How To Pay For Universal Basic Income

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On November 28, 2016, James K. Boyce and Peter Barnes write on Evonomics:

Lately there’s been renewed discussion of universal income: regular cash payments to everyone, regardless of race, gender or need. Past proponents of the idea include the revolutionary Thomas Paine, civil rights leader Martin Luther King, Jr., free-market econ­omist Milton Friedman and President Richard Nixon. Today’s interest has been sparked by the income stagnation experienced by America’s middle class and working poor, and by the per­sist­ent slow growth experienced by our economy.

The idea finds support across America’s ideological spectrum in an era when hardly anything else does. Liberals, or at least some of them, like it as a way to preserve our middle class when jobs no longer pay enough. Conservatives, or at least some of them, like it as a way to reduce depend­ence on our byzan­tine maze of welfare programs.

But universal income is expensive and quickly runs into the stumbling block of how to pay for it. Its wide appeal is checked by an equally wide­spread aver­sion to taxes, especially for the purpose of redistributing income. Fortu­nate­ly there’s another way to pay for it: universal income can come from universal assets, a.k.a. our common wealth.

The wealth we inherit and create together is worth trillions of dollars, yet we presently derive almost no income from it. Our joint inheritance includes invaluable gifts of nature such as our atmosphere, minerals and fresh water, and socially created assets such as our legal and financial infrastructure, without which private corporations couldn’t exist, much less thrive. If our common assets were better managed, they could pay every American, including children, several hundred dollars a month.

Consider, for example, the limited capacity of our atmosphere to absorb pollutants that cause climate change. By charging polluters for using that scarce asset, we can both protect our climate and generate dividends for everyone. Other forms of pollution could be similarly priced. And we could charge market prices for extracting resources like minerals and timber from public lands that are now leased to private firms cheaply in sweetheart deals. Making polluters and extractors pay, without abandon­ing regulation, would provide market-based incentives to respect nature.

And that’s not all. Universal assets include gifts of society as well as nature. An example is our legal and financial infrastructure, without which the private fortunes of billion­aires would be impossible.

Here’s what investor Warren Buffett once said to Barack Obama: “I was lucky enough to be born in a time and place where society values my talent, and gave me a good educa­tion to develop that talent, and set up the laws and the financial system to let me do what I love doing — and make a lot of money doing it.” When asked how much of his wealth was created by soci­ety, Buffett says “a very significant percentage.” Nobel econ­omist Herbert Simon was somewhat more precise. “If we’re very generous with ourselves, I suppose we might claim we ‘earned’ as much as one-fifth of our income. The rest is patrimony associated with being a member of an enor­mously productive social system.”

Currently, those who benefit most from our socially built assets pay almost nothing to use them. But that needn’t always be the case. We could charge for using key compo­nents of our legal and financial infrastructure; for example, modest transaction fees on trades of stocks, bonds and deriva­tives could generate more than $300 billion per year. Such fees would not only generate in­come for everyone; they’d discourage speculation and help stabilize our financial system. Similar fees could be applied to patent and royalty earnings, which are returns not only to inno­va­tion but also to mono­poly rights granted and enforced by society.

Here’s the bottom line. It would not be difficult to create a portfolio of uni­ver­sal assets that could pay, say, $200 a month to every U.S. resident with a valid Social Security number. Such money could be wired automa­tically to everyone’s bank accounts or debit cards, with virtually no bureau­cracy. It would be paid to everyone as joint owners of our universal assets; it would be paid by those who use these assets in proportion to their use. These pay­ments would not be a taxes accruing to and spent by govern­ment, but rather pay­ments to all of us for value generated by our jointly owned assets.

If everyone received regular income from common assets, would anyone have an incentive to work? Unless the asset-based income were improbably high, most people would still want to work to earn better livelihoods. Sure, some people might be freed from the need to do work they really hate, but that’s a good thing. Others might be freed to do work they really love, even if it doesn’t pay all that much. That’s a good thing, too.

In the game Monopoly, $200 is the amount every player gets for passing Go. Such cash infusions aren’t bad for the game; instead they help all players play the game. The same would happen in our real economy if everyone gets infusions of $200 a month. The extra money would relieve some burdens of working families and heighten their chances for success and satisfac­tion. And it would stimulate our economy without higher debt.

The gifts of nature and society will not come to us as gifts from our poli­ti­cal leaders; we will win them only if we join together to claim them. Fittingly, we can do that by using another asset we won the same way: our democracy.

How to Pay for Universal Basic Income

 

How To Really Protect And Advance America

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Donald Trump has advocated for re-establishing tariffs on imported goods and products. But much, much more has to be accomplished.

Ever since Ronald Reagan, our political leaders have abandoned protectionism, which has resulted in the reality that products manufactured in America today heavily rely on suppliers from other countries. We have become dependent on foreign suppliers who could cut us off anytime they choose.

While Americans routinely patronize the lowest price retailers, such as Walmart, and constantly seek the lowest competitive price on products, obsessively using credit card debt to pay for the products they sell, much of the gross revenue generated goes to China, Mexico, Vietnam and other low-wage, regulation-relaxed nations, as these products are being produced there instead of in America. And under so called international “free trade” agreements, further out-sourcing of product manufacturing results as foreign-produced goods and products can dominate. This is the cause of our huge annual trade deficits. Americans get cheap goods and products and foreigners get our money,  with Americans perpetually indebted to credit card corporations.

And as foreigners get richer they purchase our industrial resources, factories, retail establishments, commercial buildings, and increasingly residential real estate. They are essentially colonizing America as foreign buyers become our new landlords.

In years prior to 1981, our leaders saw to it that we had strong tariffs in place. As a result, virtually a quarter of our workforce was both engaged in manufacturing and unionized. We produced quality goods and products, which other countries imported. We were the largest creditor nation. But today’s reality is very different. It is no surprise that the most indebted country in the world is the United States, meaning the value of our domestically owned assets is less than our liabilities to foreign investors.

This has come about because of a transformation to “free trade,” which benefits the wealthy capital ownership class who own the corporations who now operate multi-nationally. As with any business, they strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. 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 business corporations are constantly competing with each other (on a local, national and global scale) for attracting “customers with money” to purchase their products or services. Multi-national in scope, they seek “customers with money” wherever they are in the world.

While prior to 1981 (before the Reagan administration gained political power), the United States was the world’s largest exporter of finished, manufactured goods and products, and the world’s largest importer of the raw materials necessary to craft them.

Ever since the administrations of Ronald Reagan, George H. Bush, Bill Clinton, George W. Bush and Barack Obama, the opposite is true. We have abandoned century-old successes upon which we built the greatest industrial powerhouse the world had ever seen. Now we are the largest importer of finished goods and products and among the largest exporters of all manner of raw materials (iron ore, oil, coal, timber, et cetera) that are then used to manufacturer in other countries the goods and products we import back for American consumers to purchase.

Today, the wealthy capital ownership class is not pledged to an “America First” development philosophy and practice. Instead, competitive forces have caused them to exit domestic production at alarming rates.

This shift to global outsourcing of manufacturing and fabrication has been a steady transition for decades now, but most intensified during the past three decades. To restore the brand “Made In America” and resume the manufacture of goods and consumer products in the United States will be a huge, but necessary challenge in the immediate years ahead.  But this necessary challenge must be pursued because we must protect our industries from cheap foreign labor, lax foreign regulations and foreign subsidies, making it uncompetitive to produce in the United States. This is not only about cheap foreign labor competition but also about technological invention and innovation, which is constantly destroying the necessity for workers. With the profits generated by Americans buying foreign-made goods and products, other countries are investing in advanced technologies, which will enable their home companies to become even more competitive.

The point that has to be the primary driver is that, as much as possible, the rare earth metals and other raw material, and the fabricated components that go into any good or product need to be sourced within the United States, as well as the multitude of machines necessary to the fabrication of goods and products. As such, this will ensure that the maximum jobs necessary are performed by Americans. Our products also need to be “created in the mind” by Americans, which to a large degree already are leading the world. But this “creation” edge is rapidly shifting to other developing countries as they gain the monetary resources to invest in technological development.

We need to incentivize the manufacture and fabrication in the United States of every component aspect that comprises American products. This is not a click-of-the-switch transformation, but a process that will take years, likely decades, to fully mature. It will require new investment in manufacturing and fabrication in the United States, and this new investment must be financed using financial mechanisms that empower not only employees owning the corporations that employ them and which are growing the economy, but as well EVERY child, woman and man, all with an equal opportunity to become individual owners in this future powerhouse American economy.

This is necessary to build mass consumption power into Americans who are supposed to be consuming all the newly created goods, products and services. This necessity should be obvious to all political leaders, economists and academia, in order for workers and citizens to be able to purchase the “machinery” (non-human means of production) that is taking away their ability to produce. Otherwise, technological invention and innovation in manufacturing and fabrication, will continue to be owned by the tiny few who now own the non-human means of production throughout the world. The economy will never be able to attain its production capability as we will not be available to balance production and consumption, and the masses of Americans will be deprived of ever attaining an affluent life experience, that the 1 percent wealthy capital owners now enjoy.

We must always be thinking in policy terms as to how we can simultaneously grow the economy and create new capital owners, without the requirement of past savings, which only the existing wealthy ownership class has. Otherwise, the wealthy corporate owners of the “machines” will continue to not be able to consume anywhere near what they produce and will accumulate more and more capital wealth, and the owners of labor (people) will not be able to produce anywhere near what they consume.

The only rational way to balance production and consumption is to ensure, as much as we can, that every producer can consume what he or she produces, and every consumer can produce what he or she consumes. In economics, that’s Say’s Law of Markets.

We critically need to be thinking about how to build mass consumption power into the people in the markets who are supposed to be consuming the goods, products and services.

Here are some thoughts on specifics necessary to return the United States to the status of the greatest industrial powerhouse in the world.

Tariffs

The government should impose robust import levies and tariffs (tax) on particular classes of imports that are determined to be manufactured outside the United States and exported back to the United States that do not qualify as true “Fair Trade” and unfairly undercut an American-make equivalent. At present, American business corporations are increasingly abandoning the United States and its communities to invest in productive capital formation outside the United States, particularly in China, Mexico, India, and other parts of Asia, supported by American consumers who cannot afford pricier American-made products. As a result, America is experiencing a period of deindustrialization that is putting America in decline.

This has forced policy makers to adopt a redistributive socialist solution rather than a universal capital ownership one whereby economic growth of the earning power of the citizens would flourish simultaneously with new, broadly-owned productive capital formation investments in the United States. Such overseas operations have the advantage of “sweat-shop” slave labor rates relative to American standards, low or no taxation, supportive infrastructure provisions, currency manipulation, and few if any environmental regulations – which translate to lower-cost production. Thus, producing the same product or service in the United States would be far more expensive. For most people, economic globalization means a growing gap between rich and poor, technological alienation of the labor worker from the means of production, and the phenomenon of global corporations and strategic alliances forcing labor workers in high-cost wage markets, such as the United States, to compete with labor-saving capital tools and lower-paid foreign workers. Unemployment is high and there is an accelerating displacement of labor workers by technology and cheaper foreign labor, resulting in greater economic uncertainty and unstable retirement incomes for the average American citizen– causing the average citizen to become increasingly dependent on government wealth redistribution programs.

We need a policy change, which assures truly “Fair Trade” and that exponentially reduces the exodus of our manufacturing prowess and invigorates America’s entrepreneurial exceptionalism and competitive spirit to create products and services in the spirit of “the best that they can be.” We need policies that will de-incentivize American multinational corporations and others from undercutting “American Made,” while simultaneously competitively lowering the cost of production through expanded capital worker ownership in more efficient technological invention and innovation. At present, the various incentives in place do not broaden capital ownership but instead further concentrate ownership.

Ownership Unions

The labor union movement should transform to a producers’ ownership union movement and embrace and fight for this new democratic capitalism. They should play the part that they have always aspired to – that is, a better and easier life through participation in the nation’s economic growth and progress. As a result, labor unions will be able to broaden their functions, revitalize their constituency, and reverse their decline.

Unfortunately, at the present time the movement is built on one-factor economics – the labor worker. The insufficiency of labor worker earnings to purchase increasingly capital-produced products and services gave rise to labor laws and labor unions designed to coerce higher and higher prices for the same or reduced labor input. With government assistance, unions have gradually converted productive enterprises in the private and public sectors into welfare institutions. Binary economist Louis Kelso stated: “The myth of the ‘rising productivity’ of labor is used to conceal the increasing productiveness of capital and the decreasing productiveness of labor, and to disguise income redistribution by making it seem morally acceptable.”

Kelso argued that unions “must adopt a sound strategy that conforms to the economic facts of life. If under free-market conditions, 90 percent of the goods and services are produced by capital input, then 90 percent of the earnings of working people must flow to them as wages of their capital and the remainder as wages of their labor work…If there are in reality two ways for people to participate in production and earn income, then tomorrow’s producers’ union must take cognizance of both…The question is only whether the labor union will help lead this movement or, refusing to learn, to change, and to innovate, become irrelevant.”

Unions are the only group of people in the whole world who can demand a real Kelso-designed Employee Stock Ownership Plan (ESOP), who can demand the right to participate in the expansion of their employer by asserting their constitutional preferential rights to become capital owners, be productive, and succeed. The ESOP can give employees access to credit so that they can purchase the employer’s stock, pay for it in pre-tax dollars out of the assets that underlie that stock, and after the stock is paid for earn and collect the capital worker income from it, and accumulate it in a tax haven until they retire, whereby they continue to be capital workers receiving income from their capital ownership stakes. This is a viable route to individual self-sufficiency needing significantly less or no government redistributive assistance.

The unions should reassess their role of bargaining for more and more income for the same work or less and less work, and embrace a cooperative approach to survival, whereby they redefine “more” income for their workers in terms of the combined wages of labor and capital on the part of the workforce. They should continue to represent the workers as labor workers in all the aspects that are represented today – wages, hours, and working conditions – and, in addition, represent workers as full voting stockowners as capital ownership is built into the workforce. What is needed is leadership to define “more” as two ways to earn income.

If we continue with the past’s unworkable trickle-down economic policies, governments will have to continue to use the coercive power of taxation to redistribute income that is made by people who earn it and give it to those who need it. This results in ever deepening massive debt on local, state, and national government levels, which leads to the citizenry becoming parasites instead of enabling people to become productive in the way that products and services are actually produced.

When labor unions transform to producers’ ownership unions, opportunity will be created for the unions to reach out to all shareholders (stock owners) who are not adequately represented on corporate boards, and eventually all labor workers will want to join an ownership union in order to be effectively represented as an aspiring capital owner. The overall strategy should assure that the labor compensation of the union’s members does not exceed the labor costs of the employer’s competitors, and that capital earnings of its members are built up to a level that optimizes their combined labor-capital worker earnings. A producers’ ownership union would work collaboratively with management to secure financing of advanced technologies and other new capital investments and broaden ownership. This will enable American companies to become more cost-competitive in global markets and to reduce the outsourcing of jobs to workers willing or forced to take lower wages.

Kelso stated, “Working conditions for the labor force have, of course, improved over the years. But the economic quality of life for the majority of Americans has trailed far behind the technical capabilities of the economy to produce creature comforts, and even further behind the desires of consumers to live economically better lives. The missing link is that most of those un-produced goods and services can be produced only through capital, and the people who need them have no opportunity to earn income from capital ownership.”

Walter Reuther, President of the United Auto Workers, expressed his open-mindedness to the goal of democratic worker ownership in his 1967 testimony to the Joint Economic Committee of Congress as a strategy for saving manufacturing jobs in America from being outcompeted by Japan and eventual outsourcing to other Asian countries with far lower wage costs: “Profit sharing in the form of stock distributions to workers would help to democratize the ownership of America’s vast corporate wealth, which is today appallingly undemocratic and unhealthy.

“If 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 [through wider share ownership] cannot be said to have any inflationary impact on costs and prices.”

Unfortunately for democratic unionism, the United Auto Workers, American manufacturing workers, and American citizens generally, Reuther was killed in an airplane crash in 1970 before his idea was implemented. Leonard Woodcock, his successor, nor any subsequent union leader never followed through.

Re-Invigorate The 1933 Buy American Act

The Buy American Act, officially a law in affect but not practiced, states that anything purchased by any federal agency had to be manufactured by and sourced to an American supplier. We need to repeal the General Agreement on Tariffs and Trade (GATT), which gives the President power to authorize “waivers” to government agencies that want to buy anything from furniture to computers to military ammunition from foreign manufacturers. Government procurement should always be to purchase “Made In America” goods and products.

Government Contract Stipulations

Senator Bernie Sanders has introduced legislation entitled the Outsourcing Prevention Act. This would impose an outsourcing tax of either 35 percent of a corporation’s profits or an amount equal to its total savings from outsourcing the jobs. Sanders aims to prevent companies from moving to foreign countries by withholding federal contracts, tax breaks, loans or grants from corporations that move more than 50 jobs overseas. However this is couched only in terms of protecting jobs. If Sanders can introduce legislation that withholds federal government contracts to corporations who outsource operations to other countries, then Sanders can and should introduce legislation that requires EVERY corporation who is awarded a federal government contract for domestic infrastructure work or other contractural purposes to be employee-owned. We desperately need to move to a future in which EVERY child, woman and man becomes a substantial individual owner of wealth-creating, income-producing capital assets simultaneously with the growth of the economy.

Subsidies

We should eliminate all  tax loopholes and the hundreds of billions of dollars in annual subsidies to corporations.

If we do entertain any subsidies, these should be redirected toward environmentally supportive alternative energy production and energy storage to enable our country to become energy independent and provide a heathy environment for our people and our wildlife, while enhancing the beautification of the natural environment. And those corporations benefiting from such subsidies should be required to be employee-owned.

Tax Reform

Recommended tax reforms are as follows:

  1. Personal earned incomes and property-derived incomes

The tax rate should be a single rate for all incomes of natural persons from all sources above a personal exemption level so that the budget could be balanced automatically and even allow the government to pay off the growing unsustainable long-term debt. The poor would pay the first dollar over their exemption levels as would the hedge fund operator and others now earning billions of dollars from capital gains, dividends, rents and other property incomes (which under some tax proposals would be exempted from any taxes). Provide an exemption of $100,000 for a family of four to meet their ordinary living needs.

Eliminate the payroll tax on workers and their employers, but pay out of general revenues for all promises for Social Security, Medicare, Medicaid, government pensions, health, education, rent and subsistence vouchers for the poor until their new jobs and ownership accumulations provide new incomes to substitute for the taxpayer dollars to fill these needs.

2. Inheritance and estate taxes

As a substitute for inheritance and gift taxes, a transfer tax should be imposed on the recipients whose holdings exceeded $1 million, thus encouraging the super-rich to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes; teachers; health workers; police; other public servants; military veterans; artists; the poor; and the disabled.

Each year tens of billions of dollars in wealth-creating productive capital assets are passed along to heirs under current tax laws, ensuring that the capital ownership concentration will continue. The revenues generated from inheritance taxes should be pledged to support the Social Security program, thus achieving a reduction in Social Security taxes, which are becoming a tax burden as their are fewer good-paying jobs, more part-time workers, and exponentially fewer jobs overall.

3. Corporations and business taxes for non-small business enterprises

4. Investment credit tax incentives – The net result of new capital wealth formation is to create more productive land, industrial plant and equipment, machinery, tools, et cetera. In a highly technological economy the purpose of scientific advancement is not to create jobs (labor intensive production), but to substitute more efficient machines, buildings, tools, and productive land for labor – human work effort. This is the basis of increasing productiveness, and has been since the invention of the wheel to today’s age of cybernetics. Invention and innovation are supposed to save labor and free people for the enjoyment of the good life, the pursuant of happiness, and the improvement of their minds and bodies – to enable the fulfillment of the needs of the flesh (man’s material needs and well-being), so that the works of the soul may flow.

5. Nonpublic close corporations – All non-publicly registered and traded corporations, that is, those that are close corporations owned by a few people, and not classified under definitions set by the Small Business Administration, Department of Commerce, as a “small business,” or whose stock is not traded on the open markets and broadly owned, should be taxed as personal holding companies. The tax policy for close corporations, which by their nature concentrate wealth and limit free enterprise, should result in expanded ownership of capital wealth and discourage such organizations.

The income of such corporations should be treated as the personal incomes of their owners and taxed at personal income tax rates as herein recommended.

This tax policy will discourage private concentrations of capital wealth, and encourage viable small businesses and widespread private popular ownership shares in the small and large business corporations of America.

6. Public corporations – Tax policy of the Federal Government should encourage broad private ownership of public corporations. Publicly registered business corporations should be taxed on a basis, which encourages broad ownership and the fullest distribution of earnings to their owners.

The following tax policies for all publicly owned private corporations should be applied, based upon the philosophy that a corporation is a creature of the State, created by law, recognized as an “artificial person,” able to amass vast amounts of capital wealth with limited liability, and can have a life in perpetuity. Since a corporation is a legally created entity, and not a human being, its function, powers, responsibilities, and ownership are a matter of significant social, political, and economic policy.

Public corporations should be taxed as follows:

If profits are retained, that is, reinvested and not paid to the stockholder-owners, the corporation would pay a 90 percent tax on retained earnings.

Dividends paid out to stockholders-owners would be deductible from corporate earnings thus making these earnings subject to personal income tax rates.

All subsidiary corporations and partially or wholly owned enterprises of a parent or holding corporation would be taxed as a separate enterprise entity, as under the above recommended policy.

a. Business sole proprietorships and partnerships, and close corporations classified as small business

No change in existing tax procedure are necessary, except that the tax rate on such business incomes would be the same for individuals.

b. Capital gains tax – non-public corporations and close corporations

For individuals, capital gains realized on the sale of a personal residence, owned and occupied by a natural person or persons and/or a family would be taxed at the personal income tax rate.

All other capital gains in property interests (real or personal, securities et cetera) unless exchanged within 1 year for property of equivalent value, would be taxed at the personal income tax rate.

7. Capital property holdings tax: Limits on ownership

All individuals, whether their property is combined with others in joint tenancies, co-tenancies, or community property holdings of natural persons should be subject to a capital property holdings tax if the certified net worth or equity value of the property holding of the taxpayer exceeds $1 million.

8. Tax loopholes and subsidies

Eliminate all.

Legitimate Functions of Government and Governmental Responsibility

Tax policy must, by necessity, be linked to a definition of the legitimate functions of government and governmental responsibility with respect to the uses of Federal tax revenues.

