a minimum.

If wage levels were not a factor there would be also no reason for ANY company to exit production in the United States and move production to foreign lands with significantly less labor costs. Also, there is the impact on pricing levels, as any increases in the cost of production or service always results in pricing increases – inflation.

If this were not the case, then no companies would be compelled to seek other non-human more cost-efficient means of production or to move production to foreign countries whose workers are paid far less than  Americans.  Increasingly, companies are seeking more efficient and less long term costs that non-human technology can deliver to reduce their operating costs, provide higher build quality, automate service, and maximize profits for their OWNERS. As is virtually always the case, the OWNERS of companies do not want to reduce profits.

What the proponents of raising the minimum wage fundamentally are addressing is that low-paid American workers need to earn more income.

We need to begin focusing on the means for people to earn more income, and not solely dependent on earnings from jobs, which are being destroyed with tectonic shifts in the technologies of production. We need to implement financial mechanisms to finance future economic growth and simultaneously create new capital asset owners. This can be accomplished with monetary reform and using insured, interest-free capital credit (without the requirement of past savings, a job or any other source of income), repayable out of the future earnings in the investments in our economy’s growth.

But how, you ask, can such an OWNERSHIP CREATION solution be implemented?

We can and should do more to create universal capital ownership not only for workers of corporations but ALL citizens. What I believe is crucial to solving economic inequality and building a future economy that can support general affluence for EVERY citizen is to address concentrated capital ownership, the fundamental cause of economic inequality. The obvious solution is to de-concentrate capital ownership by ensuring that all future wealth-creating, income-producing capital asset formation will be financed using insured, interest-free capital credit, repayable out of the future earnings of the investments, creating ownership participation by EVERY child, woman, man. This should be about investment in real productive capital growth, not speculation as with the stock exchanges. But the problem is the vast majority of Americans have no savings, or at best extremely limited savings, insufficient to be meaningful as increasingly Americans are living week to week, month to month, and deeply in consumer debt. So forget about proposals for tax credits, retirement and health savings accounts.  There is no feasible way that past savings can continue to be a requirement for investment if we are to simultaneously create new capital owners with the productive growth of the economy. The current economic investment system is structured based on the requirement of past savings used directly or as security collateral for capital credit loans. But past savings are not necessary as viable capital formation projects pay for themselves. This is the logic of corporate finance.

Capital acquisition 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 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.

Still, there is at least a theoretical chance, and sometimes a very real chance, that the investment might not pay for itself, or it might not pay for itself in the projected time period. So, there is a business risk. This can be solved using private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept). On a larger scale, the path to solve the security issue, that is, the risk can be absorbed by capital credit insurance or commercial risk insurance. Thus, in order to achieve national economic democracy, we need a way to handle risk management in finance by broadly insuring the risks. Such capital credit insurance would substitute for the security demanded by lenders to cover the risk of non-payment, thus enabling the poor and others with no or few assets (the 99 percenters) to overcome the collateralization barrier that excludes the non-halves from access to productive capital.

One feasible way is to lift ownership-concentrating Federal Reserve System credit barriers and other institutional barriers that have historically separated owners from non-owners and link tax and monetary reforms to the goal of expanded capital ownership. This can be done under the existing legal powers of each of the 12 Federal Reserve regional banks, and will not add to the already unsustainable debt of the Federal Government or raise taxes on ordinary taxpayers. We need to free the system of dependency on Wall Street and the accumulated savings and money power of the rich and super-rich who control Wall Street. The Federal Reserve System has stifled the growth of America’s productive capacity through its monetary policy by monetizing public-sector growth and mounting Federal deficits and “Wall Street” bailouts; by favoring speculation over investment; by shortchanging the capital credit needs of entrepreneurs, inventors, farmers, and workers; by increasing the dependency of with usurious consumer credit; and by perpetuating unjust capital credit and ownership barriers between rich Americans and those without savings.

The Federal Reserve Bank should be used to provide interest-free capital credit (including only transaction and risk premiums) and monetize each capital formation transaction, determined by the same expertise that determines it today – management and banks – that each transaction is viably feasible so that there is virtually no risk in the Federal Reserve. The first layer of risk would be taken by the commercial credit insurers, backed by a new government corporation, the Capital Diffusion Reinsurance Corporation, through which the loans could be guaranteed. This entity would fulfill the government’s responsibility for the health and prosperity of the American economy.

The Federal Reserve Board is already empowered under Section 13 of the Federal Reserve Act to reform monetary policy to discourage non-productive uses of credit, to encourage accelerated rates of private sector growth, and to promote widespread individual access to productive credit as a fundamental right of citizenship. The Federal Reserve Board needs to re-activate its discount mechanism to encourage private sector growth linked to expanded capital ownership opportunities for all Americans (Section 13(2) Federal Reserve Act).

Until we address concentrated capital ownership and implement solutions to simultaneously broaden capital ownership by creating new capital owners with the growth of the productive economy, money power will reside in the hands of politicians and bankers, not in the hands of the citizens. That is why, to reform the system leaders and advocates for economic justice must focus on money, how it should be created and measured, how it should be controlled and why a more realistic and just money system is the key to universal and equal citizen access to future ownership opportunities as a fundamental human right. Then prosperity and economic democracy can serve as the basis for effective and non-corruptible political democracy, an ecologically sustainable environment, and global peace through justice.

