Where Will President Sanders Get All The Money For His Many Programs?

Political revolutionary Senator Bernie Sanders (I-VT) speaks to guests at a town hall meeting at Valley High School on July 24, 2015 in West Des Moines, Iowa.

Political revolutionary Senator Bernie Sanders (I-VT) speaks to guests at a town hall meeting at Valley High School on July 24, 2015 in West Des Moines, Iowa.
Photo by Scott Olson/Getty Images
On July 31, 2015, Victor Tiffany writes on the Syracuse Progressive Examiner:


It’s a question seen in the comment section of the Washington Post and on other news sites and political blogs around the Internet. “We’re broke” conservatives will falsely claim. In fact, the United States has “unprecedented abundance.” David DeGraw argues, “In the United States, there is at least $100 trillion in wealth.” That’s enough to pay off the entire national debt five and a half times! The United States is not broke; the federal government has been intentionally under-financed.

DeGraw writes about the need for people to break out of mental slavery, and if Senator Sanders is going to be successful with his revolutionary bid for the White House, millions of middle of the road voters, so-called moderates, will have to break out of their mental slavery, or at least part way out. Voting for a democratic socialist will be a huge leap for mentally enslaved Americans. That jump begins by recognizing our own mental slavery.

Mental slavery, DeGraw explains, is essentially the consequence of having our minds shaped by years and years of political, commercial and state propaganda. Most people’s understanding of the world is deeply distorted by the convincing but false claims made by brilliant propagandists. Glenn Beck’s followers, for example, believe that progress is bad, progressivism is “a cancer,” and Bernie Sanders is a “communist.” Beck is a corporate tool. That is a claim progressives backing Senator Sanders readily understand. Secretary Clinton is also a corporate tool which is why she gets so much campaign money from Wall Street. It is why she tentatively supported the unconstitutional fast track legislation. Of course, President Obama is a corporate tool as well. In other words, they are neo-liberals.

A society with inequality this severe is highly unstable and will eventually destroy itself. ~David DeGraw

Before Senator Sanders launched his campaign as a “political revolution,” the need for revolution was evident. DeGraw writes, “Due to corruption, wealth and power have become consolidated to the point where the richest 400 Americans now have as much wealth as 200 million Americans. When measuring freedom in any society, as famed American sociologist and psychologist John Dewey put it, “There is no such thing as the liberty or effective power of an individual, group or class, except in relation to the liberties and effective powers of other individuals, groups or classes.” A society with inequality this severe is highly unstable and will eventually destroy itself. The aristocracy knows that. That’s one of the reasons why we are seeing the militarization of local police forces, especially in cities with high poverty rates.”

Sanders wants to increase the top marginal tax rate on the “1%” — Americans making obscene amounts of money — to 90% which is the top tax rate from WWII until President Kennedy lowered it to 70%. The wealthy will spend millions and millions of dollars on super PACs to convince the public that electing Sanders to the White House will be bad, but that’s just more enslaving, political propaganda. Sanders supporters will have to work (a word that was stressed repeatedly during the live-feed portion of the thousands of home meetings Wednesday night) hard to help Democrats (for now and the moderates in the middle of the political spectrum late next year) understand that the American economy flourished during the 1950s. Redistribution of income from the wealthy, who have far more than they need, to Americans working on highways, mass transit systems and non-fossil fuel energy development will revive the sluggish economy. The sluggishness in the economy is due to insufficient effective demandfor goods. The 1%, or more precisely, the 0.1%, have too much of the nation’s wealth.

ECON 101: Supply-side (low taxes on the wealthy) economics has failed middle class Americans. Senator Sanders is proposing a massive shift toward the demand side of the economy by putting taxes taken from the 1% and spending that money on desperately needed projects. The jobs created will put that money into the pockets of the 99% enabling them to buy more which in turn will stimulate the economy.

During WWII, there was massive spending on military equipment which pulled the United States out of the Great Depression. During the Sanders administration, something close to that level of spending will need to resume to fight the common enemy of mankind, climate change.

Bernie Sanders’ candidacy for the White House is progressive’s chance to assert influence inside the Democratic Party, but it’s much more than that. It is also a necessary political revolution to take the country back, not from the “other” party, but from the oligarchs and plutocrats controlling both major parties. Millions of Democrats will need to break out of their mental slavery to accomplish this.