Therefore, the tax revenues flowing to the Federal Government as a result of these recommendations should be used for the following purposes:

  1. Promote the general welfare for all people.
  2. Encourage viable and broadly owned business enterprise, and a free competitive market.
  3. Foster broad private individual ownership of the capital wealth base of our economy.
  4. Insure a fair and meaningful stake among individuals in the future of our nation.
  5. Promote economic justice for all people.
  6. Enhance civilization, and encourage the arts, science, significant educations, and other creative human endeavors.
  7. Guarantee individual liberty, and economic security and independence for all people.
  8. Promote peace and world enrichment, while providing for the common defense.
  9. Encourage community enhancement and environmental quality.
  10. Enhance life, health, and personal happiness for all people.
  11. Foster domestic tranquility and fraternity.
  12. Encourage human tolerance, respect, and personal responsibility and dignity.
  13. Promote mutual cooperation and trust for mutual benefit for all people.

Investment Tax Credit

With an economic policy designed to foster widespread private equity ownership participation in the capital wealth assets of our economy, the use and purpose of the investment tax credit device as a special governmental subsidy to private corporations has a significant potential for encouraging broader ownership of income-producing productive property rights among all people.

If an investment tax credit is given to a business organization, it should be limited to finance real new capital wealth expansion for widespread private ownership participation by individuals and families.

The Federal Reserve

The Federal Reserve, whose 12 regional division should be owned by the individual citizens living within those regions,  should stop monetizing unproductive debt and begin creating an asset-backed currency that could enable EVERY child, woman and man  to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income. The CHA would process annually an equal allocation of productive credit to every citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets. The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable products and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy. Risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance, but would not require citizens to reduce their funds for consumption to purchase shares.

The 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 to the Federal Reserve. 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 productive capital ownership opportunities for all Americans.

National Right To Capital Ownership Act and the Capital Homestead Act

A National Right To Capital Ownership Act and the Capital Homestead Act (aka Economic Democracy Act), that restores the American dream, should be advocated by the progressive movement, which addresses the reality of Americans facing job opportunity deterioration and devaluation due to tectonic shifts in the technologies of production.

Justice-Committed Leaders

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

Conclusion

Without bringing about the necessary balance between production and consumption, 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 responsible economic growth.

The fact is that political democracy is impossible without economic democracy. Those who control money control the laws that foster wage slavery, welfare slavery, debt slavery and charity slavery. These laws can and should be changed by the 99 percent and those among the 1 percent who are committed to a just and economically classless market economy, true equality of opportunity, and a level playing field in the future for 100 percent of Americans. By adopting economic policies and programs that acknowledge every citizen’s right to become a capital owner as well as a labor worker, the result will be an end to perpetual labor servitude and the liberation of people from progressive increments of subsistence toil and compulsive poverty as the 99 percent benefits from the rewards of productive capital-sourced income.

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.

To achieve this goal requires investment in FUTURE income-producing, wealth-creating productive capital assets while simultaneously broadening private, individual ownership of the resulting expansion of existing successfully managed large corporations and future corporations. Not only is employee ownership the norm to be sought wherever there are workers but beyond employee ownership the norm should be to create an OWNERSHIP CULTURE whereby EVERY American can benefit financially by owning a Super IRA-type Capital Homestead Account portfolio of income-producing, full-voting, full-dividend payout securities in America’s expanding corporations and those newly created to produce the future goods, products and services needed and wanted by society.

This master plan agenda can be accomplished by applying the logic of corporate finance, which is self-financing and asset-backed credit for productive uses to grow the economy. People invest in capital ownership on the basis that the investment will pay for itself. The problem facing the nation is routed in the financial system, which must be reformed.

The ultimate result that we should seek is growing independence of an economically emancipated people both from reliance upon government and from the wage slavery brought into being by monopolistic and oligarchic ownership, and the role and function in our lives both of government and of monopoly and oligarchic ownership ought to diminish.

If we are ever able to ignite our economy and build a future economy that can support general affluence for EVERY citizen, we need to empower EVERY worker and citizen (children, women and men) to become individual share owners in the corporations growing the economy.

These are the solutions to America’s economic decline, which will result in double-digit economic growth and simultaneously broaden private, individual ownership so that EVERY American’s income significantly grows, providing the means to support themselves and their families with an affluent lifestyle. This new paradigm is the subject of the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797 and is founded on the concept of Monetary Justice (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 All-American iPhone

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Donald Trump has said Apple should make phones in the United States. Last summer, we explained how that would affect the device’s price.

On June 9, 2016, Konstantin Kakaes writes on MIT Technology Review:

Donald Trump says that if he becomes president, he will “get Apple to start making their computers and their iPhones on our land, not in China.” Bernie ­Sanders has also called for Apple to manufacture some devices in the U.S. instead of China.

Neither candidate could instantly make that happen. As Steve Jobs once told President Obama when he asked why Apple didn’t make phones in its home country, the company didn’t hire manufacturers in China only because labor is cheaper there. China also offered a skilled workforce and flexible factories and parts suppliers that can, Apple believes, retool more quickly than their American counterparts.

But set that aside for now, and imagine that Apple persuaded one of its Chinese manufacturers to open factories in the United States or did that itself. Could it work? Apple could profitably produce iPhones in America, as some high-end Mac computers are produced, without making them much more expensive. There’s a catch, though, that undermines Trump’s and Sanders’s arguments. This becomes clear if you carry our thought experiment to its most extreme conclusion.

An artist’s rendering of an iPhone deconstruction that was performed by the analyst firm IHS.

Scenario 1

Today Apple contractors assemble iPhones in seven factories—six in China and one in Brazil. If the phones were assembled in the U.S. but Apple still sourced components globally, how much would that change the price of the device?

According to IHS, a market analyst, the components of an iPhone 6sPlus, which sells for $749, cost about $230. An iPhone SE, Apple’s newest model, sells for $399, and IHS estimates it contains $156 worth of components.

Assembling those components into an iPhone costs about $4 in IHS’s estimate and about $10 in the estimation of Jason Dedrick, a professor at the School of Information Studies at Syracuse University. Dedrick thinks that doing such work in the U.S. would add $30 to $40 to the cost. That’s partly because labor costs are higher in the U.S., but mostly it’s because additional transportation and logistics expenses would arise from shipping parts, and not just the finished product, to the U.S. This means that assuming all other costs stayed the same, the final price of an iPhone 6s Plus might rise by about 5 percent.

Apple has suppliers in 28 countries …
… but most of them are concentrated in just four countries. Apple requires a vast labor pool, but most of those people work for other companies.

What benefits would this bring to the U.S.? Apple says its suppliers employ more than 1.6 million workers. But final assembly of the phones accounts for a small fraction of that. So even if Apple could convince Foxconn or another supplier to assemble iPhones in the U.S. without cutting into its profits too badly, that alone probably wouldn’t be as transformative as Trump and Sanders imply.

Scenario 2

What, though, if components were to be made in the U.S. as well?

Almost half—346—of Apple’s 766 suppliers (counting those making parts for iPhones, iPads, and Macs) are in China. Japan has 126, the U.S. 69, and Taiwan 41.

Apple has said the U.S. lacked the manufacturing infrastructure needed for the iPhone. But if it could find a way to get it done domestically, what would phones cost?

The front of the iPhone is made of Corning’s tough Gorilla Glass. Corning makes the glass in facilities in Kentucky, South Korea, Japan, and Taiwan. The touch screen made out of that glass and computer chips underneath is one of the phone’s most expensive components. It costs about $20 in an iPhone SE, according to IHS. The other major expense is the phone’s processor. In both the SE and the 6s, this is a chip that Apple designed itself. Apple outsources the actual manufacture of the chip to Samsung and TSMC, a Taiwanese firm. The cellular modem in the SE, designed by Qualcomm, costs about $15, according to IHS. NAND and DRAM memory add another $15, power management chips $6.50, and radio amplifiers and transceivers almost another $15.

Many of these chips are made under contract, so it’s hard to know exactly where they are produced. For example, ­GlobalFoundries, a major contract manufacturer, produces microchips for companies like Qualcomm in Germany, Singapore, New York, and Vermont. Duane Boning, an electrical engineer at MIT who specializes in semiconductor manufacturing, says he thinks there is “essentially little cost difference” from country to country in producing the wafers from which individual chips are cut. “Labor costs are a tiny fraction of cost compared to the equipment and facilities that go into a multibillion-dollar fab,” Boning says. As Alex King, director of the Critical Materials Institute headquartered at the Department of Energy’s Ames Laboratory, points out, semiconductor fabs become obsolete a few years after they are built. This means, he says, that “with every new generation of semiconductors there is an opportunity to place a semiconductor fab anywhere in the world, including the U.S.” The machines used in such fabs are in fact largely still made in the United States.

Could this be done economically for the various chips and other components that go into an iPhone? Dedrick and his colleagues estimate that producing the constituents of an iPhone in the U.S. would add another $30 or $40 to the cost of the device. Initially, at least, “U.S. factories would be uncompetitive for most of these goods and run at low volumes, raising the differential with Asia even higher,” Dedrick points out. But it’s safe to project, he says, that in this scenario a phone would be at most $100 more expensive, assuming that the raw materials that go into the components were bought on global markets.

Scenario 3

To fully grasp the importance of trade in the high-tech economy, imagine a scenario even beyond what the candidates suggest: what if Apple tried to make an iPhone out of “American atoms,” so that the U.S. would not be at all reliant on foreign governments for access to the necessary materials?

According to King at the Ames Lab, an iPhone has about 75 elements in it—two-thirds of the periodic table. Even just the outside of an iPhone relies heavily on materials that aren’t commercially available in the U.S. Aluminum comes from bauxite, and there are no major bauxite mines in the U.S. (Recycled aluminum would have to be the domestic source.)

An iPhone contains most of the elements in the periodic table, including ones not mined in the United States.

The elements known as rare earths (which aren’t that rare but are tough to mine) would need to come primarily from China, which produces 85 percent of the world’s supply. Neodymium is needed for its magnets, like the one in the motor that makes the phone vibrate and the ones in the microphones and speakers. Lanthanum, another rare earth, goes into the camera lens. Hafnium, a metal that is not a rare earth and is rarer than most of them, is essential for the iPhone’s transistors.

In other words, “no tech product from mine to assembly can ever be made in one country,” says David Abraham, author of The Elements of Power, a new book about rare earth metals. The iPhone is a symbol of American ingenuity, but it’s also a testament to the inescapable realities of the global economy.

https://www.technologyreview.com/s/601491/the-all-american-iphone/

This shift to global outsourcing of manufacturing and fabrication has been a steady transition for decades now, but most intensified during the past two decades. To restore the brand “Made In America” will be a huge, but necessary challenge in the immediate years ahead.

I think that the point that has to be the primary driver is that, as much as possible, the rare earth metals and the fabricated components that go into any product, not just an Apple iPhone, need to be sourced within the United States, as well as the multitude of machines necessary to the fabrication of products. As such, this will ensure that the maximum jobs necessary are performed by Americans. Our products also need to be “created in the mind” by Americans, which to a large degree already are.

We need to incentivize the manufacture and fabrication in the United States of every component aspect that comprises American products. This is not a click-of-the-switch transformation, but a process that will take years to fully mature. It will require new investment in manufacturing and fabrication in the United States, and this new investment must be financed using financial mechanisms that empower not only employees owning the corporations growing the economy, but as well EVERY child, woman and man, all with an equal opportunity to become individual owners in this future American economy.

This is necessary to build mass consumption power into American who are supposed to be consuming all the newly created goods, products and services. This necessity should be obvious to all political leaders, economists and academia, in order for workers and citizens to be able to purchase the “machinery” (non-human means of production) that is taking away their ability to produce. Otherwise, technological invention and innovation in manufacturing and fabrication, will continue to be owned by those who now own the non-human means of production. The economy will never be able to attain its production capability as we will not be available to balance production and consumption, and the masses of Americans will be deprived of ever attaining an affluent life experience, that the 1 percent wealthy capital owners now enjoy.

We must always be thinking in policy terms as to how we can simultaneously grow the economy and create new capital owners, without the requirement of past savings, which only the existing wealthy ownership class has.

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

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 Trump Tax Cut versus Universal Basic Income

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On November 26, 2016, Tom Streithorst writes on Evonomics:

Hillary Clinton lost to Donald Trump because she did not provide a solution to the grave economic problems facing the American middle and working class. Hillary pretended the economy was getting better, and of course in some ways it was. Unemployment is considerably lower than it was when Bush left office and in 2015   wages finally went up. But after 35 years of stagnant wages the American people are no longer trusting in elite optimism. Personal experience tells them otherwise. The median male inflation adjusted wage is lower today than it was in 1973. For a while, wives entering the workforce allowed household income to rise but that ended with the last millennium. Typical household income peaked when Bill Clinton left office.

Trump won because he acknowledged the decline of the American middle class and promised a cure. Hillary Clinton and the neoliberal Democrat establishment pretended things were fine, and a huge swath of Americans resented their sanguine attitude. Unfortunately, Trump’s solutions won’t work. Tax cuts directed to the top .01% certainly won’t help most Americans and tariffs on Chinese goods will not bring industrial jobs back to the Rust Belt. All protectionism will accomplish is higher prices at Wal-Mart. Automation, as much as globalization is responsible for the disappearance of high paying jobs. Even China is losing manufacturing jobs. Its output is increasing but robots rather than humans are getting the work.

It is tragic that the populist revolt against the neoliberal establishment should have been led by a right wing billionaire reality TV star. The left should learn one lesson from this debacle. Let no longer pretend things are all right. If the Democrats are to regain power, they must provide a solution for the growing insecurity in most working American’s lives. The old strategies no longer work. Technological progress has become a job killer.

Every year, technological progress allows us to make more goods and services with fewer inputs of labor and capital. Stagnant wages tell us we need fewer workers. Infinitesimal interest rates tell us we need less capital. And more jobs are set to disappear. The most common job in most American states is truck driver. With self-driving cars only a few years away from mass production, those jobs too will soon evaporate.

There is a solution: Universal Basic Income, a cash payment to every adult citizen.

Everyone gets it, the poor, the rich, the middle class, the deserving and the undeserving alike. You, me, Rupert Murdoch, Beyonce, and the homeless man sleeping in the gutter get exactly the same cash payment. It is nothing if not equitable and fair. UBI is not a new idea. It was mentioned in the Bible, proposed by Tom Paine, almost enacted into law by Richard Nixon in 1969.

The Bible advocated it because small Neolithic communities always took care of their own. Tom Paine favored it because it reflected the value of the land that he considered the heritage of every citizen. Richard Nixon almost made it real (how different it would have made our world, how amazing that Richard Nixon in 1969 was to the left of Barack Obama in 2016) because he wanted to provide a safety net for every American without creating a large bureaucracy.

UBI will:

  1. Reduce inequality.
  2. Help the poorest among us, by giving them what they really need, money in their pocket.
  3. Provide a safety net for all Americans that will allow entrepreneurs to take more risks, the young to attend university, workers to tell unreasonable bosses to “take this job and shove it”.

All good things but not why I expect it will, sooner rather than later, be enacted into law. UBI solves the fundamental problem of modern capitalism, lack of demand. We have, to an extent unimaginable to our grandparents, solved the problem of supply. We eat better, dress better, entertain ourselves more extravagantly and more cheaply than they would have dreamed possible. But they had job security and more and more of us don’t.

If things keep going the way they are, our society will divide into a small elite who own the technology and a huge army of the unemployed living in squalor. A robot can make an iPhone but it cannot purchase one. If we want to maintain demand, we must put money into people’s pockets. A Universal Basic Income stimulates demand far more effectively than any tax cut.

The problem with UBI, the reason it is not yet within the Overton window is it sounds too good to be true. How can we afford it? How can we pay people without demanding work in return? Fortunately, Donald Trump is giving us an opening.

President-elect Donald Trump is planning to propose a tax cut. Over the next decade, it is expected to cost $6.2 trillion, or $620 billion a year. The Republican Congress, deficit hawks whenever a Democrat is in office will most likely approve his giveaway to the very rich. They will argue, quite correctly, that a tax cut will be stimulative and that it will help spur economic growth.

Every Keynesian knows tax cuts will stimulate the economy but we also know that tax cuts give the least bang for the deficit buck. That is because tax cuts, like this one, generally go to the richest among us and rich people have a greater propensity to save than the average citizen. The rich can save their bonus, the rest of us spend it, which is what the economy needs.

The Trump tax cut gives the top 1% an average windfall of $215,000. The top .1% will save over $1 million. Someone at smack in the middle, on the other hand, will garner less than $1000. Those in the bottom 20% will get $100.  Were we to divide the cost of the tax cut by all adult Americans, we can give each citizen $2600 a year. If we can afford a tax cut that will go disproportionately to the very rich, we can also afford a helicopter drop of cash to every adult citizen.

During the post war Golden Age of the American middle class, the benefits of technological progress were shared equitably, through wage hikes. As technology made workers more productive, their wages went up commensurately. Since Reagan, technology has continued its inexorable progress but wages stopped rising. Assets prices (homes, stocks, bonds) instead absorbed the benefits of productivity increases. The rich got richer, workers didn’t.

It would be nice if we could make wages go up but they won’t. Wages, like all prices in a capitalist economy, are set by supply and demand. During the Golden Age, wages rose because firms needed more workers. To hold them, they needed to pay them well. Today, the supply of labor far exceeds its demand. Secure high paying jobs are not likely to come back.

It would be tragic if technological progress immiserates rather than enriches the average citizen. UBI is the solution, a fair and equitable way to share the benefits of growth throughout society. Some advocates of UBI insist the payments be large enough to guarantee every one of us enough money to survive. Ultimately, I think they are right. $2600 a year certainly is not enough for subsistance. But Rome wasn’t built in a day. Let us take advantage of Trump’s deeply inequitable tax cut proposal to experiment with Universal Basic Income.

When the banks went bust, central banks printed billions to bail them out. When the economy did not recover, we printed more billions in the various quantitative easings and again, through bond purchases, gave them to the banks. Trump is proposing to give each of his super rich friends millions. We can do better. When his tax bill comes to Congress, the Democrats have a chance to propose a Universal Basic Income grant to every adult American that won’t raise the deficit any more than his give away to the very rich.

To stimulate the economy, UBI is better than any tax cut. Politically too, it is a winner. The great majority of Americans will prefer a grant of $2600 than the piddling amount they would receive under the Trump tax cut. Trump’s victory has shown Americans are tired of the neoliberal consensus. Let’s take this opportunity to introduce Universal Basic Income to the American people. It can transform our society, stimulate growth, and begin to revitalise the American middle class. It will also help the Democratic Party win elections.

The Trump Tax Cut versus Universal Basic Income

This author has gotten one thing right, that “technological progress has become a job killer.” But a redistributed “cash payment” made equally to every citizen, while it sounds good, is not a solution to the continuous concentration of wealth-creating, income-producing capital asset ownership among the already wealthy ownership class and their heirs.

The author gets another thing right, that “…our society will divide into a small elite who own the technology and a huge army of the unemployed living in squalor.” And yes, “we must put money into people’s pockets.” But instead of “putting money into people’s pockets,” we should empower EVERY citizen to be individually productive and earn the money they put in their pockets, and that does not mean demanding that EVERY citizen be employed and work in return. There is a difference.

The author gets yet another think right, that while tax cuts will stimulate the economy, “tax cuts, …, generally go to the richest among us and rich people have a greater propensity to save than the average citizen.” Thus, the rich save and invest to further acquire more productive capital ownership in the corporations growing the economy.

As with all Keynesian economists, this author believes that technology makes workers more productive. That’s because they only see productivity as related to the human work force, and do not see the distinction between the non-human factor and the human factor of production, as independent factors of productions. Fundamentally, economic value is created through human and non-human contributions. And with technological invention and innovation killing jobs, it is essential that EVERY citizen become an owner of the wealth-creating, income-producing capital assets of the future.

A national basic income or universal basic income is a “welfare” scheme, which does not tie people to individual productive input, but redistributes through taxation of those in society who are productive to those who are unproductive or underproductive. Because it is not tied to new productive engagement, it will not strengthen the incentive to work, where there is no work to be had due to the economy’s stagnation resulting from poor consumption demand.

What we really need is monetary and tax reform, by which an annual Capital Homestead Account in the form of insured, interest-free capital credit is extended equally to EVERY citizen, without any requirement for past savings, a job, or education. The capital credit loans would strictly be used to invest in new wealth-creating, income-producing capital assets formed by qualified, successful corporations growing the economy. The capital credit loans would be repayable out of the future earnings of the investments, and once paid would continue to produce income for the new productive owners, who would use the income to satisfy their needs and wants, thus resulting in spiraling green economic growth.

The problem is that technological invention and innovation––change––makes the non-human means of producing––tools, machines, structures, and computerized processes––ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). This means that fewer and fewer people are necessary to produce the products and services needed and wanted by society. But when a job is one’s ONLY way to be productive and earn an income and jobs are disappearing and the worth of labor is being devalued, we have a problem.  The problem is magnified by the fact that upward of 95 percent of the products and services are produced by physical productive capital––the non-human factor–– owned by less than 10 percent of the population and highly concentrated among less than 1 percent of the population. The result is that primary distribution through the free market economy, whose distributive principle is “to each according to his production,” delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor.

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

The capitalism practiced today is what, for a long time, I have termed “Hoggism,” propelled by greed and the sheer love of power over others. “Hoggism” institutionalizes greed (creating concentrated capital ownership, monopolies, and special privileges). “Hoggism” is about the ability of greedy rich people to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership. Our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success––always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent is not representative of the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption made possible by “customers with money.” It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being, not to a hand-out derived from government coercion that takes from those who make productive contributions as workers and capital owners and gives to those who are unable to earn a minimum sustainable income.

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

As we build general affluence for EVERY American, only then can we successfully alter the choices people must make between choosing alternative, more costly greener choices that do not threaten the environment and their very livelihood. This challenge is particularly a challenge for the property-less struggling middle class and the poor who must deal daily with livelihood issues, due to the precarious situation and loss of employment and the devaluing of the worth of labor as a result of tectonic shifts in the technologies of production resulting in less need for human worker input. Thus, realistically most people cannot be expected to sacrifice what little wealth and income they have to support more costly greener choices.