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

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

The Huge Gap Between America’s Rich And Superrich Exposes A Fundamental Misunderstanding About Inequality

On July 8, 2017, Pedro Nicolai da Costa writes on Business Insider:

Destabilizing levels of income inequality, once a problem reserved for developing nations, is now a defining social and political issue in the United States.

Donald Trump seized on the issue during the presidential campaign, vowing to become a voice for forgotten Americans left behind by decades of widening wealth disparities.

While America’s enormous gap between rich and poor and the sorry state of its middle class are well-documented, a less prominent trend tells an equally important story about the American economy: the divide between the well-off and the stratospherically rich.

This particular pattern is especially important since some economists and conservative commentators have tried to blame inequality on educational levels, arguing that those with college degrees have fared well in the so-called knowledge economy while those with a high school diploma or less lack the skills to do the jobs available.

Others, however, point to runaway salaries for top executives in industries like energy and finance as the key underlying drivers of inflation, which has been characterized by huge gains at the very top of the income distribution. Executive compensation is driven in large part by corporate boards that have cozy relationships with firms’ CEOs, rather than market forces.

From Aspen, Colorado, the New York Times columnist David Brooks recently wrote:

“There is a structural flaw in modern capitalism. Tremendous income gains are going to those in the top 20 percent, but prospects are diminishing for those in the middle and working classes. This gigantic trend widens inequality, exacerbates social segmentation, fuels distrust and led to Donald Trump.”

Gabriel Zucman, an economist at the University of California, Berkeley and a preeminent researcher of inequality, wasted little time in countering the argument.

“Tremendous gains are not going to the top 20%. They are going to top 1%,” he tweeted at Brooks, adding that this is key to understanding the Republican Party’s agenda.

ZucmanGabriel Zucman

Richard Reeves, a senior fellow at the Brookings Institution, makes a similar case as Brooks.

“The strong whiff of entitlement coming from the top 20 percent has not been lost on everyone else,” he wrote in a recent opinion piece. His book is titled “Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It.”

Nicholas Buffie, an economic-policy researcher in Washington, eloquently took issue with the 20% argument in a blog he wrote when he was at the Center for Economic and Policy Research.

“The problem with this type of analysis is that it misleads readers into thinking that a large group of well-educated Americans have benefited from the rise in inequality,” Buffie said. “In reality, the ‘winners’ from increased inequality are really a much smaller group of incredibly rich Americans, not a large group of well-educated, upper-middle-class workers.”

In other words, blaming America’s wealth divide merely on educational differences may be easy, but not particularly useful.

http://www.businessinsider.com/income-gap-between-upper-middle-class-and-very-rich-2017-7

Gary Reber Comments:

Interestingly, while to some degree all of the causes cited in the author’s article are true, the author does not zero in on why the rich and super-rich are wealthy. Simply, the reason they are rich is because they OWN the vast means of non-human, wealth-creating, income-producing capital assets. They will continue to get richer and richer as long as the system requires “past savings” to finance future capital asset formation,

One feasible way is to lift ownership-concentrating Federal Reserve System credit barriers and other institutional barriers that have historically separated owners from non-owners and link tax and monetary reforms to the goal of expanded capital ownership. Removing barriers that inhibit or prevent ordinary people from purchasing capital that pays for itself out of its own future earnings is paramount as an actionable policy. This can be done under the existing legal powers of each of the 12 Federal Reserve regional banks, and will not add to the already unsustainable debt of the Federal Government or raise taxes on ordinary taxpayers. We need to free the system of dependency on Wall Street and the accumulated savings and money power of the rich and super-rich who control Wall Street. The Federal Reserve System has stifled the growth of America’s productive capacity through its monetary policy by monetizing public-sector growth and mounting federal deficits and “Wall Street” bailouts; by favoring speculation over investment; by shortchanging the capital credit needs of entrepreneurs, inventors, farmers, and workers; by increasing the dependency with usurious consumer credit; and by perpetuating unjust capital credit and ownership barriers between rich Americans and those without savings. The Federal Reserve Bank should be used to provide interest-free capital credit (including only transaction and risk premiums) and monetize each capital formation transaction, determined by the same expertise that determines it today — management and banks — that each transaction is viably feasible so that there is virtually no risk in the Federal Reserve. The first layer of risk would be taken by the commercial credit insurers, backed by a new government corporation, the Capital Diffusion Reinsurance Corporation, through which the loans could be guaranteed (ala the Federal Housing Administration concept). This entity would fulfill the government’s responsibility for the health and prosperity of the American economy.

We need to reevaluate our tax, monetary and central banking institutions, as well as, labor and welfare laws. We need to innovate in such ways that we lower the barriers to equal economic opportunity and create a level playing field based on anti-monopoly and anti-greed fairness and balance between production and consumption. In so doing, every citizen can begin to accumulate a viable capital estate without having to take away from those who now own by using the tax system to redistribute the income of capital owners. What the “haves” do lose is the productive capital ownership monopoly they enjoy under the present unjust system. A key descriptor of such innovation is to find the ways in which “have nots” can become “haves” without taking from the “haves.” Thus, the reform of the “system,” as binary economist Louis Kelso postulated, “must be structured so that eventually all citizens produce an expanding proportion of their income through their privately owned productive capital and simultaneously generate enough purchasing power to consume the economy’s output.”

We need leadership to awaken all American citizens to force the politicians to follow the people and 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.

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

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