For a growing number of Senator Sanders’ supporters, it is Bernie at the top of the Democratic Party ticket or else they will write-in his name on the ballot during the general election and let the chips fall where they will. That is a threat that might just jolt the mentally enslaved — “we need a woman in the White House” — Democrats out of their slumber. Another neo-liberal in the White House will be a disaster for the climate in general and for Americans specifically, especially when it comes to the three trade and regulatory regimes referred to as Obamatrade.



U.S. Employment Costs Post Smallest Increase On Record

On July 31, 2015, Reuters posts:

U.S. labor costs in the second quarter recorded their smallest increase in 33 years amid tepid gains in the private sector, but it likely was a temporary setback against the backdrop of diminishing labor market slack.

The Employment Cost Index, the broadest measure of labor costs, edged up 0.2 percent, the Labor Department said on Friday. That was the smallest gain since the series started in the second quarter of 1982 and followed an unrevised 0.7 percent increase in the first quarter,

Economists polled by Reuters had forecast the employment cost index rising 0.6 percent.

The deceleration in labor costs in the second quarter likely does not suggest a material slowing in wage growth, as commissions inflated worker compensation at the start of the year. Labor market slack has diminished significantly over the last few years, which is expected to start putting upward pressure on wages.

At 5.3 percent, the unemployment rate is close to the 5.0 percent to 5.2 percent range that most Federal Reserve officials onsider consistent with full employment.

The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack. It is also considered a better predictor of core inflation.

Wages and salaries, which account for 70 percent of employment costs, rose 0.2 percent in the second quarter. They had increased 0.7 percent in the first quarter.

Private sector wages and salaries also rose 0.2 percent after gaining 0.7 percent in the prior quarter.

In the 12 months through June, labor costs rose 2.0 percent,

the smallest 12-month increase since last year, and slipping further below the 3 percent threshold that economists say is needed to bring inflation closer to the Fed’s 2 percent medium-term target.



Socialism, American-Style

On July 25, 2015, Gar Alperovitz and Thomas M. Hanna write in The New York Times:

THE great 20th-century conservative economist Joseph Schumpeter thought the left had overlooked a major selling point in pressing the case for public — i.e., government — control over productive capital. “One of the most significant titles to superiority,” he suggested, was that public ownership produced profits, which means not having to depend on taxes to raise money.

The bulk of the left never took up Schumpeter’s argument. But in an oddly fitting twist, these days the mantra of public control in exchange for lower taxes has been embraced by a surprising quarter of the American political leadership: conservatives.

The most well-known case is Alaska. The Alaska Permanent Fund, established by a Republican governor in 1976, combines not one, but two socialist principles: public ownership and the provision of a basic income for all residents. The fund collects and invests proceeds from the extraction of oil and minerals in the state. Dividends are paid out annually to all state residents.

Texas is another example of conservative socialism in practice. Almost 150 years ago the Texas Permanent School Fund took control of roughly half of all the land and associated mineral rights still in the public domain. In 1953, coastal “submerged lands” were added after being relinquished by the federal government. Each year distributions from the fund go to support education; in 2014 alone it gave $838.7 million to state schools. Another fund, the $17.5 billion Permanent University Fund, owns more than two million acres of land, the proceeds of which help underwrite the state’s public university system.

Similar socialized funds — sometimes called sovereign wealth funds — are common in other conservative states. The Permanent Wyoming Mineral Trust Fund, with a market value of more than $7 billion accumulated from mineral extraction, is almost a direct expression of Schumpeter’s doctrine: Socialized ownership has helped to eliminate income taxes in the state.

Such “socialism, American style,” can produce odd reversals of conservative-liberal political alignments. One of the largest “socialist” enterprises in the nation is the Tennessee Valley Authority, a publicly owned company with $11 billion in sales revenue, nine million customers and 11,260 employees that produces electricity and helps manage the Tennessee River system. In 2013 President Obama proposed privatizing the T.V.A., but local Republican politicians, concerned with the prospect of higher prices for consumers and less money for their states, successfully opposed the idea.

Although state forms of public ownership have not been a major goal of the modern left, activists have begun to pick up on the idea that owning wealth in ways that benefit local communities is important. In Boulder, Colo., climate-change activists have helped win two major victories at the polls in a fight to municipalize the current utility owned by Xcel Energy. Publicly owned utilities also commonly return a portion of their profits, socialist style, to the city or county to help supplement local budgets, easing the pressure on taxpayers.