To see the change that so many Americans would like to see with respect to the support for greener choices will require that American lifestyles and tastes adopt more costly processes, products, and activities that are the greener substitute.

But the reality is that none of these changes can be practically achieved unless enough people can afford them.

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 responsible economic growth.

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

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

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

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

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

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

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

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

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

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

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

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

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

Trump’s Tax Plan: Massive Cuts For The 1% Will Usher ‘Era Of Dynastic Wealth’

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Under Donald Trump’s proposed tax plan, the most wealthy Americans will recive an average annual tax cut of $215,000. Photograph: Peter Foley/EPA

On November 23m 2016, Rupert Neate writes on The Guardian:

President Donald Trump is set to give America’s richest 1% an average annual tax cut of $214,000 when he takes office, while more than eight million families with children are expected to suffer financially under his proposed tax plan.

On the eve of the election, Trump promised to “massively cut taxes for the middle class, the forgotten people, the forgotten men and women of this country, who built our country”. But independent expert analyses of Trump’s tax plan show that America’s millionaire and billionaire class will win big at the expense of struggling low- and middle-income people, who turned out in large numbers to help the real estate billionaire win the election.

Experts warn that Trump’s tax plan will exacerbate America’s already chronic income inequality and herald in a “new era of dynastic wealth”.

“The Trump tax plan is heavily, heavily, skewed to the most wealthy, who will receive huge savings,” said Lily Batchelder, a law professor and tax expert at New York University. “At the same time, millions of low-income families – particularly single-parent households – will face an increase.”

Batchelder, who wrote an academic paper on Trump’s tax plan published by the Urban-Brookings Tax Policy Center, said that the president-elect’s plan “significantly raises taxes” for at least 8.5 million families, with “especially large tax increases for working single parents”. More than 26m individuals live in those families.

According to Batchelder’s research Trump’s tax changes – taken at their “most conservative” – could leave just over half of America’s nearly 11m single-parent households facing an increased tax burden. This figure rises to 61% – or 7m households – if the analysis is run on “reasonable assumptions” that the changes Trump has suggested go ahead.

Single-parent families would suffer the most because Trump would lower the minimum of tax-free earnings to $15,000 per adult no matter how many children in the household. Under current law the threshold is $17,400 for single-parent families with one child and $24,750 for a couple with one child, and the threshold increases by $4,050 for each additional child.

Trump also plans to consolidate the current seven tax brackets into three: 12%, 25% and 33%. His plan would scrap the current 10% tax for earnings under $19,625 and replace it with 12%. Trump’s proposed childcare credits would not make up for the changes, according to Batchelder.

Minority families are set to suffer disproportionately from the tax increases, according to Batchelder. With 32% of African American families facing a tax increase compared with 19% of whites, this is mostly due to African American families being more likely to share the burden of childcare within the family and hence not benefit as much from Trump childcare credits. Batchelder said the effective tax increase for many millions of families would run into the thousands.

While the poor will face tax increases, the Tax Policy Center research said the rich would received big tax cuts that get even bigger as you work up the income scale. The top 20% of earners would receive an average annual tax cut of $16,660 compared with an overall average cut of $2,940.

The richest 1% will collect 47% of all the tax cuts – an average saving of $214,000.

The 0.1% – the 117,000 households with incomes of more than $3.7m – would receive an average 2017 tax cut of $1.3m, a nearly 19% drop in tax they were due to pay in 2016. The tax savings of the super-rich will increase further in future, with the 0.1%’s estimated 2025 tax bill to fall by $1.5m.

It is a stark contrast to Hillary Clinton’s tax plan, which would have seen taxes rises for the super-wealthy. Under her plan, the top 1% would pay an extra $163,000 a year more on average, and would have made up 93% of all new tax revenue by 2025.

Clinton and Trump promised very different tax plans during the election
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Clinton and Trump promised very different tax plans during the election. Composite: Justin Sullivan/ Mike Segar/Getty/Reuters

“Listening to Trump’s rhetoric, most Americans probably don’t realise at all the impact of Trump’s tax plan,” Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy (ITEP) said. “Any way you slice it, the very best-off Americans will be the biggest beneficiaries.

“If it looks bad now for middle-income families, those who turned out to vote for him, it’s only likely to get worse [with Trump as president]. It is very likely that they will end up poorer still. The most likely victims are middle- and low-income families.”

Gardner said that under Trump, America will become even more divided between the rich and poor. “America is already very unequal, and his proposals would make income inequality a lot worse,” Gardner said. “This is obviously quite worrisome. If he rode to victory on a middle-income wave of support, those middle Americans will be very disappointed.”

The inequality problem will be exacerbated by Trump’s plan to scrap inheritance tax – which he refers to as “the death tax”. The 40% inheritance tax is currently only charged on personal estate worth more than $5.45m and joint estates of $10.9m – sums so large that it only affects less than two in 1,000 Americans.

Trump has proposed repealing the tax entirely. While Clinton, pushed by Bernie Sanders’ strong stance on the issue, had suggested lowering the threshold to $3.5m and increasing the rate to 65% for the super-wealthy.

“It’s hard to think of a tax change that will have a more detrimental effect on inequality,” Garnder said. “There is no question that this will lead to a perpetual income elite – hardly the thing that Trump voters would have wanted. This will lead to a new era of dynastic wealth.”

https://www.theguardian.com/us-news/2016/nov/23/trump-tax-plan-cuts-wealthy-low-income-inequality?CMP=fb_gu#comment-88246379

The reality is whether its Tump or Clinton the result is the same, enrichment of the wealthy ownership class who seek to OWN the world! We need to desperately reform the monetary and tax systems. Learn about the JUST Third Way 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/.

The Solution To America’s Economic Decline

Gary Reber, ForEconomicJustic.org, May 1, 2013

As a nation, we have lost the essence of the “American Dream”––economic freedom and self-sufficiency realized through private property ownership rights and democratic government.

Our basic premises should be:

There is no genuine political liberty without economic liberty, and that which is destructive of economic liberty is necessarily destructive of political liberty. Liberty does not mean license to steal or hoard.

The “American Dream” of 1776 enunciated in the founding papers of the Republic, underwrote minimal Government and maximal individual political and economic liberty, and drew inspiration from the widely held view that life, liberty, and property were an inseparable trinity.

That dream has largely been converted into a nightmare in modern America through the concentrated control effects of giant Government and monopoly capitalism, which may be handmaidens in tyranny. This situation has come about because of philosophical thinking that is inadequate to meet the needs of 21st century thinking, which has not kept pace with the fruits of science; and the situation is also due to a combination of conspiracy, greed, and archaic political philosophy.

What has and continues to escape the focus of conventional economists, and the politics of progressives, centralists and conservatives, is that the wealthy are rich because they own productive capital––non-human wealth-creating assets used to produce products and services. The reality is that in most economic tasks and in the overall economy, productive capital (not human labor) is independently doing evermore of the work that results in the products and services produced for consumption. It is productive capital’s increasing productiveness and evolution, rather than human effort (productivity conventionally considered) that is the productive means most responsible for economic growth. Effectively, technological innovation and invention limits new, higher-productivity jobs to relatively fewer workers, leaving most other people willing and able to work with lower-paying job opportunities or no jobs at all. This increasing majority is finding it more and more difficult to afford the products and services that are increasingly produced by productive capital.

When the right to participate in production through productive capital ownership is effectively denied, especially when tectonic shifts in the technologies of production destroy and degrade the worth of jobs, then the people affected become increasingly insecure in satisfying their and their family’s basic survival. Such conditions force them to seek low-pay, low-security jobs, or either charity or welfare, or desperately engage in illegitimate means. Such disintegration tears at society’s sense of fairness and justice, and spreads resentment, alienation and despair.

It is essential that people focus their thinking on the understanding of who and what creates wealth, in order to fully understand how to solve growing income inequality and the disintegration of the nation wherein the majority of citizens are regulated to low-pay job serfdom and public welfare.

In a modern, technological era it is the ownership of wealth-creating productive capital assets, not the labor of people that is the primary creator of affluence.

Hence, it is access to ownership of productive capital assets, not to jobs, wherein the national economic policy guidelines for the 21st century ought to lie. As ownership of wealth-creating productive capital becomes widely diffused, political power ought also to be widely diffused.

Productive capital is defined as the non-human means of producing products and services (land; structures; infrastructure; tools; human-intelligent and non-human-intelligent machines; super-automation; robotics; digital computerized processing and operations; certain intangibles that have the characteristics of property, such as patents and trade or firm names; and the like owned by individuals).

Tectonic shifts in the technologies of production are constant and result in new formations of productive capital, whose role is to do ever more of the work, which produces income to the owners of the capital assets. People invented tools to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive––the core function of technological invention.

Businesses employ both productive capital and people, but full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum in order to produce efficiently and profitably. Because of the ever-accelerating shift to productive capital to lower business operational costs, jobs are constantly being eroded. The other aspect impacting job security––the overwhelming source of income for the majority of Americans––is global competition and the sourcing of low-cost “slave” labor. As a result, American businesses seeking to compete in global markets and within the United States market, which is driven by low pricing demand, have out-sourced manufacturing to other countries whose labor costs are significantly lower and whose tax extraction rates and environmental regulations are respectively far less costly and stringent. Such out-sourcing is motivated by the market demand to produce their products and services more efficiently and more profitably.

This combination of free-market forces means that 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, compounded by far less costly out-sourcing of production.

As a result, there are fewer and fewer “customers with money” to purchase the products and services that can be more efficiently produced with productive capital. Economic growth will always be stalled when there are high levels of economic inequality because there will be an imbalance between production and consumption.

Why is this happening?

The reason is simple. A relative few people OWN the preponderance of the nation’s productive capital assets and are positioned to OWN the FUTURE productive wealth, from which they earn dividend income and valuable capital gains asset growth. This is why there is widening economic inequality resulting in class conflict between the so-called 1 percent “successful” ownership class and the 99 percent, who are capital-less or under-capitalized, and whose ONLY source of income is a job or taxpayer-supported government welfare derived from tax extraction and national debt. This Income inequality is exponentially crippling the United States from realizing its creative and social and just economic potential.

Thus, there is the imbalance between production and consumption. A few wealthy people are thereby able to rig the “system” 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 owner more productive. How much employment can be destroyed by substituting machines for people or lowering operational costs 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 or devaluing labor wages and salaries. And yet you can’t have mass production without mass human consumption. It is the exponential disassociation of production and consumption, which is the problem with the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well being.

The solution is to employ capital credit mechanisms to facilitate the productive capital acquisition by EVERY citizen, whether poor or in the middle class, to fuel a larger and more affluent economy. This can be facilitated on the basis of self-finance, whereby the productive capital assets, after returning its acquisition costs, begin to pay a fully-distributed capital earnings dividend to its new owners, thus initially supplementing their labor income and reducing their taxpayer-supported welfare dependence, and over time building income to replace their dependency on job earnings and secure their retirement as they age.

For the nation to overcome widening income inequality, the obvious, logical solution is for people to OWN THE “MACHINES” and non-human means of production that result from technology. Broadening productive capital ownership should be the priority course of action for the FUTURE. “FUTURE” is capitalized to emphasize that the private property rights of ALL citizens MUST be respected, honored, and protected. Thus, ANY solution(s) to transform the United States into an OWNERSHIP CULTURE must not undermine or seize the private property of the 1 to 10 percent who now own up to 90 percent of the corporate wealth. Instead, the solution(s) MUST expand the ownership pie over time and result in EVERY American man, woman and child earning income to support an affluent life. The result would be that those who now own America would still be owners but their percentage of the total ownership would decrease over time, as ownership gets broader and broader and benefits the traditionally disenfranchised poor and working and middle class, who will become sought-after “customers with money.” Thus, productive capital income 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. This also means that society can profitably employ unused and idle productive capacity and invest in more productive capacity to service the demands of a growth economy.

Significantly, by facilitating the acquisition of FUTURE wealth-creating productive capital assets by ALL Americans, everyone will increasingly be able to afford to purchase with their productive capital earnings (dividend income) what is increasingly produced by productive capital. This in turn will create the market conditions for sustainable economic growth, and as private, individual ownership spreads, the larger the economy will grow as people’s incomes increasingly grow and they purchase more products and services to satisfy their needs and wants. Thus, the effect created would be a self-propelling economic engine of growth capable of producing general affluence for every American, and not limited to those few who now OWN America’s productive power and whose consumption needs are satisfactorily, if not overly met.

This balanced Just Third Way approach to building a FUTURE economy that supports affluence for EVERY American is presently not in the national discussion. It appears that the President of the United States, the elected Congressional representatives and Senators, academia, and the media are oblivious to this principled solution that has the ingredients to power economic growth at double-digit GNP rates.

To achieve this goal requires investment in FUTURE income-producing, wealth-creating productive capital assets while simultaneously broadening private, individual ownership of the resulting expansion of existing large corporations and future corporations. Not only is employee ownership the norm to be sought wherever there are workers but beyond employee ownership the norm should be to create an OWNERSHIP CULTURE whereby EVERY American can benefit financially by owning a SUPER IRA-TYPE Capital Homestead Account (CHA) portfolio of income-producing, full-voting, full-dividend payout securities in America’s expanding corporations and those newly created to produce the future products and services needed and wanted by society.

This master plan agenda can be accomplished by applying the logic of corporate finance, which is self-financing and asset-backed credit for productive uses to grow the economy. People invest in capital ownership on the basis that the investment will pay for itself. The problem facing the nation is routed in the financial system, which must be reformed.

The wealthy ownership class understands and employs the strategy of investing in opportunities expected to pay for themselves in a reasonable period of time, typically 5 to 7 years, perhaps 10 in some circumstances. This is the fundamental logic of corporate finance couched in “return on investment” terms. This same logic is the personal investment strategy steadfastly followed by successful capitalized and under-capitalized investors. The rich further understand that once the acquisition cost is paid for out of the FUTURE earnings of the productive capital investment, the asset then continues to earn income indefinitely, or in perpetuity. This is precisely the process used by the rich to get richer.

The solution is not to focus on JOB CREATION but to focus on OWNERSHIP CREATION whereby EVERY American can acquire private, individual ownership in FUTURE income-producing productive capital asset investments without the need to limit their financing requirements to past savings and/or require workers to reduce their consumption incomes to become owners. This is not about creating small businesses, which tend to be operated by hands-on entrepreneurs and proprietors, but about creating a viable portfolio of income-producing, full-dividend, full-voting stock ownership in large corporations, whereby there is no education and talent requirement to simply be a share owner. Large corporations are already publicly owned by millions of Americans. But what they have purchased is value-diluted stock through the “stock market exchanges,” purchased with their earnings as labor workers. Their stock holdings are relatively miniscule, as are their dividend payments compared to the top 10 percent of capital owners. And no one addresses whether Dow Jones gains have anything to do with the reality of the health of businesses. The stock market deals in secondhand securities, which essentially translates to a gaming casino. Wall Street has convinced us to see ourselves as “investors” instead of “gamblers” and “perceived values” instead of “bets.”

Conventionally, most people do not have the right to acquire productive capital with the self-financing earnings of capital; they are left to acquire, as best as they can, with their earnings as labor workers. This is fundamentally hard to do and limiting. Thus, the most important economic right Americans need and should demand is the effective right to acquire capital with the earnings of capital.

America has tried the Republican “cut spending, cut taxes, and cut ‘entitlements’,” and the Democrat “protect ‘entitlements,’ provide tax-payer supported stimulus, lower middle and working class taxes, tax the rich, and redistribute” 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. Unfortunately, not enough 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 or “Hoggism.”

The Just Third Way is a balanced approach, which 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 wealth-creating productive capital assets 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.

Economic democracy has yet to be tried. We are absent a national discussion of where consumers earn the money to buy products and services and the nature of capital ownership, and instead argue about policies to redistribute income or not to redistribute income, or to engage in austerity measures or pursue government stimulus.

But how will we ever achieve affluence for EVERY American and eliminate poverty and reliance on taxpayer-supported government welfare, which is fueling national debt? This will require a return to higher income tax and corporate tax rates, which are lowered or entirely eliminated when corporations have demonstrated growth decisions that enable their workers and other citizens to finance their future growth and share in the companies’ fate as share owners. This would enable us to more effectively create investment stimulus incentives through reduced tax rates. While tax and investment stimulus incentives are excellent tools to strengthen economic growth, without the requirement that productive capital ownership is broadened simultaneously, the result will continue to further concentrate productive capital ownership among those who already own, and further create dependency with redistribution policies and programs to sustain purchasing power on the part of the 99 percent of the population who are dependent on their labor worker earnings or welfare to sustain their livelihood. By stimulating economic growth tied to broadened productive capital ownership the benefits are two-fold: one is that over time the 99 percenters will financially benefit from acquiring productive capital assets that are paid for out of the future earnings of the investments and gain greater access to job opportunities that a growth economy generates.

Starting with the business corporation, a legal entity created and sanctioned by state and federal government and judicial law, the government should provide tax incentives for full-dividend payouts to its stockholders, or alternatively legislate that from now on 100 percent of all profits be paid out fully as dividend payments to stockholders (thus, eliminating the corporate income tax), with the dividend income subject to individual taxation. This would effectively prohibit retained earnings financing of new productive capital formation (reinvesting the corporate earnings already earned). The government could also limit debt financing by legislating some ratio formula to annual revenue under which a corporation could debt finance new productive capital formation with borrowed monies. Both retained earnings and debt financing only enhance the ownership holding value of the existing corporate ownership class and do nothing to create new owners. Thus, the rich get richer systematically and capital ownership concentration is furthered, facilitated by financing further productive capital acquisition out of the earnings of existing productive capital.

In place of retained earnings and debt financing, the government should incentivize business corporations to issue and sell full-voting, full-dividend payout stock to more people to underwrite new productive capital formation, with the purpose of providing opportunity for new owners, both employees of corporations and non-employees, to participate in a growing economy. This approach can be applied to singular corporations or multiple corporate diversification portfolios facilitated with private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept). This would provide the solution to the need for a financial mechanism put in place that will guarantee loan risks; otherwise banks and lending institutions will not make the loans, and the system will continue to limit access to capital acquisition to those who already own capital—the rich. This is because “poor” people have no security or collateral, or sufficient income to pledge against the loan as security, and/or are disqualified on the grounds of either unproven unreliability or proven unreliability.

Criteria must be created to qualify the corporations subject to this policy and those corporations that qualify overseen so as to ensure that their executives exercise prudent fiduciary responsibility to generate loan payback. Once the guaranteed loans are paid back, the new capital formation will continue to produce income for existing and future owners, and subsequently provide “customers with money” to support the output of the economy.

This approach would use the existing taxing power of government in a way to restructure the economy along the guidelines of universal access to ownership of productive capital wealth with a thrust toward the creation of new wealth.

The ultimate result of the use of the taxing power of government to stimulate the widespread access to ownership of productive capital wealth should be a growing independence of an economically emancipated people both from reliance upon government and from the wage slavery brought into being by monopolistic and oligarchic ownership; and the role and function in our lives both of government and of monopoly and oligarchy ownership ought to diminish.

The national goal should be to foster an economic policy direction toward broadening private ownership participation for all people in the capital wealth base of our economy.

The American Dream since the time of the Founding Fathers has been to foster individually owned free enterprise. Our economic policies, and tax laws foster concentration of business ownership in the hands of a wealthy few by subsidizing and favoring narrowly owned conglomerates and monopolistic combines. This is not good. We need a new economic policy thrust, which will promote the birth of profitable new business enterprises and expand the ownership of large corporations, while stimulating the entrepreneurial creative spirit of business innovators.

This is an agenda for “a quiet revolution”––a national movement for economic justice, tax equity, and governmental responsibility. The thrust of this movement is to focus upon tax reformation and economic policy. To guide this movement toward realizing the goal of economic justice positive and constructive reforms in the tax laws, policies, and procedures of the U.S. Government will be necessary.

When the Federal income tax was authorized by the 16th amendment to the Constitution, it was designed to levy taxes in a progressive and fair way on all income, “from whatever source derived,” in order to pay for the legitimate functions of government as authorized by the people through their elected representatives.

But, over the years, exception after exception has been made to this principle; tax loopholes have allowed the wealthy and the wealthy owners of the corporations to escape high taxes. This means that the tax burden has fallen increasingly on low- and moderate-income working people.

The average American worker works at least 2 out of 5 days just to pay taxes, while scores of wealthy people with incomes over $1 million pay no Federal income taxes at all.

This is not just.

There is hardly any progressivity in taxation. Those with low and moderate incomes pay a higher percentage in taxes than those with higher incomes.

Tax loopholes and government subsidies are really a welfare program for the rich.

Recommendations For Tax Reformation: A Just Tax Concept For The U.S. Government

Implicit in the original income tax concept was the “ability-to-pay-theory,” that those who earn or receive more income should pay a progressively larger proportion of their incomes to support government.

Another concept inherent in the original income tax law was that government should limit in some manner the vast personal incomes derived by a few people or legal entities owning huge amounts of capital wealth and property.

Tax policies today encourage concentration of capital wealth and property, generating on one hand a huge governmental bureaucracy to regulate centralized economic activity, and on the other hand, an ever-expanding number of economically dependent people requiring another huge government bureaucracy to administer to their needs.

The economic, social, and legal injustices of our society are fostered by tax policies, which enable the rich to become richer, while the majority of the working people, the elderly, small businessmen, family farmers, and poor pay the taxes.

As a nation, we must adopt an economic policy designed to broaden private individual ownership of all forms of property––particularly property ownership rights which yield viable incomes to people. The function of Federal tax policy then should be to encourage broadened private, individual ownership, and discourage private concentrations of capital wealth and excessive personal incomes from property holdings.

For genuine tax reform, positive, constructive, and just reforms in tax law, with review every 5 years or less, are needed.

Recommended Tax Reforms

  1. Personal earned incomes and property-derived incomes

The tax rate would be a single rate for all incomes of natural persons from all sources above a personal exemption level so that the budget could be balanced automatically and even allow the government to pay off the growing unsustainable long-term debt, but the poor would pay the first dollar over their exemption levels as would the hedge fund operator and others now earning billions of dollars from capital gains, dividends, rents and other property incomes (which under some tax proposals would be exempted from any taxes). Provide an exemption of $100,000 for a family of four to meet their ordinary living needs.

 

Eliminate the payroll tax on workers and their employers, but pay out of general revenues for all promises for Social Security, Medicare, Medicaid, government pensions, health, education, rent and subsistence vouchers for the poor until their new jobs and ownership accumulations provide new incomes to substitute for the taxpayer dollars to fill these needs.

 

  1. Inheritance and estate taxes

As a substitute for inheritance and gift taxes, a transfer tax would be imposed on the recipients whose holdings exceeded $1 million, thus encouraging the super-rich to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes; teachers; health workers; police; other public servants; military veterans; artists; the poor; and the disabled.

 

Each year tens of billions of dollars in wealth-creating productive capital assets are passed along to heirs under current tax laws. The revenues generated from inheritance taxes should be pledged to support the Social Security program, thus achieving a reduction in Social Security taxes, which are becoming a tax burden.

  1. Corporations and business taxes for non-small business enterprises
  2. Investment credit tax incentives––The net result of new capital wealth formation is to create more productive land, industrial plant and equipment, machinery, tools, et cetera. In a highly technological economy the purpose of scientific advancement is not to create jobs (labor intensive production), but to substitute more efficient machines, buildings, tools, and productive land for labor––human work effort. This is the basis of increasing productiveness, and has been since the invention of the wheel to today’s age of cybernetics. Invention and innovation are supposed to save labor and free people for the enjoyment of the good life, the pursuant of happiness, and the improvement of their minds and bodies––to enable the fulfillment of the needs of the flesh (man’s material needs and well-being), so that the works of the soul may flow.

With an economic policy designed to foster widespread private equity ownership participation in the capital wealth assets of our economy, the use and purpose of the investment tax credit device as a special governmental subsidy to private corporations has a significant potential for encouraging broader ownership of income-producing productive property rights among all people.

If an investment tax credit is given to a business organization, it should be limited to finance real new capital wealth expansion for widespread private ownership participation by individuals and families.

The Federal Reserve should stop monetizing unproductive debt and begin creating an asset-backed currency that could enable every man, woman and child to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income. The CHA would process an equal allocation of productive credit to every citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets. The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable products and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy. Risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance, but would not require citizens to reduce their funds for consumption to purchase shares.

 

  1. Nonpublic close corporations––All non-publicly registered and traded corporations, that is, those that are close corporations owned by a few people, and not classified under definitions set by the Small Business Administration, Department of Commerce, as a “small business,” or whose stock is not traded on the open markets and broadly owned, should be taxed as personal holding companies. The tax policy for close corporations, which by their nature concentrate wealth and limit free enterprise, should result in expanded ownership of capital wealth and discourage such organizations.

The income of such corporations should be treated as the personal incomes of their owners and taxed at personal income tax rates as herein recommended.

This tax policy will discourage private concentrations of capital wealth, and encourage viable small businesses and widespread private popular ownership shares in the small and large business corporations of America.

  1. Public corporations––Tax policy of the Federal Government should encourage broad private ownership of public corporations, Publicly registered business corporations should be taxed on a basis, which encourages broad ownership and the fullest distribution of earnings to their owners.

The following tax policies for all publicly owned private corporations should be applied, based upon the philosophy that a corporation is a creature of the State, created by law, recognized as an “artificial person,” able to amass vast amounts of capital wealth with limited liability, and can have a life in perpetuity. Since a corporation is a legally created entity, and not a human being, its function, powers, responsibilities, and ownership are a matter of significant social, political, and economic policy.

Public corporations should be taxed as follows:

If profits are retained, that is, reinvested and not paid to the stockholder-owners, the corporation will pay a 90 percent tax on retained earnings.

Dividends paid out to stockholders-owners would be deductible from corporate earnings thus making these earnings subject to personal income tax rates.

All subsidiary corporations and partially or wholly owned enterprises of a parent or holding corporation will be taxed as a separate enterprise entity, as under the above recommended policy.

  1. Business sole proprietorships and partnerships, and close corporations classified as small business

No change in existing tax procedure are necessary, except that the tax rate on such business incomes would be the same for individuals.

  1. Capital gains tax––non-public corporations and close corporations

For individuals, capital gains realized on the sale of a personal residence, owned and occupied by a natural person or persons and/or a family would be taxed at the personal income tax rate.

All other capital gains in property interests (real or personal, securities et cetera) unless exchanged within 1 year for property of equivalent value, would be taxed at the personal income tax rate.

  1. Capital property holdings tax: Limits on ownership

All individuals, whether their property is combined with others in joint tenancies, co-tenancies, or community property holdings of natural persons should be subject to a capital property holdings tax if the certified net worth or equity value of the property holding of the taxpayer exceeds $1 million.

  1. Tax loopholes and subsidies

Eliminate all.

Legitimate Functions Of Government And Governmental Responsibility

Tax policy must, by necessity, be linked to a definition of the legitimate functions of government and governmental responsibility with respect to the uses of Federal tax revenues.

Therefore, the tax revenues flowing to the Federal Government as a result of these recommendations should be used for the following purposes:

  1. Promote the general welfare for all people.
  2. Encourage viable and broadly owned business enterprise, and a free competitive market.
  3. Foster broad private individual ownership of the capital wealth base of our economy.
  4. Insure a fair and meaningful stake among individuals in the future of our nation.
  5. Promote economic justice for all people.
  6. Enhance civilization, and encourage the arts, science, significant educations, and other creative human endeavors.
  7. Guarantee individual liberty, and economic security and independence for all people.
  8. Promote peace and world enrichment, while providing for the common defense.
  9. Encourage community enhancement and environmental quality.
  10. Enhance life, health, and personal happiness for all people.
  11. Foster domestic tranquility and fraternity.
  12. Encourage human tolerance, respect, and personal responsibility and dignity.
  13. Promote mutual cooperation and trust for mutual benefit for all people.

The ultimate result that we should seek is growing independence of an economically emancipated people both from reliance upon government and from the wage slavery brought into being by monopolistic and oligarchic ownership, and the role and function in our lives both of government and of monopoly and oligarchic ownership ought to diminish.

Recommendations For Future Study

While these tax reform recommendations will generate substantial revenue increases to the Federal Government, strengthen the nation, and result in reducing the burden upon all poor and working people, particularly those families with incomes under $30,000 per year, an in-depth study is necessary to determine the full impact of such a new tax and economic policy thrust, as herein advocated.

A Tax Reformation Commission should be established by the U.S. Congress to conduct an in-depth study of these tax reform recommendations and those of others to determine the impact of these measures on the economy, the structure of private property ownership and free enterprise, the concentration of wealth, income distribution, and revenues generated to the Federal Government.

The U.S. Congress should establish a census of wealth valuation inventory. Every five years, the Commissioner of Internal Revenue, in conjunction with the Bureau of the Census, should conduct a valuation census of the property holding of all individuals, held in accordance with regulations published in the Federal Register. These records should be treated with the same confidentiality as is presently given to personal income tax records.

The wealth valuation computations for each individual would be used to establish one’s priority relative to other individuals for qualifying for government programs aimed at strengthening the self-sufficiency of the individual through acquisition and ownership of new and/or transferred capital wealth assets.

Concluding Remarks

The fact is that political democracy is impossible without economic democracy. Those who control money control the laws that foster wage slavery, welfare slavery, debt slavery and charity slavery. These laws can and should be changed by the 99 percent and those among the 1 percent who are committed to a just and economically classless market economy, true equality of opportunity, and a level playing field in the future for 100 percent of Americans. By adopting economic policies and programs that acknowledge every citizen’s right to become a capital owner as well as a labor worker, the result will be an end to perpetual labor servitude and the liberation of people from progressive increments of subsistence toil and compulsive poverty as the 99 percent benefits from the rewards of productive capital-sourced income.

A National Right To Capital Ownership Act and the Capital Homestead Act that restores the American dream should be advocated by the progressive movement, which addresses the reality of Americans facing job opportunity deterioration and devaluation due to tectonic shifts in the technologies of production.

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 to the Federal Reserve. 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 productive capital ownership opportunities for all Americans.

The labor union movement should transform to a producers’ ownership union movement and embrace and fight for this new democratic capitalism. They should play the part that they have always aspired to––that is, a better and easier life through participation in the nation’s economic growth and progress. As a result, labor unions will be able to broaden their functions, revitalize their constituency, and reverse their decline. Unfortunately, at the present time the movement is built on one-factor economics––the labor worker. The insufficiency of labor worker earnings to purchase products and services increasingly produced by productive capital gave rise to labor laws and labor unions designed to coerce higher and higher prices for the same or reduced labor input. With government assistance, unions have gradually converted productive enterprises in the private and public sectors into welfare institutions.

The unions should reassess their role of bargaining for more and more income for the same work or less and less work, and embrace a cooperative approach to survival, whereby they redefine “more” income for their workers in terms of the combined wages of labor and capital on the part of the workforce. They should continue to represent the workers as labor workers in all the aspects that are represented today––wages, hours, and working conditions––and, in addition, represent workers as full voting stockowners as capital ownership is built into the workforce. What is needed is leadership to define “more” as two ways to earn income.

If we continue with the past’s unworkable “trickle-down” economic policies, governments will have to continue to use the coercive power of taxation to redistribute income that is made by people who earn it and give it to those who need it. This results in ever-deepening massive debt on local, state, and national government levels, which leads to the citizenry becoming parasites instead of enabling people to become productive in the way that products and services are actually produced.

There is a solution to America’s economic decline, which will result in double-digit economic growth and simultaneously broaden private, individual ownership so that EVERY American’s income significantly grows, providing the means to support themselves and their families with an affluent lifestyle. This new paradigm is the subject of the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797 and is founded on the concept of Monetary Justice (http://capitalhomestead.org/page/monetary-justice).

A Petition to reform the Federal Reserve to provide capital credit to ALL Americans can be supported at http://signon.org/sign/amend-the-federal-reserve.fb27?source=c.fb&r_by=3904687. The proposed Capital Homestead Act (http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm) would accomplish the necessary reforms.

CEOs No Longer Say ‘People Are Our Greatest Asset,’ According To New Report

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A robot, right, picks up thread made from recycled plastic bottles while workers exchange spools of thread at a plant in Yadkinville, N.C. According to a new Korn Ferry report, 44% of global business leaders surveyed believe that automation, artificial intelligence and robotics will make people ‘largely irrelevant’ in the years to come. PHOTO: CHUCK BURTON/ASSOCIATED PRESS

On November 17, 2016, Lauren Weber writes in The Wall Street Journal:

Corporate leaders often say that people are their company’s greatest asset. A new report suggests that some bosses may be changing their minds.

When asked to rank their businesses’ most valuable asset, leaders said technology matters above all, according to a new report from Korn Ferry. Employees didn’t make the top five.

The Korn Ferry Institute, the research arm of the executive search and consulting firm, asked 800 chief executives and other top leaders at global firms about what they believe can generate profit for their companies and how workers fit into that vision. Two-thirds said they believe technology will create greater value in the future than their workforce will, and 44% believe that automation, artificial intelligence and robotics will make people “largely irrelevant” in the years to come.

Coming a week after the election of Donald Trump, who vowed to bring good jobs back to the U.S., the findings suggest that companies may be more eager to invest in technology than in making full-time hires.

Executives ranked two types of technology—back-office infrastructure and customer-facing or product tech—as the most valuable assets of their firms, along with culture, inventory and research and development. While culture refers to the internal values and conventions of an organization and its people, the report notes that the workforce overall rated low.

Nearly two-thirds of respondents said they “see people as a bottom-line cost, not a top-line value generator,” according to the report, while 40% said shareholders have pressured them to direct investment toward physical assets like technology.

That perspective may signal a miscalculation, said Jean-Marc Laouchez, a global managing director at Korn Ferry. According to an analysis by Korn Ferry and the Centre for Economics and Business Research, a British economic consulting firm, human capital represents potential value of $1.215 quadrillion to the global economy, based on the ability of people to perform labor and be productive over time. By comparison, current physical capital—such as buildings and software—is worth $521 trillion.

Executives have become bullish on assets like technology because it is easier to measure the impact of a software program than an employee, said Mr. Laouchez. He adds that bosses’ desire to immerse themselves in technology suggests they have grown frustrated with managing people.

“One of my clients recently said that people are ‘messy,’ ” Mr. Laouchez said. “Even though from a macroeconomic perspective people are the most important asset, it’s not easy to deal with them.” (To be sure, a stronger focus on human capital would benefit Korn Ferry and its peers in the people-management and consulting business.)

Mr. Laouchez added that paying attention to technology alone ignores the fact that people are needed to make the best use of technology. Companies may spend money on a software system, but “the differentiator is what you do with it, and that’s about people.”

Looking ahead, leaders said the five most prized assets in five years will be customer-facing technology and products, innovation/R&D, product/service, brand and real estate, according to the report.

http://www.wsj.com/articles/ceos-no-longer-say-people-are-our-greatest-asset-according-to-new-report-1479412130

This is another recent article that looks at a future where there will be  hordes of citizens of zero economic value.  That is, unless the system can be reformed to empower EVERY citizen to acquire OWNERSHIP in the wealth-creating, income-producing non-human capital assets resulting from technological invention and innovation.

Because non-human productive capital is increasingly the source of the world’s economic growth it should become the source of added property ownership incomes for all. The reality is 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.

Rather than focus on Job Creation, Job Retraining, and a redistributed Minimum Guaranteed Income  that holds back technological invention and innovation, our economic policies should focus on wealth-creating, income-producing capital Ownership Creation.

Given that there is no question that robotic technology will continue to expand the productivity and in large measure destroy jobs and devalue the value of human labor, the question that SHOULD be urgently addressed is WHO SHOULD OWN THE FUTURE TECHNOLOGY ECONOMY? Will ownership continue to concentrate among the 1 percent wealthy ownership class who now OWNS America, or will we reform the system to provide equal opportunity for EVERY child, woman, and man to acquire personal OWNERSHIP in FUTURE non-human capital assets paid for with the FUTURE earnings of the investments in our technological future?

The conclusions should surprise no one who is conscious and who has even causally observed the constant shift to non-human productive inputs in the manufacturing, distribution, and sales of products, as well as the delivery of services, that has been occurring during their lifetime. The first burst of this phenomena was the Industrial Revolution. But now we are in an age of technology sophistication that is permeating every sector of industry and our day-to-day lives. Technological invention and innovation is a constant, and as a nation we must find solutions for the citizenry to be productive and earn an income other than from working at a job.

There’s nothing new about machines replacing people, but the rate of replacement is exponential and the result is that productivity gains lead to more wealth for the OWNERS of the non-human factor of production, but for others who have always been dependent on jobs as their source of income, there has been a steady decline to poverty-level labor incomes.

What must be understood (which unfortunately is not understood by conventional economists) is that there are two independent factors of production – human or labor workers and non-human or physical productive capital – productive land, structures, machines, super-automation, robotics, digital computerized operations, etc.

Fundamentally, economic value is created through human and non-human contributions.

Also what needs to be understood is that human productivity has not advanced (our human abilities are limited by physical strength and brain power – and relatively constant), but that the productiveness of the non-human factor of production –productive capital – is the reason that private sector business corporations, majority owned by the “1 percent,” are utilizing the non-human factor of production increasingly to create efficiencies and save labor costs. It is the function of technology to save labor from toil and to enable us to do things that otherwise is humanly impossible without non-human input.

The critical question becomes who should OWN productive capital? The issue of OWNERSHIP is unbelievably overlooked by those in academia and politics, as well as by this author. Yet we live in country founded upon private property rights for its citizens.

Today, large streams of data, coupled with statistical analysis and sophisticated algorithms, are rapidly gaining importance in almost every field of science, politics, journalism, and much more. What does this mean for the future of work?

But what about China and Asia, the place where all the manufacturing jobs are supposedly going? True, China has added manufacturing jobs over the past 17 years. But now it is beginning its shift to super-robotic automation. Foxconn, which manufactures the iPhone and many other consumer electronics and is China’s largest private employer, has begun to install over a million manufacturing robots. Thus, in reality off-shoring of manufacturing will eventually be replaced by human-intelligent super-robotic automation in order to achieve far greater efficiencies, consistent quality manufacturing, and low costs of production.

The pursuit for lower and lower cost production that relies on slave wage labor will eventually run out of places to chase. Eventually, “rich” countries, whose productive capital capability is owned by its citizens, will be forced to “re-shore” manufacturing capacity, and result in ever-cheaper robotic manufacturing, not the mass job creation that is promised by politicians.

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

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

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

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

None of this is new from a macro-economic viewpoint as productive capital is increasingly the source of the world’s economic growth. The role of physical productive capital is to do ever more of the work of producing more products and services, which produces income to its owners. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum. Private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.

Over the past century there has been an ever-accelerating shift to productive capital – which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital worker input has been rapidly changing at an exponential rate of increase for over 235 years in step with the Industrial Revolution (starting in 1776) and had even been changing long before that with man’s discovery of the first tools, but at a much slower rate. Up until the close of the nineteenth century, the United States remained a working democracy, with the production of products and services dependent on labor worker input. When the American Industrial Revolution began and subsequent technological advance amplified the productive power of non-human capital, plutocratic finance channeled its ownership into fewer and fewer hands, as we continue to witness today with government by the wealthy evidenced at all levels.

People invented tools to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive – the core function of technological invention. Binary economist Louis Kelso attributed most changes in the productive capacity of the world since the beginning of the Industrial Revolution to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital, in Kelso’s terms, does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary. Because of this undeniable fact, Kelso asserted that, “free-market forces no longer establish the ‘value’ of labor. Instead, the price of labor is artificially elevated by government through minimum wage legislation, overtime laws, and collective bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.”

Furthermore, according to Kelso, productive capital is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. Yet, sadly, the American people and its leaders still pretend to believe that labor is becoming more productive.

The 400 wealthiest Americans and the other 1 to 10 percent richest Americans are rich because they OWN wealth-creating, income-generating productive capital assets. The disenfranchised poor and working and middle class are propertyless in terms of OWNING productive capital assets.

Because productive capital is increasingly the source of the world’s economic growth, shouldn’t we be asking the question why is not productive capital the source of added property OWNERSHIP incomes for all? Why are we not addressing how the system facilitates greed capitalism and envy while concentrating productive capital OWNERSHIP among the 1 to 10 percent of the population?

The change that is necessary is to reform the system to provide equal opportunity for EVERY American to acquire wealth-creating, income-generating productive capital assets on the basis that the investments will pay for themselves – and on the same terms that the wealthy OWNERSHIP class now utilizes. They are able to use the investments’ earnings to pay off the capital credit loans used to finance their investments, without having to use their own money or deny themselves consumption.

A National Right To Capital Ownership Bill that restores the American dream should be advocated by the progressive movement, which addresses the reality of Americans facing job opportunity deterioration and devaluation due to tectonic shifts in the technologies of production.

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

The solution is obvious but our leaders, academia, conventional economist and the media are oblivious to the necessity to broaden OWNERSHIP in the new capital formation of the future, simultaneously with the growth of the economy, which then becomes self-propelled as increasingly more Americans accumulate OWNERSHIP shares and earn a new source of dividend income derived from their capital OWNERSHIP in the “machines” that are replacing them or devaluing their labor value. This new “second income” source will empower EVERY American to be a better “customer with money” to sustain demand for the products and services to be created.

The solution will require the reform of the Federal Reserve Bank to create new OWNERS of FUTURE productive capital investment in businesses simultaneously with the growth of the economy. The solution to broadening private, individual OWNERSHIP of America’s FUTURE capital wealth requires that the Federal Reserve stop monetizing unproductive debt, including bailouts of banks “too big to fail” and Wall Street derivatives speculators, and begin creating an asset-backed currency that could enable every child, woman, and man to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income. Policies need to insert American citizens into the low or no-interest investment money loop to enable non- and undercapitalized Americans, including the working class and poor, to build wealth and become “customers with money.” The proposed Capital Homestead Act would produce this result.

Through Just Third Way reforms, economic growth would be freed from the slavery of past savings (“old money”), while creating a domestic source of new asset-backed, interest-free (but not cost free) money and expanded bank credit to finance new capital, repayable out of future savings (earnings). To ensure that OWNERSHIP of future private sector growth and newly created wealth is universally accessible to every citizen, such newly created money and credit would only be available through economic democratization vehicles, administered through the competitive member banks of a well-regulated Federal Reserve central banking system.

Under the first tier, future increases in the money supply (“new money”) would be linked to actual growth of the economy’s productive assets, creating new OWNERS of new capital asset wealth through widespread access to interest-free capital credit repayable with future profits. The Federal Reserve would create (i.e., “monetize”) interest-free credit, with lenders adding their normal markup as service fees above the cost of money. This would establish an unsubsidized minimal rate for financing technological growth. This would provide the public with a currency backed by increasingly more efficient instruments of production, real wealth-producing capital assets, rather than unsustainable government debt.The creation of new money and credit would be non-inflationary and would simultaneously broaden purchasing power throughout the economy. To accomplish this, a key reform is a two-tiered interest policy by the Federal Reserve that would distinguish between productive and non-productive uses of credit.

The second tier would allow substantially higher, market-determined interest rates for non-productive purposes, for which “past savings” would remain available. The Federal Reserve would be restrained from future monetization of national deficits or encouraging other forms of non-productive uses of credit, causing upper-tier credit to seek out already accumulated savings at market rates.

Capital Homesteading would also provide through capital credit insurance a rational way to deal with risk, as well as an additional check on the quality of loans being supported by the Federal Reserve. Capital credit insurance and reinsurance policies would offset the risk that the enterprises issuing new shares on credit might fail to repay the loans. Such capital credit default insurance would substitute for collateral demanded by most lenders to cover the risk of non-payment, thus enabling the poor and others with few or no assets to overcome the collateralization barrier that excludes poor people from access to productive credit.

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/.

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

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

Also see “The Path To Eradicating Poverty In America” at http://www.huffingtonpost.com/gary-reber/the-path-to-eradicating-p_b_3017072.html and “The Path To Sustainable Economic Growth” at http://www.huffingtonpost.com/gary-reber/sustainable-economic-growth_b_3141721.html. And also “Second Income Plan” at http://www.huffingtonpost.com/gary-reber/second-income-plan_b_3625319.html

Also see the article entitled “The Solution To America’s Economic Decline” at http://www.foreconomicjustice.org/15960/the-solution-to-…economic-decline and “Education Is Critical To Our Future Societal Development” at http://www.foreconomicjustice.org/9058/education-is-cri…etal-development. And also “Achieving The Green Economy” at http://foreconomicjustice.org/?p=9082.