There are, in fact, already more than 2,000 publicly owned electric utilities that, along with cooperatives, supply more than 25 percent of the country’s electricity, now operating throughout the United States.

In one of the most conservative states, Nebraska, every single resident and business receives electricity from publicly owned utilities, cooperatives or public power districts. Partly as a result, Nebraskans pay one of the lowest rates for electricity in the nation.

The list goes on. More than 450 communities have also built partial or full public Internet systems, some after significant political battles. Roughly one-fifth of all hospitals are also currently publicly owned. Many cities own hotels, including Dallas — where the project was championed by the former Republican mayor Tom Leppert. Some 30 states directly invest public funds in promising start-up companies.

Moreover, contrary to conventional opinion, studies of the comparative efficiency of modern public enterprise show rough equivalency to private firms in many cases. (They aren’t perfect, of course: Many public agencies, boards and corporations that control enterprises are not fully accountable or transparent in their operations.)

With skepticism about capitalism growing among minorities and young voters, will we see more such endeavors in the future? Pendulums have a way of swinging, sometimes very sharply, when big economic tsunamis hit. It is possible that in the next big crisis, both sides might see the wisdom and practical benefits of public ownership, and embrace Joseph Schumpeter’s point even more boldly than they do today.


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

This was sent to me today by Gar Alperovitz.  He clearly supports mobilizing “people power” to advance “democratic socialism” and ownership of productive capital by the State or some other “collective.” He also opposes monopoly capitalism, even when it is called “social or compassionate capitalism,” where ownership power is and will remain concentrated in a tiny elite who control money and ownership control and profits from productive enterprises.

CESJ, on the other hand, opposes all forms of “Socialism” and “Capitalism” and advocates “The Just Third Way,” a system based on the binary theory of economics conceived by Louis O. Kelso and Say’s Law of Markets, a theory rejected both by Karl Marx and John Maynard Keynes.

Both Keynes and Marx blindly advanced the labor theory of production, arguing that labor is the only source of what’s produced for human consumption, while Kelso realistically saw that ever-advancing technology, robotics, advanced information and management systems, land and other non-human resources were displacing humans in almost all forms of economically productive work.

Marx, Keynes and socialists like Gar Alperovitz do not support private property and a just, free and competitive market system as important elements that must be included within any set of systemic and legal reforms that promote a free, just and democratic society, as proposed by the the Just Third Way.  These reforms are critical for lifting existing barriers to enabling every child, woman and man to enjoy the equal opportunity to share ownership of several trillion dollars in newly created growth assets in the U.S. private and public sectors and transfers of existing assets . . . without redistributing property rights from existing owners. These reforms are already existing under existing laws for millions of American private sector workers through 100% leveraged democratically managed S-Corp Employee Stock Ownership Plans (ESOPs).

Note that in Gar’s article he favors the current system where citizens of Alaska receive profits but have no ownership stake in the revenues from oil produced by the State.  Former Senator Mike Gravel, a member of CESJ’s Board of Advisors and a strong supporter of Kelso’s binary economic vision, had a plan in which those dividends would come from ownership of assets by every citizen.  It was called a “General Stock Ownership Corporation” or “GSOC” passed in 1971 by Congress as chapter U  of the Internal Revenue Code for a 5-year period.  Alaskan conservatives won and the Senator and the people lost a potential major advance in economic democracy.  Compare this article in the American University Law School Review and Senator Gravel’s letter with Gar’s article and decide which approach is more empowering to all citizens.

Under CESJ’s Just Third Way and proposed Capital Homestead Act reforms to the monetary, finance, tax and inheritance laws all citizens. This would include workers in the public and non-profit sectors, the unemployed, underemployed, homekeepers, those unable to work, in fact every child from birth to death.  Each citizen, from the poorest to the richest, would begin receiving growing independent incomes and retirement accumulations from conservatively estimated $7,000 in each future year’s new ownership stakes at today’s slow capital growth rates, as well as labor earnings from new jobs needed to finance and build assets and infrastructure for a sustainable and environmentally sound growth economy.  This would make the State, our only legitimate social monopoly, economically dependent on the citizens, as America’s Founders intended, reversing today’s dangerous socialistic trends to a few holding concentrated power in all existing national economies.