Also see “Financing Economic Growth With ‘FUTURE SAVINGS’: Solutions To Protect America From Economic Decline” at http://www.foreconomicjustice.org/9206/financing-future…economic-decline and “The Income Solution To Slow Private Sector Job Growth” at http://www.foreconomicjustice.org/9872/the-income-solut…ector-job-growth.

Progressives’ Reckoning: Donald Trump’s Trade Promises To Rust Belt Voters Might Come Back To Haunt Him

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FILE – In this Oct. 13, 2016 file photo, supporters of Republican presidential candidate Donald Trump cheer during a campaign rally in Cincinnati, Ohio. (AP Photo/John Minchillo, File)(Credit: AP)

On November 20, 2016, Les Leopold writes on Alternate and Salon:

Over the next two years 1,400 Carrier air conditioner workers will see their decent-paying jobs migrate to Mexico. This highly profitable Indiana facility, represented by United Steel Workers, will make even more money south of the border where workers earn less in one day than the Indiana employees make in one hour, according to the The New York Times. (A YouTube video of the heartbreaking plant closing announcement has nearly 4 million views.)

While Hillary Clinton remained silent on this impending catastrophe, Donald Trump turned this facility into the poster child for what’s wrong with U.S. trade policy. He pledged that if the plant moved, he would place a 35-percent tariff on all Carrier products imported from Mexico as well as a similar duty on the Mexican products of its parent company, United Technologies. Trump boasted he would make the company cry uncle: “I’ll get a call from the head of Carrier and he’ll say, Mr. President, we’ve decided to stay in the United States. That’s what’s going to happen, 100 percent.”

Carrier became the 100-percent battering ram Trump used to pound Hillary Clinton and her embrace of NAFTA and other trade deals. In doing so, Trump snatched the plant closing issue away from the Democrats, something the party apparatchiks didn’t recognize until the Trump votes poured in from the Rust Belt.

The Carrier case, however, was not just the usual media meme about Trump backing the less educated, white working class. In fact, the threatened Indianapolis plant is 50 percent African American. Women make up half the workforce on the assembly lines, and the facility also employs dozens of recent Burmese immigrants. Making this facility great again actually means coming to the aid of America’s increasingly diverse labor force.

But Trump is stumbling into something far more problematic than trade deals. At the heart of this story is the financial strip-mining of America organized and led by Wall Street.

Why does United Technology want to move to Mexico?

Let’s round up the usual suspects:

They can’t turn a decent profit using unionized American workers? No. Carrier is the most profitable division of United Technologies.

NAFTA cause this proposed move? Not likely. NAFTA is 22 years old, so unless United Technologies is the corporate Rip Van Winkle, they could have moved long ago.

New technologies make the destruction of decent paying manufacturing jobs inevitable? Not at all. In this factory transplant, they are redeploying the same technologies already in use, machine by machine.

So if profits, trade and automation are not the driving forces, what is?

The major pressure to shift jobs abroad comes from the big hedge funds and private equity investors that have one goal only — to siphon as much wealth as possible out of companies like United Technologies. High profits, low profits or no profits, they pressure company after company to squeeze their costs as much as possible so there is more money available for the company to buy back its own shares.

Why? Because stock buybacks immediately raise the share price and give the big hedge funds an instant windfall.

Before a 1982 SEC rule change — a major turning point in the disastrous deregulation of finance — massive stock buybacks were illegal because they were considered stock manipulation and a major cause of the 1929 crash. Now, Wall Street extracts billions from this destructive activity. It’s what drives runaway inequality. (For the definitive account see Professor William Lazonick’s “Profits Without Prosperity,” Harvard Business Review.)

CEOs cherish this process because they now derive the majority of their compensation through stock incentives. So by acting as Wall Street shills, they drive up the price of stock and become richer and richer themselves.

In 1970, before stock buybacks became the norm, the pay gap between the top CEOs and the average worker was $45 to $1. Today it is an incomprehensible $844 to $1. So there’s a codependency between the big hedge fund investors and the United Technologies CEO to move the Carrier facility, obtain more cash flow, and use it all to buy back more stock.

What proof do we have? Since 2006, United Technologies has spent over $25 billion on stock buybacks, amounting to over fifty percent of its net income. Last year, just before it announced the move to Mexico, the parent company instituted a $10 billion stock buyback and the stock price immediately jumped 5 percent. This means United Technologies used 131.4 percent of its net income to move money from the company to its major investors and top officers.

Gregory Hayes, CEO of United Technologies, gets his share of the booty. Since 2012, he received $44,100,000 in total compensation, about half of which derives from stock incentives. Fifty-six top hedge funds have taken a stock position in the company to reap the bounty from these stock buybacks.

And so Trump bluffed his way into the soulless heart of an economy dominated by Wall Street. Does he have the guts to take on the fundamental evil of stock buybacks? Not unless he is forced to. It’s so much easier to blame Mexico and China.

Is Carrier a major opening for the Democratic Party?

Hillary Clinton’s benign neglect of these workers is symptomatic of the party’s ongoing romance with Wall Street elites, the source of so much of the party’s funding. These political leaders, their high-level campaign officials and the party’s financial backers have never had it so good. They won’t suffer one iota from the loss of those 1,400 Carrier jobs. They won’t have to contemplate finding a replacement job at Walmart for $13 an hour. They won’t have to worry about how to pay off their kids’ student loans. Instead, they will continue to enjoy the fruits of America’s wealth that is rapidly flowing to the top 1 percent.

Unless the party is captured by the Sanders forces, there will be little concerted action to outlaw stock buybacks. The establishment Democrats will do next to nothing about the never ending rip-off of the American people by Wall Street elites.

What should progressives do?

Right now we are in the streets bearing witness to the threats Trump poses to immigrants, people of color, Roe v. Wade, LBGTQ rights and the environment. These protests build a protective sense of community, a public space to share pain and anger, a place to shield each other against deportation and Trump vigilantes.

But to date, these emotive and reactive responses provide no alternative path or program. Love trumps hate is no match for what will soon be jammed through Congress.

Moving from Trump, the person, to the Wall Street horrors that give us Trump.

The Carrier relocation offers new possibilities. It allows us to protest about what Trump either does or does not do on behalf of working people.

If progressives were well organized — a very big if, to be sure — we should join these workers to build mass demonstrations at United Technologies headquarters, hedge fund offices and the White House. Such a series of protests would keep the Carrier shutdown on the front burner and provoke Trump to live up to his job promises.

Imagine if Black Lives Matter, the Sierra Club, 350.org, the Moral Monday movement, the Sanders supporters, and other unions and church groups rallied around these at-risk workers. That would send a loud, clear message that the progressive movement for economic, environmental and social justice cares deeply about the plight of working people — black, white, Hispanic and immigrant alike.

Not only would it challenge Trump’s bluster, it would create a litmus test for the Democratic Party. If we took to the streets for this kind of working-class cause, the Democrats would finally be forced to decide whether they are, as economist James Galbraith put it, “the party of the predators or the prey.”

The Democrats lost this election because they tried to be both. That’s why Clinton didn’t think twice about taking all that Wall Street cash for her private speeches. That’s why she could talk about the “deplorables” to a closed-door donor meeting. The Democratic elites were confident that they could build a new winning coalition of women, people of color, immigrants and upper-income voters. They thought they didn’t really need the working people left behind by Wall Street’s financial strip-mining. They do now.

There are other critical political realities to consider. By not acting on behalf of these workers, we continue to cede the jobs terrain to Trump. If for some reason Carrier does not move, Trump will get all the credit — and justifiably so. But if our movement sustained the demand in a systematic way, the victory would be for all working people, not just Trump. We would become the movement for jobs and justice.

Why fight to save manufacturing jobs when the planet is heating up, black men are being shot by police, and millions of immigrants are about to be deported?

This is a time of reckoning for progressives. It is time to face up to the fact that we will win very little unless we recognize that working people of all shades must become a vital part of a common progressive movement.

Their inclusion, however, requires that we climb out of our issue silos. We need to build a state, local and national progressive alliance that unites our specific issues. Sanders proved that such a common effort has enormous potential. He successfully made the case that the actions of the rapacious billionaire class unites us all as we struggle to reverse runaway inequality, eliminate discrimination, provide universal health care and free higher education, while also protecting the planet. We came together then around a broad social democratic platform. We need to do it again.

For starters, Sanders should deploy his prodigious list of small donors to raise substantial funds to build a national movement infrastructure. An opening campaign could focus on Carrier and highlight the evils of stock manipulation. Working people all over the country would take notice.

Yes, we are hurting. Yes, we are fearful. Yes, we are incredulous that the country we love could turn to a demagogue. But we have just entered one of those rare historical moments when the poignant words of Joe Hill, the labor troubadour, again ring true. In a telegram written to the radical labor leader Bill Haywood, just before Hill was executed on trumped-up charges 101 years ago, he wrote, “Don’t waste any time mourning: Organize!”

http://www.salon.com/2016/11/20/trumps-big-talk-about-trade-with-rust-belt-voters-will-come-back-to-haunt-him_partner/

The reality facing America and the global community is that jobs are being destroyed and the worth of labor is being devalued by tectonic shifts in the technologies of production and by the globalization of production and constant low cost competition on a global scale.

To prevent massive income inequality in the future we absolutely must finance future economic growth using financial mechanisms that empower propertyless Americans to acquire wealth-creating, income-generating productive capital assets with the earnings of the investments – just like the billionaires operate. OWNERSHIP CREATION should be the focus of our political leadership and academia. This is the path to inclusive prosperity, inclusive opportunity, and inclusive economic justice

We, as a nation, are underwriting the exponential growth of economic inequality by allowing the ownership of business corporations to continually concentrate among a small group of individuals, who own the majority of the controlling stock. This is due to our inept corporate tax structure, which under Donald Trump will see the lowest tax rate in our history, which in turn, will result in a boon to efforts on the part of the already wealthy capital ownership class to further concentrate their controlling ownership in existing business corporations and future businesses.

This has been occurring at an exponential rate ever since the Industrial Revolution and is accelerating in this age of non-human technological invention and innovation in the means of production, resulting in far less human labor input in the production of products and services people need and want. The fundamental reason is that the vast majority of Americans are ill-educated and do not understand the nature of business and the mechanics of financial means that facilitate concentrated ownership.

With respect to lowering the corporate tax rate, the result will be that the wealthy capital ownership class will have more money to acquire MORE capital asset wealth, all in the name of creating jobs. But the real prize is the capture of MORE capital asset wealth. Because Americans are not educated to understand the critical importance of owning capital wealth assets, and do not have past savings to invest, the rich are the ONLY people who can invest and further concentrate the nation’s capital ownership wealth.

For example, in the Carrier case, while operating profitably (a fundamental requirement of a successful business) in the United States, the narrowly owned corporation plans to move its manufacturing operations to Mexico to realize even more profits for the owners of Carrier by replacing “expensive” American workers with “cheap” Mexican workers. The author asks “Why?”

“The major pressure to shift jobs abroad comes from the big hedge funds and private equity investors that have one goal only — to siphon as much wealth as possible out of companies like United Technologies [the parent corporate of the Carrier operation]. High profits, low profits or no profits, they pressure company after company to squeeze their costs as much as possible so there is more money available for the company to buy back its own shares.”

The result is that current owners of the corporation, as well as the CEO (whose compensation is largely paid with stock ownership) will see their stock value increase, allowing them to increase their net worth and earnings when they sell their stock on the securities exchanges. The financial rewards are the result of driving up the price of stock, allowing them to become richer and richer. The buybacks further concentrate ownership among those individuals who own the majority of the stock of the corporation.

According to the article, “United Technologies spent over $25 billion on stock buybacks, amounting to over 50 percent of its net income (after corporate taxes). That $25 billion is retained earnings that were not paid out to the owners of the corporation, but instead used to grow the stock value of the owners. The remaining earnings can be used to invest in new factories in Mexico and other technological efficiencies of production. Of course, using retained earnings financing or corporate debt financing does not create any new owners, but instead further concentrates ownership among those who already own the corporation, and benefits that same class with increased stock value.

Today, corporations typically do not pay dividends, and if they do they are miniscule. Instead they retain earnings, which they use to accumulate more newly formed capital assets and bolster stock value. They also use debt financing to acquire more assets. Neither of these two methods create any new owners, and as a result the same wealthy ownership class continues to concentrate ownership and grow their wealth.

All this concentrated wealth ownership can be abated if we engage in monetary and tax reform. What needs to transpire is for corporations to pay out all their profits to their owners as taxable personal incomes to avoid paying corporate income taxes and to finance their growth by issuing new, full-voting and full-earnings dividend payout shares to achieve broad-based citizen ownership.

Instead of further lowering the corporate tax rate, the rate should be raised to at least 90 percent, with the caveat that if the corporation pays out fully its gross earnings to its owners it would not pay any taxes. Instead, the full tax burden would fall on the individual owners who would be subject to personal tax rates. This would effectively halt retained earnings practices.

The other challenge is to effectively end  corporate debt financing, which also only enriches the existing corporate ownership class.  Corporate debt financing uses the logic of corporate finance to justify whether to invest for expansion or not, as the requirement is that investments must generate earnings to pay for themselves. Even if the owners are now taking out the full earnings of the corporation as dividends subject to personal tax rates, the capital asset worth of the corporation they own can be used as capital credit security for any new capital credit loan the owners would qualify for to further expand their wealth-creating, income-producing ownership interests.

One possible solution would be to impose a capital credit tax on substantial business corporations who seek to further expand without using financing that creates new owners, making corporate debt financing using the above method unfeasible.

But then the question becomes, how does a business corporation finance its growth? How about a proposal to finance future corporate growth by every business corporation issuing and selling new shares of stock in accordance with the value of the new capital asset productive capacity to be formed? Along with this proposal would be a proposal, such as the proposed Capital Homestead Act (aka Economic Opportunity Act), to empower EVERY citizen, including the employees of corporations, to acquire newly issued shares using insured, interest-free capital credit loans repayable out of the future full-earnings of the investments in the corporations growing our economy, paid out to each investor using capital credit to purchase a corporation’s new stock issues. Instead of the existing owners solely being the ones who enrich themselves through corporate debt financing, now EVERY citizen would have the equal opportunity to invest in the growth corporations of their choice, without the need of past savings to invest, without limiting the capital credit financing security to past savings, without requiring workers and other citizens to reduce their consumption incomes to become owners, and without taking ownership shares from those who already own (since this is about FUTURE growth investments, not redistribution of existing wealth).

If we would build a FUTURE economy using “future earnings” to finance growth, we could significantly broaden private, individual ownership of the economy’s productive capital assets and provide financial security and general affluence to EVERY American citizen, whose income in large part (in addition to the real (not make-work) job opportunities that would be created) would be derived from the full payout of the dividend earnings they would be entitled to as per their share holdings in portfolios of diversified business corporations.

In this way, we can begin to broaden personal wealth-creating, income-producing capital asset wealth, ensure sustainable demand for environmentally-enhanced quality products and services with EVERY citizen benefiting from new income sources.

To reform the system is not a matter of clicking a switch and it suddenly all changes. It will probably take about a generation if we start now to bring about broadened personal ownership with the new capital owners benefiting from the full-earnings dividends produced by their asset holdings. As the economy creates more “customers with money,” this will snowball and accelerate the economy’s growth, creating both real job opportunities and more technological investment in the non-human factor of production to produce a future, responsible economy capable of supporting general affluence for EVERY child, woman and man.

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/.

What do you think?

Countering Trump: Let’s Build A People-Powered Democracy And Economy

Four Season Produce transporter, Jeff Martin (blue jacket) looks on as broccoli is inspected by a Glut worker-owner of this cooperative store, that serves the Mount Rainier, Maryland community, on Tuesday, March 3, 2015.Four Season Produce transporter, Jeff Martin looks on as broccoli is inspected by a Glut worker-owner of this cooperative store, that serves the Mount Rainier, Maryland community, on Tuesday, March 3, 2015. (Photo: US Department of Agriculture / Flickr)

On November 19, 2016, Geoff Gilbert writes on Truthout:

Yes, the Democrats, as Robert Reich recently wrote, need to transform from a corporate-powered party to a people-powered party. But what do people-powered institutions, which a people-powered party must fight for, actually look like?

The Democrats, for decades, have supported the social institutions of neoliberalism. They have upheld an economy owned by giant, highly centralized corporations, largely free from antitrust enforcement. And they have supported a government of technocratic managers who see their only legitimate roles as handing the public sector over to the private, corporate sector and tinkering with the rules of the corporate markets to try to create fairness around the edges of the corporate economy. All the while, the corporate economy drives further and further concentration of economic and political wealth and power.

Transforming the Democrats toward people power means abandoning these institutions of neoliberalism — a government that aids and abets corporate economic and political power — in favor of people-powered institutions.

People power means democracy. And democracy must be embedded within all of our society’s institutions, rather than only taking the form of a supposedly representative government that tries to regulate our society’s other non-democratic institutions. We need a new vision for democracy that extends to the economy and provides rights for all of us to participate in making the decisions that drive the institutions that shape our society.

Above all, people power must serve the main goal of creating a world that values the full humanity of people of all races, genders, sexualities, religions and nationalities. And if we are serious about creating a world that values everybody’s full humanity, we must provide material and cultural reparations to those harmed most by the current system — Indigenous people, Black people, women, LGBTQ people — so that everyone can fully participate as equals in a reimagined democratic society.

Pushing for People Power in the Next Infrastructure Bill

Though Democrats lost the presidency and both chambers of Congress, they can start a transformation toward people power right now by designing and organizing around a national infrastructure bill that puts these ideals into practice. They can also organize campaigns in big cities, where Democrats hold power, to reorganize public spending priorities to support people-powered institutions.

President Donald Trump will need to pass an infrastructure bill, despite potentially significant opposition from anti-public-spending Republicans, in order to create a meaningful amount of new jobs. The Democrats should not simply support Trump’s preferred version of the bill, whatever that ends up being. Instead, they should argue for a huge injection of public spending — on a scale larger than even Bernie Sanders’ proposed — $1 trillion over 10 years, and possibly using creative monetary policy, like quantitative easing for the people. The public contracts should go to people-powered institutions — preferably worker cooperatives, community land trusts and community-owned renewable energy cooperatives — rather than to the standard small number of wealthy corporations that typically win public contractsand benefit from government development policies.

Through this kind of infrastructure bill, the Democrats can develop a program to transition to a people-powered renewable energy economy, make our basic infrastructure more ecologically sustainable, begin to create ecologically sustainable transportation infrastructure, such as like electrified high-speed rail, and begin to create affordable and community-controlled housing — all while beginning to transform our economy from one owned by the wealthy elite to one that is owned by as many of us as possible. In short, the Democrats can work toward the goal of aligning themselves with the people, rather than continuing to largely cater to the wealthy and their corporations.

Models for People-Powered Institutions Already Exist

When skeptics try to portray progressive efforts to push for a people-powered infrastructure bill as unrealistic, we must insist on the practicality and feasibility of this transformation. People-powered institutions have already begun to take many different specific forms, thanks to the work of groups like the New Economy Coalition around the country.

People-powered institutions include cooperative businesses, which can replace the current corporations that are owned and controlled by a small number of financial investors. People-powered institutions also include cooperatively owned banks, such as credit unions and community land trusts. People-powered institutions can also include different forms of city ownership. For example, cities can own utilities and thus make decisions about producing renewable energy (like Boulder, Colorado, is trying to do) and provide high-speed, low-cost Internet (like Chattanooga, Tennessee has done). Cities can also own the land under and near transit projects, so that taxpayers can retain the value produced by creating public transit, rather than allowing it to be privatized as corporate property for no economic reason.

People power also means allowing communities and cities to directly decide how to spend all of this public money through participatory budgeting. And where action is needed at the national level, people power can take the form of public ownership of industries where markets fail, like health insurance and education.

And people-power must include rules for fair elections. We need automatic voter registration for everyone, a national Election Day holiday, more voting precincts and anything else needed to remove all practical barriers to voting. And the key to fair elections is public financing of elections, preferably through something like the public voucher system Seattle recently created.

People Power as the Answer to Antiestablishmentism

Over the long run, people power is the only way to truly defeat the kind of authoritarianism that Donald Trump represents. Today, most Americans are disenfranchised politically and economically. This has widely discredited all of our institutions, which so many of us haven’t trusted for a while.

For many, the establishment means all of the dominant institutions of our society — including government, business, media and educational institutions. All of our institutions are all highly centralized and authoritarian in structure. They impact millions of people, while rights to institutional decision-making are reserved for a small number of people. And the opportunity to become one of the privileged decision-makers is heavily biased by race, wealth and social connections.

Trump has rallied support by promising that he personally will smash and reshape the establishment. His authoritarianism will fail all people marginalized by the current system, though he — and Republicans — might be able to retain power for a time by stoking racism, homophobia, Islamophobia and nationalism. Democrats might be able to win elections while remaining committed to neoliberalism, if they can find another charismatic presidential candidate. But authoritarianism will always remain a threat, so long as our society’s core institutions remain distrusted and delegitimized.

Both Democrats and Republicans have systematically avoided for decades confronting head-on the social crises created by the ever-concentrating control of political and economic power.

Instead, politicians of both parties have tried to create coalitions around nationalism, Islamophobia, the so-called culture wars, coded anti-Black and anti-immigrant racism, and the myth of the entrepreneur, which produces a divisive politics that basically nobody feels positive about. Politicians from both parties lionize the entrepreneur, casting poverty and general lack of material success as an individual shortcoming, a narrative that erases the structural privilege corporate elites have erected for themselves, along with the wealth impact of the enslavement of Black people for centuries, and genocidal land theft from Indigenous people. The rhetoric also erases the structurally racist policies that have continued to maintain, in the decades since the World Wars, the giant wealth gap enjoyed by white people compared to people of any other race.

This rhetorical emphasis on the individual, rather than on the structures within which we, as individuals, exist, stokes all forms of xenophobia. It encourages everyone to personalize their own material situations — and to look for other individuals, not systems, that have gotten in their way. Over past decades, it has justified the bipartisan policies that materially oppress the most marginalized people in our society — endless wars on drugs and terror, mass incarceration and mass deportation, which is administered by a dystopian government agency called Immigration and Customs Enforcement (ICE) that both Democrats and Republicans have legitimized.

Given the lack of control that most of us have over the big structural forces in our lives — and the xenophobic rhetoric both parties have used, though to different degrees, to distract us from this for decades — we shouldn’t be surprised that Trump, who promises to change things, has such significant support. Even when Trump does not remake our institutions — and if we can somehow avoid the mass xenophobic violence authoritarians often employ to distract people from their failures — authoritarian populism will not disappear with Trump. It will remain a powerful political force, capable of being remobilized by the right charismatic leader, so long as our core social institutions continue to disenfranchise us politically and economically.

Of course, the Democratic Party will never be the answer to all of society’s injustices. Progressives of all stripes must begin dreaming of and organizing around real solutions right now. We need to decentralize political and economic power. We need a society that is actually of the people, for the people and by the people. We need people-powered institutions.

http://www.truth-out.org/opinion/item/38443-countering-trump-let-s-build-a-people-powered-democracy-and-economy

As with so many writers and commentators, they fail to see corporations as assemblages of people with a common purpose to produce products and services and earn a profit, but instead see corporations as abstracts, devoid of people who own them. Agreement should be widespread that with respect to awarding public infrastructure-building contracts, instead of awarding typically narrowly-owned corporations, “people-powered” (corporations owned by their workers and citizens broadly) enterprises should be awarded the contracts so as to benefit from government development policies. This would serve as a beginning to transform our economy from one owned by at the wealthy elite minority to one that is owned by as many of us as possible. Of course, building new and renovating infrastructure is just a relatively small part of the opportunities ahead in transforming our economy from one owned by the wealthy elite minority to one in which EVERY citizen is an owner.

What we really need is monetary and tax reform, by which an annual Capital Homestead Account in the form of insured, interest-free capital credit is extended equally to EVERY citizen, without any requirement for past savings, a job, or education. The capital credit loans would strictly be used to invest in new wealth-creating, income-producing capital assets formed by qualified, successful corporations growing the economy. The capital credit loans would be repayable out of the future earnings of the investments, and once paid would continue to produce income for the new productive owners, who would use the income to satisfy their needs and wants, thus resulting in spiraling green economic growth.

The problem is that technological invention and innovation––change––makes the non-human means of producing––tools, machines, structures, and computerized processes––ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). This means that fewer and fewer people are necessary to produce the products and services needed and wanted by society. But when a job is one’s ONLY way to be productive and earn an income and jobs are disappearing and the worth of labor is being devalued, we have a problem. The problem is magnified by the fact that upward of 95 percent of the products and services are produced by physical productive capital––the non-human factor––which is owned by less than 10 percent of the population and highly concentrated among less than 1 percent of the population. The result is that primary distribution through the free market economy, whose distributive principle is “to each according to his production,” delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor.

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

The capitalism practiced today is what, for a long time, I have termed “Hoggism,” propelled by greed and the sheer love of power over others. “Hoggism” institutionalizes greed (creating concentrated capital ownership, monopolies, and special privileges). “Hoggism” is about the ability of greedy rich people to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership. Our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success––always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent are not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption made possible by “customers with money.” It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being, not to a hand-out derived from government coercion that takes from those who make productive contributions as workers and capital owners and gives to those who are unable to earn a minimum sustainable income.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Finance Is Not The Economy

finance

In September 2016, Dirk Bezemer and Michael Hudson write in Journal of Economic Issues Vol. L No. 3, which has been republished on Evonomics:

Why have economies polarized so sharply since the 1980s, and especially since the 2008 crisis? How did we get so indebted without real wage and living standards rising, while cities, states, and entire nations are falling into default? Only when we answer these questions can we formulate policies to extract ourselves from the current debt crises. There is widespread sentiment that this crisis is fundamental, and that we cannot simply “go back to normal.” But deep confusion remains over the theoretical framework that should guide analysis of the post-bubble economy.

The last quarter century’s macro-monetary management, and the theory and ideology that underpinned it, was lauded by leading macroeconomists asserting that “The State of Macro[economics] is Good” (Blanchard 2008, 1). Oliver Blanchard, Ben Bernanke, Gordon Brown, and others credited their own monetary policies for the remarkably low inflation and stable growth of what they called the “Great Moderation” (Bernanke 2004), and proclaimed the “end of boom and bust,” as Gordon Brown did in 2007. But it was precisely this period from the mid-1980s to 2007 that saw the fastest and most corrosive inflation in real estate, stocks, and bonds since World War II.

Nearly all this asset-price inflation was debt-leveraged. Money and credit were not spent on tangible capital investment to produce goods and non-financial services, and did not raise wage levels. The traditional monetary tautology MV=PT, which excludes assets and their prices, is irrelevant to this process. Current cutting-edge macroeconomic models since the 1980s do not include credit, debt, or a financial sector (King 2012; Sbordone et al. 2010), and are equally unhelpful. They are the models of those who “did not see it coming” (Bezemer 2010, 676).

In this article, we present the building blocks for an alternative. This will be based on our scholarly work over the last few years, standing on the shoulders of such giants as John Stuart Mill, Joseph Schumpeter, and Hyman Minsky.

Immoderate debt creation was behind that “Great Moderation” (Grydaki and Bezemer 2013). That is what made this economy the “Great Polarization” between creditors and debtors. This financial expansion took the form more of rent extraction than of profits on production (Bezemer and Hudson 2012) — a fact missed in most analyses today (for a proposal, see Kanbur and Stiglitz 2015). This blind spot results from the fact that balance sheets, credit, and debt are missing from today’s models.

The credit crisis and recession are, therefore, a true paradigm test for economics (Bezemer 2011, 2012a, 2012b). We can only hope to understand crisis and recession by developing models that incorporate credit, debt, and the financial sector (Bezemer 2010; Bezemer and Hudson 2012). Here we provide the conceptual underpinning for this claim.

To explain the evolution and distribution of wealth and debt in today’s global economy, it is necessary to drop the traditional assumption that the banking system’s major role is to provide credit to finance tangible capital investment in new means of production. Banks mainly finance the purchase and transfer of property and financial assets already in place.

This distinction between funding “real” versus “financial” capital and real estate implies a “functional differentiation of credit” (Bezemer 2014, 935), which was central to the work of Karl Marx, John Maynard Keynes, and Schumpeter. Since the 1980s, the economy has been in a long cycle in which increasing bank credit has inflated prices for real estate, stocks, and bonds, leading borrowers to hope that capital gains will continue. Speculation gains momentum — on credit, so that debts rise almost as rapidly as asset valuations.

When the financial bubble bursts, negative equity spreads as asset prices fall below the mortgages, bonds, and bank loans attached to the property. We are still in the unwinding of the biggest bust yet. This collapse is the inevitable final stage of the “Great Moderation.”

The financial system determines what kind of industrial management an economy will have. Corporate managers, as well as money managers and funds, seek mainly to produce financial returns for themselves, their owners, and their creditors. The main objective is to generate capital gains by using earnings for stock buybacks and paying them out as dividends (Hudson 2015a, 2015b), while squeezing out higher profits by downsizing and outsourcing labor, and cutting back projects with long lead times. Leveraged buyouts raise the break-even cost of doing business, leaving the economy debt-ridden. Profits are used to pay interest, not to reinvest in tangible new capital formation or hiring. In due course, the threat of bankruptcy is used to wipe out or renegotiate pension plans, and to shift losses onto consumers and labor.

This financial short-termism is not the kind of planning that a government would undertake if its aim were to make economies more competitive by lowering the price of production. It is not the way to achieve full employment, rising living standards, or an egalitarian middle-class society.

To explain how the bubble economy’s debt creation leads to debt deflation, we distinguish between two sets of dynamics: current production and consumption (GDP), and the Finance, Insurance and Real Estate (FIRE) sector. The latter is associated primarily with the acquisition and transfer of real estate, financial securities, and other assets. Our aim is to distinguish this financialized “wealth” sector — the balance sheet of assets and debts — from the “real” economy’s flow of credit, income, and expenses for current production and consumption.

In the next section, we state our case, distinguishing the financial sector from the rest of the economy, and rent from other income. It is as if there are “two economies,” which are usually conflated. They must be analyzed as separate but interacting systems, with real estate assets and household mortgage debt at the center of the bubble economy. In section three, therefore, we examine the significance of household debt. In today’s “rentier economy” this represents not real wealth, but a debt overhead. In section four, we discuss the pathologies arising from this overhead: loss of productivity and investment, with rising inequality and volatility.

Finance Is Not The Economy; Rent Is Not Income

Analysis of private sector spending, banking, and debt falls broadly into two approaches. One focuses on production and consumption of current goods and services, and the payments involved in this process. Our approach views the economy as a symbiosis of this production and consumption with banking, real estate, and natural resources or monopolies. These rent-extracting sectors are largely institutional in character, and differ among economies according to their financial and fiscal policy. (By contrast, the “real” sectors of all countries usually are assumed to share a similar technology.)

Economic growth does require credit to the real sector, to be sure. But most credit today is extended against collateral, and hence is based on the ownership of assets. As Schumpeter (1934) emphasized, credit is not a “factor of production,” but a precondition for production to take place. Ever since time gaps between planting and harvesting emerged in the Neolithic era, credit has been implicit between the production, sale, and ultimate consumption of output, especially to finance long- distance trade when specialization of labor exists (Gardiner 2004; Hudson 2004a, 2004b). But it comes with a risk of overburdening the economy as bank credit creation affords an opportunity for rentier interests to install financial “tollbooths” to charge access fees in the form of interest charges and currency-transfer agio fees.

Most economic analysis leaves the financial and wealth sector invisible. For nearly two centuries, ever since David Ricardo published his Principles of Political Economy and Taxation in 1817, money has been viewed simply as a “veil” affecting commodity prices, wages, and other incomes symmetrically. Mainstream analysis focuses on production, consumption, and incomes. In addition to labor and fixed industrial capital, land rights to charge rent are often classified as a “factor of production,” along with other rent-extracting privileges. Also, it is as if the creation and allocation of interest-bearing bank credit does not affect relative prices or incomes.

It may seem ironic that Ricardo wrote just when Britain’s economy was strapped by war debts in the wake of the Napoleonic Wars that ended in 1815. The previous generation’s writers, from Adam Smith to Malachy Postlethwayt, had explained how the government paid interest on each new bond issue by adding a new excise tax to cover its interest charge (Hudson 2010). These taxes raised the cost of living and doing business, while draining the economy to pay bondholders. Yet, the banks’ Parliamentary spokesman (and indeed, lobbyist) Ricardo established a countervailing orthodoxy by claiming that money, credit, and debt did not really matter as far as production, value, and prices were concerned. His trade theory held that international prices varied only in proportion to their “real” labor costs, without taking money, credit, and debt service into account. Credit payments to bankers, and the distribution of financial assets and debts, are not seen to affect the distribution of income and wealth.

Adam Smith decried monopoly rent, especially for the special trade privileges that the British and other governments created to sell to their bondholders to reduce their war debts. Ricardo emphasized the free lunch of land rent: prices in excess of the cost of production on lands with better than marginal fertility, or implicitly on sites benefiting from favorable location. But like Smith, he treated interest as a normal cost of doing business, and hence as part of the production sector, not as an extractive rentier charge autonomous and independent from the economy of production and consumption. On this ground, he omitted banks and monopolies from his discussion of economic rent — on the assumption that their income was payment for a productive service, and hence interest seemed to be a necessary cost of production.

This assumption underlies today’s National Income and Product Accounts (NIPA). Everyone’s “income” (not including capital gains, which make no appearance in the NIPA) finds its counterpart in a “product,” in this case a service for financial income. Most revenue — and certainly most ebitda (short for “earnings before interest, taxes, depreciation and amortization”) — is generated within the FIRE sector. But is it actually part of the “real” economy’s sphere of production, consumption, and distribution (in which case it is income); or is it a charge on this sphere (in which case it is rent)? This is the distinction that Frederick Soddy (1926) drew between real wealth and “virtual wealth” on the liabilities side of society’s balance sheet.

To answer this question, it is necessary to divide the economy into a “productive” portion that creates income and surplus, and an “extractive” rentier portion siphoning off this surplus as rents: that is, as payments for property rights, credit, or kindred privileges. These are the payments on which the institutionalist school focused in the late nineteenth century. A key policy aim of the institutionalist school was to regulate prices and revenue of public utilities and monopolies in keeping with purely “economic” costs of production, which the classical economists defined as value (Hudson 2012).

Our aim is to revive the distinction between value and rent, which is all but lost in contemporary analysis. Only then can we understand how the bubble economy’s pseudo-prosperity was fueled by credit flows — debt pyramiding — to inflate asset markets in the process of transferring ownership rights to whomever was willing to take on the largest debt.

To analyze this dynamic, we must recognize that we live in “two economies.” The “real” economy is where goods and services are produced and transacted, tangible capital formation occurs, labor is hired, and productivity is boosted. Most productive income consists of wages and profits. The rentier network of financial and property claims — “Economy #2” — is where interest and economic rent are extracted. Unfortunately, this distinction is blurred in official statistics. The NIPA conflate “rental income” with “earnings,” as if all gains are “earned.” Nothing seems to be unearned or extractive. The “rent” category of revenue — the focus of two centuries of classical political economy — has disappeared into an Orwellian memory hole.

National accounts have been recast since the 1980s to present the financial and real estate sectors as “productive” (Christophers 2011). Conversely, much of the notional household income in national accounts does not exist in cash flow terms (net of interest and taxes). Barry Z. Cynamon and Steven M. Fazzari (2015) estimate that U.S. NIPA-imputed household incomes overstate actual incomes in cash flow terms by about a third.

That is what makes the seemingly empirical accounting format used in most economic analysis an expression of creditor-oriented pro-rentier ideology. Households do not receive incomes from the houses they live in. The value of the “services” their homes provide does not increase simply because house prices rise, as the national accounts fiction has it. The financial sector does not produce goods or even “real” wealth. And to the extent that it produces services, much of this serves to redirect revenues to rentiers, not to generate wages and profits.

The fiction is that all debt is required for investment in the economy’s means of production. But banks monetize debt, and attach it to the economy’s means of production and anticipated future income streams. In other words, banks do not produce goods, services, and wealth, but claims on goods, services, and wealth — i.e., Soddy’s “virtual wealth.” In the process, bank credit bids up the price of such claims and privileges because these assets are worth however much banks are willing to lend against it.

To the extent that the FIRE sector accounts for the increase in GDP, this must be paid out of other GDP components. Trade in financial and real estate assets is a zero-sum (or even negative-sum) activity, comprised largely of speculation and extracting revenue, not producing “real” output. The long-term impact must be to increase debt-to-GDP ratios, and ultimately to stifle GDP growth as the financial bubble gives way to debt deflation, austerity, unemployment, defaults, and forfeitures. This is the sense in which today’s financial sector is subject to classical rent theory, distinguishing real wealth creation from mere overhead.

“Money” consists mainly of credit creation since “loans create deposits” (McLeay, Radia and Thomas 2014). So any increase in the sum of final GDP goods-and-services transactions is mirrored in bank credit supporting these transactions (alongside inter-firm trade credit, and now money market placements as well). But since the 1980s, bank lending has risen relative to GDP (that is, relative to income). Much of the credit created since then has been used not for production, but for asset price inflation, driving up costs of living. Consumers — especially those who own real estate, stocks, and bonds — have run deeper into debt in order to maintain their living standards. Real wages have fallen a bit, while after-tax costs of living have increased.

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In the United States, FICA wage withholding for Social Security and Medicare has risen to 15.2 percent, medical insurance costs have risen, education charges have risen for buyers of educational diplomas, and the mortgage bubble (which Alan Greenspan euphemized as “wealth creation”) has driven up the price of obtaining a home. It is now recognized that U.S. living standards since the 1970s have become debt-fueled, not income-supported. This went largely unnoticed until the bubble burst, since the underlying distinction in credit flows has been excluded from the economics curriculum.

Drawing the Distinction Today

It was not always like that. Economic theory today is in some ways a step backward by expunging the nineteenth-century view — and indeed that of medieval economics and even of classical antiquity — with regard to how banking and high finance intrude into economic life to impose austerity and polarize the distribution of wealth and income. More recently, Marx ([1887] 2016, 1), in Chapter 30 of Capital, distinguished “credit, whose volume grows with the growing volume of value of production” as differing from “the plethora of moneyed capital — a separate phenomenon alongside industrial production.” This implied a corollary distinction between transactions in goods and services from those in property and financial assets. Keynes (1930, 217-218) likewise distinguished between “money in the financial circulations” and “money in the industrial circulations.”

James Tobin already in 1984 worried that “we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services” (Tobin 1984, 14). Minsky in his later years warned against what he called “money manager capitalism” as distinct from industrial capitalism (Minsky 1987; Wray 2009). Richard Werner (2005, also 1997) adapted Irwin Fisher’s (1933) equation of exchange (MV=PT) to distinguish credit to the “real” economy from that to the financial and “wealth” sectors.

Applying these distinctions to Japanese data, Werner (2005, 222) finds “a stable relationship between ‘money’ (credit to the real sector) that enters the real economy and nominal GDP.” Likewise, Wynne Godley and Gennaro Zezza (2006, 3) observe for the United States: “Major slowdowns in past periods have often been accompanied by falls in net lending. Indeed, the two series have moved together to an extent that is somewhat surprising.” Federal Reserve economists note that many contemporary “[a]nalysts have found that over long periods of time there has been a fairly close relationship between the growth of debt of the nonfinancial sectors and aggregate economic activity” (BGFRS 2013, 76).

These correlations suggest a one-on-one ratio between bank credit and the non- financial sector’s economic activity (Figure 1). Growth in credit to the real sector paralleled growth in nominal U.S. GDP from the 1950s to the mid-1980s — that is, until financialization became pervasive. Allowing for technical problems of definitions and measurement, growth of bank credit to the real sector and nominal GDP growth moved almost one on one, until financial liberalization gathered steam in the early 1980s.

Credit Decoupled from Income

Figure 1 shows how, after the mid-1980s, the real sector was borrowing structurally more than its income — a remarkable trend noted by few. Wynne Godley wrote in 1999 that “during the last seven years … rapid growth could come about only as a result of a spectacular rise in private expenditure relative to income. This rise has driven the private sector into financial deficit on an unprecedented scale” (Godley 1999, 1).

Households went into negative savings territory. Firms moved from taking their returns as profits from the sale of goods and services to taking their returns as capital gains and other purely financial transactions. General Electric became GE Capital. Maria Grydaki and Dirk Bezemer (2013) explain how the rise of indebtedness explains the eerie tranquility of the bubble years, dubbed by some the “Great Moderation” which Greenspan, Bernanke, and others attributed to (their own) superior monetary policy skills. In reality, it was the “lull before the storm” of debt deflation, as a prescient author noted in 1995 (Keen 1995).

There is contemporary research supporting the classical viewpoint that debt can be a rentier burden, rather than a service to society. Wiliam Easterly, Roumeen Islam, and Joseph Stiglitz (2000) shows that the volatility of growth tends to decrease and then increase with larger financial sectors. In their article, “Shaken and Stirred: Explaining Growth Volatility” (2000, 6), the authors find that “standard macroeconomic models give short shrift to financial institutions … our analysis confirms the role that financial institutions play in economic downturns.”

In their article, “Too Much Finance?” Jean-Louis Arcand, Enrico Berkes, and Ugo Panizza (2011) argue that expectation of bailouts may lead a financial sector to expand in size beyond the social optimum. They use a variety of empirical approaches to show that “too much” finance starts to have a negative effect on output growth when credit to the private sector reaches 110 percent of GDP. Stephen G. Cecchetti, M.S. Mohanty, and Fabrizio Zampolli (2011, 1) likewise argues that, “beyond a certain level, debt is a drag on growth.” The authors estimate the threshold for government and household debt to be around 85 percent of GDP and around 90 percent for corporate debt. Likewise, as we were writing this article, the OECD and the IMF both issued reports warning of a financial overgrowth (OECD 2015; Sahay et al. 2015).

The Significance of Household Debt

The classical analysis of rent to credit and debt, combined with these recent findings, begs a key question: When does the financial system support production and income formation in a sustainable manner, and when does it support speculation and rents in the form of capital gains, rather than income formation?

The answer to this question will have to be both theoretically sound and institutionally relevant, capturing the specific forms that “unproductive” revenues take in a particular era. For the classical economists, this form was land rent. For Minsky (e.g., 1986), this form was capital gains from stock market investment “on margin” — influenced both by the 1929 Great Crash experience and by the shape of financial markets in the 1950s and 1960s, when he developed his financial instability hypothesis. But, like the classical analysis of rents, the Minskyan progression from “hedge” to “speculative” to “Ponzi” finance is not confined to land markets or stock markets.

In our time, arguably the most significant form that rent extraction has taken is in the household credit markets, especially household mortgages. The contrast is with loans to non-financial business for production. A useful way to discuss this distinction is to categorize loans on two planes: their contribution to income growth and their tendency to increase financial fragility. Table 1 illustrates this. There are both conceptual and empirical grounds to draw the distinction today along these lines. We now discuss them in turn.

Categorization of bank lending

Debt shift

Conceptual Differentiation of Credit

Loans to non-financial business for production expand the economy’s investment and innovation, leading to GDP growth. A dollar drawn down as a loan and spent on domestic investment goods will increase domestic incomes proportionally. And, if the business plan on which the loan is given is good, the revenues from increased production will more than suffice to pay off the loan: financial fragility need not develop. Debt increases, but so does income. The debt/income ratio need not rise.
Like loans to non-financial business, household consumer credit provides the purchasing power and the effective demand for GDP to grow. But compared to business loans, it has two features that cause less growth for the same loan amount, and more financial fragility.

The first is a mismatch between the debt burden and the income generated from the loan. Consumer credit is not used to generate the income that will pay off the loan, as with business finance. The revenues from the loans and the debt liabilities are not on the same balance sheet. Unless macroeconomic institutions effectively transfer revenues from firms to households (e.g., as wages), consumer credit creates financial vulnerabilities in household balance sheets.

Second, in terms of how much income is generated for a given debt service burden, household consumer credit is not an efficient way to finance production due to its usually very high interest rates. A number of studies have shown that, compared to business credit, the growth impact of household credit is small (Beck et al. 2012; Jappelli and Pagano 1994; Xu 2000). For every dollar realized in value added by extending credit to households which spend it with firms, more dollars of debt servicing must be paid than is the case for business credit. Bezemer (2012) shows that the ratio of the growth in private debt and the growth in GDP moved from 2:1 on average in the 1950s and 1960s to 4:1 in the 1990s and 2000s. These are rough, but still telling indications. The trend is not exclusively attributable to growth in consumer credit since the 1960s, for an even larger category of household credit is household mortgage credit.

Like consumer credit, household mortgage credit increases the debt, but not the income of households. This increases financial fragility. Unlike consumer credit, mortgage credit for existing properties does not generate current income anywhere else — at least, not in the classical taxonomy of incomes and rents. Mortgage credit is extended to buy assets, mostly already existing. It generates capital gains on real estate, not income from producing goods and services. The distinction becomes blurred to the extent that mortgages are used to finance personal consumption (especially “equity loans” to homeowners) or new construction, but that is a minor part of the total volume of mortgage loans.

Mortgages are also special in that real estate assets have grown into the largest asset market in all western economies, and the one with the most widespread participation. Following classical analysis, if every real estate asset bought on credit skims off the income of the owner-borrower, then the rise in home ownership since the 1970s has sharply increased rent extraction and turned it into a flow of interest to mortgage lenders. Securitization added another dimension to this. Not only domestic homeowners, but also global investors can participate in the mortgage market. As in a Ponzi scheme, the larger the flows of income the mortgage market commands, the longer the scheme can continue. This is a key reason for the unusually long mortgage credit boom synchronized across western economies from the 1990s to 2007.

Household mortgage loans are also unique among types of bank loans for their macroeconomic effects in downturns — that is, for their potential to increase the financial fragility of entire economies. Because of widely held debt-leveraged asset ownership, the effects of falling house prices and negative equity on household consumption are significant on a macroeconomic level. And because real estate collateral is a key asset on bank balance sheets, there is also an effect on banks’ own financial fragility. This leads to lending restrictions not only in mortgages, but also to nonfinancial business.

Empirical Evidence

A number of empirical studies have been undertaken in the last few years to corroborate the above conceptual discussion. In Figure 2, based on calculations by Dirk Bezemer, Maria Grydaki, and Lu Zhang (2016), we plot the correlation of income growth with credit stocks scaled by GDP. This provides a proxy for the growth effect of credit over time. The trend is downward from the mid-1980s, and from the 1990s the correlation coefficient is not significantly different from zero. Credit was no longer “good for growth,” as many had for so long believed (from King and Levine 1993 to Ang 2008).

A major reason for this trend was that credit was extended increasingly to households, not business. Figure 3 shows the change in bank credit allocation from 1990 to 2011 for a balanced panel of 14 OECD economies. While the total credit stock expanded enormously in the 1990s and 2000, credit to nonfinancial business was stagnant at about 40 percent of GDP, while its share in overall credit plummeted. By contrast, the share of household mortgage credit issued by banks rose from about 20 to 50 percent of all credit. Òscar Jordà, Alan Taylor, and Moritz Schularick (2014), in their excellent historical study “The Great Mortgaging,” report for a sample of 17 countries an increase from 30 to 60 percent in household mortgage credit as share of GDP since 1900, with by far most of that increase since the 1970s. The costs to income growth were large. Torsten Beck et al. (2012), Bezemer, Grydaki, and Zhang (2016), and Jordà, Taylor, and Schularick (2014) all show with advanced statistical analysis that the contribution of household credit to income growth has become negligible or is plainly negative. Last year, IMF and OECD reports made the same point (Sahay et al. 2015; Cornede, Denk and Hoeller 2015).

The falling growth effectiveness of credit

Such large stocks of household credit do not just depress income growth. As we noted above, they also increase financial fragility. A large number of recent cross- country studies report that the expansion of household credit is positively related to crisis probability (Barba and Pivetti 2009; Büyükkarabacak and Valev 2010; Frankel and Saravelos 2012; Obstfeld and Rogoff 2009; Rose and Spiegel 2011; Sutherland et al. 2012). There is also a clear impact on the length and severity of post-2008 recessions. The mechanism is shown by Karen Dynan (2012) and by Atif Mian and Amir Sufi (2014) for the United States.

More leveraged U.S. homeowners have cut back their spending after 2007. But the nefarious effect of more private credit — a rise which, as we have seen, is driven by the growth in household mortgage credit — on the severity of the post-crisis recession is not confined to the US. Philip Lane and Gian Maria Milesi-Ferretti (2011) find that, on average across a large swath of countries, falls in output, consumption, and domestic demand in 2008–2009 correlate to the pre-crisis increases in the ratio of private credit to GDP.

S. Pelin Berkmen et al. (2012) show that the gap between realized output growth in 2009 with the more optimistic pre-crisis forecasts is strongly correlated to pre-crisis credit growth. They infer that pre- crisis household credit growth is a prime suspect for the causes of the depth of the recession. Similar findings are reported by Cecchetti, Mohanty, and Zampolli (2011), Stijn Claessens et al. (2010); Tatiana Didier, Constantino Hevia, and Sergio Schmukler (2012), and others.

In sum, if we divide bank credit into three categories as in Table 1, our categorization suggests that both household consumer credit and loans to non- financial business are productive — in the sense of providing the purchasing power to support production of goods and services — but with greater buildup of financial fragility in the case of consumer credit. Installment loans were instrumental in developing mass markets for cars, but this made household balance sheets more vulnerable. Many U.S. students could not attain a college degree without student loans. In this sense, these loans are productive by enabling graduates to earn more. But if students cannot find jobs that pay enough extra income to service the loan, it is not productive. In any event, the debt burden after graduation weakens their household balance sheets. In this sense, mortgages and other debts tend to increase financial fragility.

This categorization is not exhaustive and should be further refined within each category. For instance, much lending to non-financial business does not support production. It may take the form of mortgage lending pushing up commercial real estate prices, or loans for mergers and takeovers, or for stock buyback programs. Conversely, household mortgages may be productive to the extent that they are used for new construction. They thus should be distinguished from margin (brokers’) loans and interest-only loans to “flip” houses or commercial real estate, which are unproductive.

These more fine-grained categories cannot be observed in the data in a cross- country consistent manner as done in the above studies. They can be applied in country studies building on the Figure 3 distinctions. But a major obstacle to this research program is not empirical, but paradigmatic: the impression that debt-
leveraged real estate valuations represent the economy’s wealth, with little recognition that its financing structures undermine wealth creation. To this we now turn.

The Rentier Economy: Wealth or Overhead?

Bank credit to the nonbank “asset” sector (mainly for real estate, but also LBOs and takeover loans to buy companies, margin loans for stock and bond arbitrage, and derivative bets) does not enter the “real sector” to finance tangible capital formation or wages. Its principal immediate effect is to inflate prices for property and other assets. Recent econometric analysis confirms that mortgage credit causes house price to increase (Favara and Imbs 2014) — and not just vice versa, as in the demand-driven textbook credit market theories.

How does this asset-price inflation affect the economy of production and wages and profits? In due course this process involves increasing the debt-to-GDP ratio by raising household debt, mortgage debt, corporate and state, local and government debt levels. This debt requires the real sector to pay debt service — a fact that prompted Benjamin Friedman (2009, 34) to write that “an important question — which no one seems interested in addressing — is what fraction of the economy’s total returns … is absorbed up front by the financial industry.”

To ignore this rising fraction is to ignore debt and its consequence: debt deflation of the “real” economy. Of course, the reason why debt leveraging continued so long was precisely because credit to the FIRE sector inflated asset prices faster than debt service rose — as long as interest rates were falling. The tidal wave of post-1980 central bank and commercial bank liquidity drove interest rates down, increasing capitalization ratios for rental income corporate cash flow.

The result was the greatest bond market rally in history, as the soaring money supply drove down interest rates from their 20-percent high in 1980 to under 1.0 percent after 2008.

A debt-leveraged rise in asset prices has a liability counterpart on the balance sheet of households and firms. Homes, commercial properties, stocks, and bonds are loaded down with debt as they are traded many times by investors or speculators taking out larger and larger loans at easier and easier terms: lower down-payments, zero-amortization (interest-only) loans and outright “liars’ loans” with brokers and their bankers filing false income declarations and crooked property valuations, to be packaged and sold to pension funds, German Landesbanks, and other institutional investors. Each new debt-leveraged sale may bid up prices for these assets.

But the credit can be repaid (with interest) only by withdrawing payment from the “real” sector (out of profits and wages), or by selling financialized assets, or borrowing yet more credit (“Ponzi lending”). The rising indebtedness approaching the 2008 crest was carried not so much by diverting current income away from buying goods and services or by selling financial assets, but by loading down the economy’s balance sheet and national income with yet more debt (that is, by borrowing the interest falling due, for example, by home equity loans). What kept the “Great Moderation” income growth and inflation levels so “moderate” was an exponential flood of credit (i.e., debt) to carry the accumulation and compounding of interest. It was like having to finance a chain letter on an economy-wide scale, with banks creating the credit to keep the scheme going.

This is the institutional reality behind the negative correlation coefficient of credit and income growth, reported in the previous section. In fact, to assess credit for its income growth potential is to miss its true function in the rentier economic system. The FIRE sector’s real estate, financial system, monopolies, and other rent-extracting “tollbooth” privileges are not valued in terms of their contribution to production or living standards, but by how much they can extract from the economy. By classical definition, these rentier payments are not technologically necessary for production, distribution, and consumption. They are not investments in the economy’s productive capacity, but extraction from the surplus it produces.

Just as classical rents were defined as transfer payments rather than earned by factors of production, financial investment by itself is a zero-sum activity. With interest and related charges taken into account, it is a negative-sum activity. The problem with the transfer character of financial payments is that the assets backing the loans to buy them, must plunge in price at the point where debt service diverts so much income and liquidity from the real sector that debt-financed asset-price inflation becomes unsustainable. This is confirmed by a recent Bank of International Settlements study. Mathias Drehman and Mikael Juselius (2015) report that debt- service ratios are an accurate early warning signal of impending systemic banking crises, and strongly related to the size of the subsequent output losses.

Financial markets can grow sustainably — that is, without rising fragility — only when loans to the real sector are self-amortizing. For instance, the thirty-year home mortgages typical after World War II were paid over the working life of homebuyers. The interest charges often added up to more than the property’s seller received, but the loans financed about two million new homes built each year in the United States in the early post-war decades, creating enough economic growth to pay down the loans.

When building activity slowed, debt growth was kept going by financial engineering and lending at declining rates of interest and on easier payment terms. This is what happened from the 1980s to 2008, and especially after 2001, as the real estate bubble replaced the dot.com bubble of the 1990s. Prices for rent-yielding and financial assets were bid up relative to the size of the real economy. Housing and other property prices (as well as prices for stocks and bonds) rose relative to wages, widening the polarization between property owners and labor. Christopher Brown (2007) showed already before the crisis how household credit is central to this divergence. Financial engineering, which freed household incomes and home equity to be invested in speculative assets, greatly increased the amount of borrowing that household could and did take on. By applying Minsky’s categorization, he identified the move from speculative to Ponzi financing structures, and concluded that debt growth, and the consumption growth based on it, was not sustainable. Because a Ponzi scheme is a “pyramid scheme,” sucking money from a broad base to a narrow top, financial engineering also increased inequality (see also Brown 2008).

This polarization occurred largely because resources were flowing to FIRE speculation and arbitrage instead of to more moderate-return, fixed capital formation. The main dynamic was financial, not the industrial relationship between employers and workers described by socialists a century ago. It originated in the United States and spread to most industrial economies via the carry trade and other international lending in an increasingly deregulated environment. Toxic financial waste became the most profitable product and the fastest way to quick fortunes, selling junk mortgages to institutional investors in a financial free-for-all.

Robin Greenwood and David Scharfstein’s (2012) “The Growth of Modern Finance” provides a telling empirical illustration of the transfer (rather than income- generating) character of today’s financial sector. In addition to showing that the financial industry accounted for 7.9 percent of U.S. GDP in 2007 (up from 2.8 percent in 1950), they calculated that much of this took the form of fees and markups — the quintessential transfer payments. Such charges by asset managers of mutual funds, hedge funds, and private equity concerns now account for 36 percent of the growth in the financial sector’s share of the economy, as Gretchen Morgenson (2012) reports. Finance also accounts for some 40 percent of corporate profits. But our point is that financial “profits” in the classical scheme are largely rents, not profit. They are not the same thing as industrial earnings from tangible capital formation.

Capital Gains Are Linked to Debt Growth

This raises a vital question for today’s economies. Can debt-financed rising asset prices make economies richer on a sustainable basis? If the aim of raising asset prices is to increase the capitalization rate of rents and profits by lowering interest rates, can pension funds, insurance companies, and retirees save enough for their retirement out of current earnings, or can they live by capital gains alone?

Asset prices can rise only by debt creation or by diverting current income. The recognition that such debt-fueled inflation of asset prices is a form of rent extraction is central to our analysis of its unsustainability. By contrast, the now conventional economic models give us no handle to even start addressing these phenomena. By viewing capital gains as transfers instead of as income, we define the long-term sustainability of capital gains and asset prices in terms of trends in disposable income plus debt growth. Just as a Ponzi scheme must collapse with mathematical certainty (even though the timing of the collapse is uncertain), so it is with asset markets that expand faster than income growth. The divergence between income growth and rent extraction (asset price growth and financial transfers) is unsustainable, although, by going global, asset markets can be kept inflated over decades.

What obscures this dynamic is a micro-macro fallacy. Homeowners thought they were getting rich as real estate prices were inflated by easier bank credit. According to representative-agent models, the nation was getting rich as new buyers of homes, stocks, and bonds took on larger debts to sustain this price rise. Alan Greenspan applauded this as wealth creation. Individuals borrowed against their capital gains, hoping that future gains would pay off the new debt they were taking on.

This is not how classical economists described the profitability and accumulation of capital under industrial capitalism. Gains were supposed to be achieved by “real” growth, not by asset-price inflation. The financial drive for capital gains has become decoupled from tangible capital investment and employment.

On the individual micro-level, it may be of little concern whether gains are made by higher asset prices or from direct investment to produce and sell goods. To the corporate manager or raider, speculator or entrepreneur, the financial returns appear equal. But on the society-wide macro-level, there is a micro-macro paradox or “fallacy of composition.” Capital gains via asset-price inflation must be fueled by rising indebtedness of the overall economy. Prices for assets will rise by however much a bank is willing to lend, and asset price gains over and above income constitute debt growth in the economy.

In the end, “wealth creation” in the real estate market was fueled by mortgage loans larger than the entire GDP. Each loan was a debt: total mortgage debt doubled relative to the economy in 25 years. That was the cost of “wealth creation.” It is not real wealth. It is debt which is a claim on wealth. It derives not from income earned by adding to the economy’s “real” surplus, but is a form of rent extraction eating into the economy’s surplus.

John Stuart Mill described this contrast in his Principles of Political Economy (1848, 1): “All funds from which the possessor derives an income … are to him equivalent to capital. But to transfer hastily and inconsiderately to the general point of view, propositions which are true of the individual, has been a source of innumerable errors in political economy.” In the United States, John Bates Clark popularized the superficial “businessman’s” perspective, viewing “cost value” as whatever a buyer of a real estate property or other asset pays. No regard was paid to economically and socially necessary cost-value, which in the classical analysis is ultimately resolvable into the cost of labor. Cost-value is different from a gift of nature, and also differs from financial and other rentier charges built into the acquisition price. These are rents, not costs. But as Simon Patten stated a century ago, this difference faded from economists’ memory (see Hudson 2011, 873). Clark’s post- classical approach became the preferred Weltanschauung of financial and real estate interests (Clark in Hudson 2011, 875).

“In the present instance,” Mill (1848, 2) had elaborated, “that which is virtually capital to the individual, is or is not capital to the nation, according as the fund … has or has not been dissipated by somebody else.” In other words, funds not used (Mill used the word “dissipated”) in the real economy provide revenue to their owner, but not to the economy for which this revenue is an overhead cost. Mill’s term “virtually capital to the individual” is kindred to Frederick Soddy’s (1926) term “virtual wealth,” referring to financial securities and debt claims on wealth — its mirror image on the liabilities side of the balance sheet. In a bubble economy, the magnitude of such “virtual wealth” is inflated in excess of “real wealth,” supporting the ability to carry higher debts on an economy-wide level.
Financial and other investors focus on total returns, defined as income plus “capital” gains. But although the original U.S. income tax code treated capital gains as income, these asset-price gains do not appear in the NIPA. The logic of their exclusion seems to be that what is not seen has less of a chance of being taxed. That is why financial assets are called “invisibles,” in contrast to land as the most visible “hard” asset.

Growth of Financial Rents and Its Consequences

We have developed the argument that finance is not the economy. Rent is not income, and asset values do not represent wealth, but rather a claim on the economy’s wealth. They are an overhead cost which is not necessary from a production point of view. We have shown that what keeps asset values rising and the overhead burden growing is debt — in particular, household mortgage debt. We reviewed many recent econometric studies which report that debt hurts income growth. It remains for us to discuss the forms in which this occurs.

An economy based increasingly on rent extraction by the few and debt buildup by the many is, in essence, the feudal model applied in a sophisticated financial system. It is an economy where resources flow to the FIRE sector rather than to moderate-return fixed capital formation. Such economies polarize increasingly between property owners and industry/labor, creating financial tensions as imbalances build up. It ends in tears as debts overwhelm productive structures and household budgets. Asset prices fall, and land and houses are forfeited.

This is the age-old pattern of classical debt crises. It occurred in Babylonia, Israel, and Rome. Yet, despite its relevance to the United States and Europe today, this experience is virtually unknown in today’s academic and policy circles. There is no perspective forum in which to ask in what forms debt growth may hurt the economy today. To start to fill the gap, we now consider what “too much finance” (Arcand, Berkes and Panizza 2011) does to the economy. It decreases productivity and investment, and increases inequality and volatility. In each of these mechanisms, the role of household mortgages is pivotal.

Loss of Productivity

Faced with the choice between the arduous long-term planning and marketing expense of real-sector investment with single digit returns, the quick (and lower-taxed) capital gains on financial and real estate products offering double-digit returns have lured investors. The main connection to tangible capital formation is negative by diverting new borrowing away from the real sector, as recent studies show (Chakraborty Goldstein and McKinlay 2014).

Industrial companies were turned over to “financial engineers” whose business model was to take their returns in the form of capital gains from stock buyback programs, higher dividend pay-outs, and debt- financed asset takeovers (Hudson 2012, 2015a, 2015b). Charting the ensuing rise of interest and capital gains relative to dividends, and of portfolio income relative to normal cash flow in America’s nonfinancial businesses, Greta Krippner (2005, 182) concludes: “One indication of financialization is the extent to which non-financial firms derive revenues from financial investments as opposed to productive activities.”

Much as real estate speculators grow rich on inflated land values rather than production, so financialization threatens to undermine long-term growth. Since the 1980s, the major OECD economies have seen rising capital gains divert bank credit and other financial investment away from industrial productivity growth. Engelbert Stockhammer (2004) shows a clear link between financialization and lower fixed capital formation rates.

This turns out to be finance capitalism’s analogue to the falling rate of profit in industrial capitalism. Instead of depreciation of capital equipment and other fixed investment (a return of capital investment) rising as a proportion of corporate cash flow as production becomes more capital-intensive (“roundabout,” as the Austrians say), it is interest charges that rise. Adam Smith assumed that the rate of profit would be twice the rate of interest, so that returns could be shared equally between the “silent backer” and entrepreneur. But as bonds and bank loans replace equity, interest expands as a proportion of cash flow. Nothing like this was anticipated during the high tide of industrial capitalism.

Inequality

Minsky (1986) described financial systems as tending to develop into Ponzi schemes if unchecked. Echoing Marx ([1887] 2016), he focused on the exponential overgrowth and instability inherent in the “miracle of compound interest,” underlying such schemes and indeed financialized economies. For the economy at large, such growth sucks revenue and wealth from the broad base to the narrow top, impoverishing the many to enrich the few.

Indeed, income inequality has risen since the late 1980s in most OECD countries. Top incomes have skyrocketed (Atkinson, Piketty and Saez 2011). Thomas Piketty (2014) casts this in terms of a redistribution of income from wage earners to owners of capital, but “capital” includes both physical production assets and real estate and financial assets. Given the large role of real estate lending, it is unsurprising that “the growth of the U.S. financial sector has contributed to the exacerbation of inequality in recent decades” (van Arnum and Naples 2013, 1158). Christopher Brown (2008, 9, Figure 1.3) shows how consumer borrowing has supported effective demand since 1995, and how credit market debt owed by the household sector increased exponentially from the turn of the millennium.

Contrary to textbook consensus, household debt had macroeconomic significance, as Brown (2008) shows. More recently, an OECD report also found that financial sector growth in support of household credit expansion exacerbates income inequality (Cournède, Denk and Hoeller 2015).

U.S. data shows that through the 1950s, 1960s, and 1970s, the top 10-percent share remained stable at 30 percent, but started to rise with the explosion of financial credit in the 1980s. However, by 2009, the top 10 percent of income “earners” received about half of the national income, not taking into account capital gains, which is where the largest returns have been made. Anthony Atkinson, Thomas Piketty, and Emmanuel Saez (2011) show that this is a general trend in most developed economies.

Rising leverage increases the rate of return for investors who borrow when asset prices are rising more rapidly than their debt service. But the economy becomes more indebted while creating highly debt-leveraged financial wealth at the top. The resulting financial fragility may appear deceptively stable and self-sustaining as long as asset prices rise at least as fast as debt. When home prices are soaring, owners may not resent (or even notice) the widening inequality of wealth as the top “One Percent” widen their lead over the bottom “99 Percent.” Home equity loans may give the impression that homes are “piggy banks,” conflating the rising debt attached to them with savings in a bank account. Real savings do not have to be paid off later. Mortgage borrowing does.

The “Bubble Illusion” may keep spending power on a rising trend even while real wage income stagnates, as it has done in the United States since the late 1970s. Our analysis that Ponzi-like financial structures exacerbate inequality is reflected in the joint rise of inequality and the share of bank credit to the FIRE sector, as Bezemer (2012a, 2012b) demonstrates. Brown (2007) showed already before the crisis how household credit is central to this. Financial engineering, which freed household incomes and home equity to be invested in speculative assets, greatly increased the amount of borrowing that household could and did take on.

Instability

The Ponzi dynamic explains why financialization first leads to more stability, but then to instability and crises. Easterly, Islam, and Stiglitz (2000) showed that the volatility of economic growth decreases as the financial sector develops in its early stages, but that finance means more instability when credit-to-GDP ratios rise above 100 percent in more “financially mature” (i.e., debt-ridden) economies. Is it a coincidence that this was just the level above which Arcand, Berkes, and Panizza (2011) find that credit growth starts slowing down real-sector growth? After the crisis, a plethora of research has shown that a larger credit overhead increases the probability of a financial crisis and deepens post-crisis recessions (see, for instance, Barba and Pivetti 2009; Berkmen et al. 2012; Claessens et al. 2010)

Concluding Remarks

The banking and financial system may fund productive investment, create real wealth, and increase living standards; or it may simply add to overhead, extracting income to pay financial, property, and other rentier claimants. That is the dual potential of the web of financial credit, property rights, and debts (and their returns in the form of interest, economic rent, and capital gains) vis-à-vis the “real” economy of production and consumption.

The key question is whether finance will be industrialized — the hope of nineteenth-century bank reformers — or whether industry will be financialized, as is occurring today. Corporate stock buybacks or even a leveraged buyout may be the first step toward stripping capital and the road to bankruptcy rather than funding tangible capital formation.

In Keynesian terms, savings may equal new capital investment to produce more goods and services; or they may be used to buy real estate, companies, and other property already in place or financial securities already issued, bidding up their price and making wealth more expensive relative to what wage-earners and new businessmen can make. Classical political economy framed this problem by distinguishing earned from unearned income and productive from unproductive labor, investment, and credit. By the early twentieth century, Thorstein Veblen and others were distinguishing the dynamics of the emerging finance capitalism from those of industrial capitalism.

The old nemesis — a land aristocracy receiving rent simply by virtue of having inherited their land, ultimately from its Norman conquerors — was selling its property to buyers on credit. In effect, landlords replaced rental claims with financial claims, evolving into a financial elite of bankers and bondholders.

Conventional theory today assumes that income equals expenditure, as if banks merely lend out the savings of depositors to borrowers who are more “impatient” to spend the money. In this view, credit creation is not an independent and additional source of finance for investment or consumption (contrary to Marx, Veblen, Schumpeter, Minsky, and other sophisticated analysts of finance capitalism). “Capital” gains do not even appear in the NIPA, nor is any meaningful measure provided by the Federal Reserve’s flow-of-funds statistics. Economists thus are operating “blindly.” This is no accident, given the interest of FIRE sector lobbyists in making such gains and unearned income invisible, and hence not discussed as a major political issue.

We therefore need to start afresh. The credit system has been warped into an increasingly perverse interface with rent-extracting activities. Bank credit is directed into the property sector, with preference to rent-extraction privileges, not the goods- and-service sector. In boom times, the financial sector injects more credit into the real estate, stock, and bond markets (and, to a lesser extent, to consumers via “home equity” loans and credit card debt) than it extracts in debt service (interest and amortization). The effect is to increase asset prices faster than debt levels. Applauded as “wealth creation,” this asset-price inflation improves the economy’s net worth in the short run.

But as the crash approaches, banks deem fewer borrowers creditworthy and may simply resort to fraud (“liars’ loans,” in which the liars are real estate brokers, property appraisers and their bankers, and Wall Street junk-mortgage packagers). Exponential loan growth can be prolonged only by a financial “race to the bottom” via reckless and increasingly fraudulent lending. Some banks seek to increase their market share by hook or by crook, prompting their rivals to try to hold onto their share by “loosening” their own lending standards. This is what happened when Countrywide, Wachovia, WaMu, and other banks innovated in the junk-mortgage market after 2001, followed by a host of community banks. Rising fragility was catalyzed by Wall Street and Federal Reserve enablers and bond-rating agencies, while a compliant U.S. Justice Department effectively decriminalized financial fraud.

The 2008 financial crash pushed the bubble economy to a new stage, characterized by foreclosures and bailouts. Faced with a choice between saving the “real” economy by writing down its debt burden or reimbursing the banks (and ultimately their bondholders and counterparties) for losses and defaults on loans gone bad, the policy response of the US and European governments and their central banks was to save the banks and bondholders (who incidentally are the largest class of political campaign contributors). This policy choice preserved the remarkable gains that the “One Percent” had made, while keeping the debts in place for the “99 Percent.” This accelerated the polarization that already was gaining momentum between creditors and debtors. The political consequence was to subsidize the emerging financial oligarchy.

In light of the fact that “debts that can’t be paid, won’t be paid,” the policy question concerns how they “won’t be paid.” Will resolving the debt overhang favor creditors or debtors? Will it take the form of wage garnishments and foreclosure, and privatization selloffs by distressed governments? Or will it take the form of debt write- downs to bring mortgage debts and student loan debts in line with the ability to pay? This policy choice will determine whether “real” economic growth will recover or succumb to post-bubble depression, negative equity, emigration of young skilled labor, and a “lost decade.” According to our analysis, the present choice of financial and fiscal austerity in much of Europe threatens to subject debt-ridden economies to needless tragedy.

Finance Is Not the Economy

Economic rent should not be confused with producer surplus, or normal profit, both of which involve productive human and non-human action. Fundamentally, economic value is created through human and non-human contributions. NOTE, real physical productive capital isn’t money; it is measured in money (financial capital), but it is really producing power and earning power through ownership of the non-human factor of production. Financial capital, such as stocks and bonds, is just an ownership claim on the productive power of real capital. In the law, property is the bundle of rights that determines one’s relationship to things.

The purpose of business is not to create jobs but to make profits. Thus, the lower the cost of production, the higher the profit potential. That businesses have hoarded billions, if not trillions of dollars in profits means that they have withheld paying out 100 percent of their earnings to their stockholders. This not only means that less money is available for consumption, which in turn will create more demand to produce products and services, but the hoarding maintains a minority class of owners, with no further significant broadening of ownership as the companies grow.

The following is abridged from the writings of my mentor and partner, Louis Kelso, in Agenda 2000 Incorporated, an economic justice advocacy firm founded by me and Kelso in the late 1960s. Both Kelso and his writing partner Patricia Hetter Kelso have been an inspiration to me throughout my entire life.

First, it is critical and significantly relevant to distinguish between wealth and income. That wealth consists of “large possessions; abundance of things that are objects of human desire; abundance of worldly estate; affluence; riches; abundant supply; large accumulations; all property that has a money value or an exchangeable value; all material objects that have economic utility.” Just as in physics it is necessary to study matter in order to arrive at an understanding of antimatter, in economics one can only understand poverty by considering what wealth is and where it comes from.

Most people have the puzzling view that:

• Work, indeed, is the root of wealth, even of the genius that mostly resides in sweat.

• The only dependable route from poverty is always work, family and faith…in order to move up, the poor must not only work; they must work harder than the classes above them.

• Indeed, after work the second principle of upward mobility is the maintenance of monogamous marriage and family.

• An analysis of poverty that begins and ends with family structure and marital status would explain far more about the problem than most of the distributions of income, inequality, unemployment, education, IQ, race, sex, home ownership, location, discrimination, and all the other items usually multiply regressed and correlated on academic computers. But even an analysis of work and family would miss what is perhaps the most important of the principles of upward mobility under capitalism–namely, faith.

Question? Why is productive capital ownership omitted from this list? Surely, the most effective cure for poverty is to be born or marry into one of the less than five percent of American families, which own virtually all of the economy’s productive assets. The next most effective cure would be to acquire one’s own viable capital estate in the same way that the rich have always done. The rich do not get or stay that way primarily through hard work, monogamy, procreation, and gullibility but through access to capital credit, which enables them to buy and pay for productive capital out of its earnings.

Unbelievably, political leaders and their conventional economist advisors appear to know nothing of business, corporate finance, or property law. They show no awareness of how virtually all new productive capital is financed in the American economy, and are entirely oblivious to the effects and implications of a system of finance which relentlessly makes existing significant stockholders and productive capital owners richer, while effectively barring all new entrants other than geniuses or extraordinarily lucky people into the productive capital-owning class.

Instead, they are fixated on the old Puritan savings myths, or what economist John Maynard Keynes called “the principle of accumulation based on inequality.” Its central argument is that the savings of the rich, and hence the rich as a class, are essential to the operation of a “capitalist” economy. By “sacrificing” present consumption to acquire savings, and then by putting them “at risk” to finance new enterprise and technological innovation, the rich perform a service bordering on the heroic.

Their concept of “supply” is nothing but an extended metaphor for rule by the few who own virtually all of the economy’s productive capital today, and who will own even more of it tomorrow no matter which economic faction gains control of national economic policy or which political party is in power. Business finance is designed to make the rich richer, and it does just that.

Inconveniently for plutocrats, however, the United State is still a political democracy committed constitutionally to economic democracy. Wealth concentration is repugnant not only to democratic ideals and sensibilities but to several guarantees of the Constitution itself. It is also structurally antagonistic to the private property, free market economy that is the proper economic complement of political democracy. Therefore, the reigning princes of plutocracy–the same interests President Franklin D. Roosevelt called “economic royalists”–find it necessary to repackage for political resale the old myths, which rationalize their virtual monopoly of productive capital ownership.

Plutocrats also have a psychological problem in a political democracy. There is a phenomenon called wealth-guilt, which the German sociologist Hemut Schoeck analyzes most perceptively in “Envy: A Theory Of Social Behavior.” It is not enough to be rich; the possession of wealth must somehow be justified in a social context where the overwhelming majority of people are poor and, as far as the “system” is concerned, destined to perpetual poverty. Riches must somehow be deserved, merited, sanctified. Thus, the apologist for wealth concentration must frame his defense with the sensibilities of the plutocrat mind, as well as those of the larger society.

The rationalization of wealth concentration in a political democracy involves, first, diverting public attention from the phenomenon itself. Just as the apologist for war dislikes photographs of the slaughtered and wounded, the wealth apologist dislikes statistics depicting the distribution of wealth and income. He or she dislikes rigorous distinctions about what wealth is and what it means in the lives of real people, and what its absence is like. He or she is not about to divulge the source of wealth even if known. It is also necessary to maintain the illusion that the road to wealth in the existing order of things is not a footpath as narrow as that leading through the eye of the needle, but a highway broad enough to accommodate all manner of hopeful folk.

True, wealth and income is a taboo subject in polite society–i.e., society inhibited by the wealth–ignorance of the rich. Wealth statistics in the United States today are almost as crude as mortality statistics before Pasteur forced medicine to become a science. Wealth is virtually never defined but left to one’s own perception. However, enlightening statistics may be had. In 1977, Senator Russell Long, in an introduction to a symposium on Employee Stock Ownership Plan (ESOP) financing, stated:

“Despite all the fine, populist oratory and good intentions of great men like Franklin Roosevelt, Harry Truman, Dwight Eisenhower, John Kennedy, Lyndon Johnson–the distribution of the net worth among Americans today, in relative terms, is about the same as it was when Herbert Hoover succeeded Calvin Coolidge. The distribution for adult population is as follows: .001 percent of the population have a net worth of $1,000,000 or more; .002 percent have $500,000-$1,000,000; 2.4 percent have $100,000-$500,000; 1.7 percent have $60,000-$100,000; 3.1 percent have $40,000-$60,000; 6.5 percent have $20,000-$40,000; 10 percent have $10,000-$20,000; 13 percent have $5,000-$10,000; 13 percent have $3,000-$5,000; 50.2 percent have less than $3,000.”

Our political leaders and their conventional economic advisors evidence a “mechanical concern” with wealth and income distribution, an unfortunate “distributionist mentality” which has afflicted conventional economics since Ricardo. This mode of thinking is “forever counting the ranks of rich and poor and assaying the defects of capitalism that keep the poor always with us in such great numbers.” Poverty body counts give the rich a bad image by implying that wealth creates poverty. But most menacing, they impute that the system is unfair, that the deck is stacked. Thus, the distributionist mentality “strikes at the living heart of democratic capitalism (sic).” It challenges “the golden rule of capitalism.”

Conventional economists regret that even the great champions of capitalism such as Friedrich von Hayek, Ludwig von Mises, and even Milton Friedman, have not seen fit to give “capitalism a theology” or even “assign to its results any assurance of justice.” Their praise has been pragmatic and technical. Capitalism is good because it produces more wealth and liberty than its competitors. None of these defenders “cogently refutes the thesis that the greatest of capitalists–the founders of the system–were in some sense ‘robber barons.’ None convincingly demonstrates that the system succeeds and thrives because it gives room for the heroic creativity of entrepreneurs.”

Students of monopoly capitalism have long observed the tendency of this system to confirm one of the Bible’s many double-entry bookkeeping truths, Matthew 25:29, which promises: “Unto everyone that hath shall be given, and he shall have abundance; but from him that hath not shall be given, and he shall be taken away even that which he hath.” This is the golden rule of plutocracy. He who owns the economy’s productive capital today will own even more tomorrow, thanks to conventional business finance. And he or she who does not own productive capital, but who must make his productive input through labor, will be robbed of his or her little labor productiveness by the technological change, which eliminates him or her and makes productive capital owners even more productive. But though it fits the facts, this golden rule is not calculated to vindicate the ways of plutocracy to man. They are eager to portray the rich not only as wealth-bearers, but as wealth-creators and wealth-dispensers. This is the golden rule of capitalism.

They claim to derive the golden rule of capitalism rule from the few valid truths in conventional economics–Say’s Law. If the economics profession did understand Say’s Law we would have been spared from lopsided economics. But ever since Jean-Baptiste Say discovered the truth that bears his name, economists have circled it blindly, like moths around a flame. They intuit its importance without being able to decipher its meaning.

Say’s Law, compressed into an aphorism–“Supply creates its own demand”– is, as everyone knows by now, the battle cry of the Supply Lopsiders, who have fabricated a rebellion against the Demand Lopsiders, representing the opposite side of Say’s equation. The goal of each is simply power over national economic policy, which neither can hold for long unless the public is persuaded that there is some ideological or practical difference between the two impostures, which there is not.

Both sides invoke the authority of Say’s Law, which holds that in a market economy, if government will refrain from interference with market forces, the purchasing power generated by production will be sufficient, over a given time period, to enable the purchase of all that is produced. In effect therefore, Say’s Law states that if government does not interfere with the operation of the free market forces, depressions cannot occur. But depressions do occur, and they have been occurring ever since the burden of production began to be transferred to productive capital–machinery, land, and structures–at an accelerated rate in the opening stages of the Industrial Revolution.

Conventional economists, as a whole, fail to understand the workings of a market economy, and of Say’s Law as an interpretation of the relationship between production and consumption in a market economy, Their lack of understanding is grossly defective, including the Demand Lopsiders.

In the first place, Say’s Law does not relate to production, use, financing, acquisition, or disposition of producer goods or products, i.e., productive capital goods or products, in any way. Nor does it relate to the production, use, financing, or acquisition of military goods and products which are not “consumed” in any sense contemplated by Jean-Baptiste Say. The production, use, financing, and acquisition of productive capital goods or products are governed by capital theory, as Kelso and Adler pointed out in (1958) “The Capitalist Manifesto,” and again in (1961) “The New Capitalists––A Proposal To Free Economic Growth From The Slavery Of (Past) Savings.” (Both can be downloaded at no charge at http://www.cesj.org/cesjsitemap.html)

Economist Adam Smith, whose words Jean-Baptiste Say was interpreting when he announced his famous law, made this clear:

“Consumption is the sole end and purpose of production: and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it.” (Adam Smith, GBWW, Vol. 39. p.287.)

Furthermore, Say’s Law, by its own terms, is inapplicable to any modern industrial economy, for in every such economy, the price of one of the two factors of production–labor–is usually distorted beyond recognition. Government, by authorizing and encouraging unions coercively and repeatedly to adjust upward the price of labor, and business, by acquiescing in such an adjustment as long as the costs can be passed on to the consumers, have simply made useless the most basic law of market economies.

This observation should not be interpreted as an anti-labor remark. It is merely anti-economist. The economist’s face-saving liturgy that treats labor workers as the only true producers of products and services, and productive capital as a mere mystical catalytic agent that makes labor more productive, is simply a “big lie” in the Hitlerian sense. The result of it has been that labor workers, along with the unemployed, underemployed and the unemployable, have been prevented from becoming productive capital owners as productive capital input grew to its overwhelming predominance through technological change–that is to say, they have been prevented from sharing in the production of products and services as productive capital owners and from legitimately (i.e., through production) sharing in the consumption of such capital-produced consumer products.

In light of this, the sad and disturbing reality today is that conventional economist continue to be intellectually dishonest and sycophantic as in to propagate stall-tactics on behalf of the plutocracy to suppress the spread of productive capital ownership to the 95 to 99 percent of consumers in the United States economy who do not own it now.

In his own day, Adam Smith observed that the productive capital owners (the “mercantile class”) were already beginning to exploit the capital-less consumers–that, in the “mercantile,” i.e., capitalist system:

“…the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.” (Smith, op. cit., p.287.)

Thus the Supply Lopsiders carry on an old, though hardly honorable, tradition.

For many years, the supporters and advocates for the Just Third Way (see http://www.cesj.org/thirdway/thirdway-intro.htm) believed that society’s steadfast refusal to perceive that productive capital owners are themselves a factor of production and a creator of “value,” in the identical sense that labor workers are, was an unconscious anachronism whose corrective was a higher level of consciousness. We still assert this to be true in the case of the general public. But the owners of concentrated wealth, we have belatedly come to understand, have a vested interest in keeping the capital factor un-comprehended by the capital-less many. Their allies and confederates in this endeavor are the professional economists. Once it is admitted that productive capital owners make productive input in exactly the same ways–functional, moral, political and economic–that labor workers do, the macroeconomic game of productive capital monopoly will be over, and methods of finance that make the rich ever richer and keep the capital-less––capital-less, will end.

Then the question of who owns the productive capital plant will be understood as crucial and vital to the capitalist economy’s health, as well as to economic justice and opportunity. In a private-property economy, the income which a labor worker or a capital owner (worker) produces belongs to him or her. Thus the principle of distribution of a capitalist economy to be deduced from Say’s Law is: “From each according to his production, to each according to his production.” But this rule, applied to the concentrated owners of his or hers productive capital instruments, means that the few can produce everything required by the many, and therefore, because of Say’s Law, the many will be rendered underproductive or nonproductive, and thus forced to live partially or completely as wards of redistribution, boondoggled, welfare, or charity, supported by taxation, debt, and inflation.

All this means is that the American Economics Establishment is in dire need of a new apologetics. Between 1929 and 1932, the private property economy of the United States broke down because, as Kelso and Adler pointed out in “The Capitalist Manifesto” and “The New Capitalist,” the enormous productive power of the tiny minority (less than five percent) of the population who owned its productive capital could not provide adequate incomes to support the consumption of the labor workers, the unemployed, underemployed and the unemployable. As this became clear to the American people, they elected Franklin D. Roosevelt in the hopes that he would solve the problem. Relying on the demand lopside economics of John Maynard Keynes, they set to work to answer the question: “What can we do to alleviate the effects of poverty?” The result was the elaborate network of welfare and boondoggle channels that redistributed income from the middle-class labor workers and upper-class productive capital owners to the lower-paid workers and non-workers. Conservatives rail against such redistribution by the liberal demand lopside economists and their followers.

“When government gives welfare, unemployment payments, and public-service jobs in quantities that deter productive work, and when it raises taxes on profitable enterprise to pay for them, demand declines. In fact, nearly all programs that are advocated by economists to promote equality and combat poverty…reduce demand by undermining the production from which all demand derives…[demand] originates with productive work at any level. This is the simple and homely first truth about wealth and poverty. ‘Give and you will be given unto.’ This is the secret not only of the riches, but also of growth.” (Prosperity Gospel)

This “Essential insight of supply-side economics” happens to be false. The case for Supply Lopside economics cannot be built on the case against Demand Lopside economics. Without understanding that there are two factors of production that are in competition; that each individual needs to be productive through the ownership of both; that technological change, which continues day after day, has made production through productive capital ownership far more potent than production through labor; and that the individual freedom from toil which technology makes possible can be enjoyed only by productive capital owners, supply-side economics is as senseless as its demand-side counterpart. The Demand Lopsiders and the Supply Lopsiders are simply seesaw misinterpretations of the Jean-Baptiste Say equation.

Economists will continue to be baffled by Say’s Law until they realize that under it, distribution is a function of production by each consumer. Only after that insight does it become obvious that true capitalism must be a capitalism of the many, not of the few. Conventional economists do not know what capitalism is. Those of the Supply Lopside persuasion have made the Supply Lopside hoax credible. The concept of Social Capitalism or Democratic Capitalism or perhaps Personalism, a system which distributes purchasing power to all consumers as individuals as a result of their direct participation in production–either as labor workers or as productive capital owners–or both–is beyond their theoretical comprehension, as long as they cling to the obsolete doctrines that were, and still are, the subject of their doctoral dissertations.

Meanwhile, the propertyless many must somehow be provided with purchasing power. That was the only lesson the Great Depression taught. No conventional economist knows how to bring about this consumer demand except in the way which the Keynesians so thoroughly exploited: income redistribution (and debt). But the reality is that without capitalist tools like the Employee Stock Ownership Plan (ESOP) (see http://www.cesj.org/homestead/creditvehicles/cha-esop.htm) and those proposed in the Capital Homestead Act (see http://www.cesj.org/homestead/index.htm), government redistribution and ever-expanding debt will continue because it must. Such capitalists financing methods can substitute capital-produced incomes for welfare, social security, and boondoggle.

The Supply Lopsiders believe that to arrive at a truth, they need but invert a lie, and that the antidote to one wrong question is a different wrong question. They counter the question of the redistributive left, “How can we eliminate the effects of poverty?,” with the question of the capital-hoarding right, namely: “What can we do to revitalize the productive system?”

There is little in conventional economists thinking, dialogue and publishing to suggest this question, much less to answer it. In exposing many of the artful errors of the liberals, conventional economists, perhaps not intentionally, have undertaken to build a fortress around the institutions and policies that support the Divine Right of the Rich to Stay Rich and Get Richer, and to preserve the non-ownership of productive capital by the overwhelming majority.

John D. Rockefeller stated the golden rule of capitalism message far more honestly, and certainly more succinctly, in 1905. To a reporter who asked him how he became rich, he replied:

“I believe the power to make money is a gift from God…to be developed and used to the best of our ability for the good of mankind. Having been endowed with the gift I possess, I believe it is my duty to make money and still more money, and to use the money I make for the good of my fellow man according to the dictates of my conscience.”