Under the Just Third Way all families would have their own independent incomes and freedom and private property rights to choose and pay for their own education, health, housing and other subsistence needs, reducing their increasing dependency over time from State welfare redistribution, charity, and high-interest consumer credit.  Government deficits could be eliminated by a simpler single-rate tax system on all non-exempt personal incomes. $16 trillion in existing debt and over $56 trillion in hidden debt from entitlement programs could be gradually reduced as all citizens begin to accumulate their own assets for retirement.

All these reforms are described for casual readers at http://www.cesj.org/learn/ and in more detail in articles, videos and free downloadable books athttp://www.cesj.org/resources/

Consider writing a short note to Gar at garalper@gmail.com and the New York Times at http://www.nytimes.com/2015/07/23/opinion/socialism-american-style.html?_r=0

In Peace through Justice,

Gary Reber Comments:

In the case of the Alaska Permanent Fund, the Texas Permanent School Fund, the Permanent Wyoming Mineral Trust Fund and the Tennessee Valley Authority, a better structure would be to create a Citizens Land Bank (CLB) entity, owned by EVERY individual citizen with the state or territory.

A CLB is a for-profit, professionally-managed, citizen-owned-and-governed community land planning and development enterprise, designed to enable every citizen of a community of any size to acquire a direct ownership stake in local land, natural resources and basic infrastructure.

A CLB is a social vehicle for every man, woman and child to gain, as a fundamental right of citizenship, a single lifetime, non-transferable ownership interest in all the Bank’s assets, share equally in property incomes from rentals and user fees from leases or use of the Bank’s assets, accumulate appreciated equity values from enhanced land values, and gain an owner’s voice in the governance of future land development.

A CLB is an innovative legal and financing tool empowered to borrow on behalf of all citizen-shareholders and service the debt with pre-tax dollars to meet the land acquisition, capitalization and operational needs of the Bank. The CLB shelters from taxation the equity accumulations of citizen-shareholders and protects the outside assets of the citizens in the event of loan default or if the enterprise fails.

A CLB is a social tool designed to encourage a just, free and non-monopolistic market economy. It applies the democratic principles of equal opportunity and equal access to the means to participate as an owner as well as a worker. It demonstrates that anything that can be owned by government can and should be owned, individually and jointly, by the citizens.

A CLB is a major feature in a proposed national economic agenda known as “Capital Homesteading for Every Citizen,” which is designed to reform existing monetary, credit and tax barriers to provide every American an equal opportunity to share in the governing powers and profits from new entrepreneurial ventures, new technologies, new structures, and new rentable space built upon the land. Capital Homesteading offers a “Just Third Way” of reversing unsustainable federal deficits and debt, and revitalizing and growing the American free enterprise system in a sustainable and environmentally sound way.

State forms of public ownership and cooperatives, while intended to benefit local communities, such as publicly owned electric utilities, do not provide DIRECT individual OWNERSHIP  sharing by the citizens they are intended to benefit. Again, a better structure would be a Citizens Land Bank, wherein EVERY citizen is an individual OWNER. By vesting power and control directly among the citizens, not an elite “State” governing body, there would be far greater accountability and transparency in their operations.

Now with respect to some specific so-called “democratic socialist” policies, while I have been a strong advocate for over 40 years for practicing binary economics and policies that broaden individual OWNERSHIP of wealth-creating, income-producing capital assets simultaneously with the growth of the economy, in the case of public education at the college and university level, I believe this is a viable policy, as long as the cost is offset by reducing the military-industrial complex budget. Implementing the proposed Capital Homestead Act, whose ultimate result is to create financial independence and security for EVERY child, woman, and man, will not create an instant result, but realistically will develop over the course of the next generation, if enacted in 2016. Thus, we should invest in the higher education of our children and make public colleges and universities tuition-free in order to have our youth become educated and thereby develop more fully as persons.

Likewise, with respect to health care and medical costs, there should be a public option to compete with the private insurance corporations.

As for infrastructure, there needs to be public spending on building new and improving old infrastructure, with the stipulation that EVERY  corporation competing for the government contracts be fully employed-owned. This should be the stipulation no matter what the taxpayer expenditure is for.

Such policies should be enacted and pursued while the “big picture” policies and programs of the Just Third Way take effect and eventually  result in a citizenry in which all families would have their own independent incomes and freedom and private property rights to choose and pay for their own education, health, housing and other subsistence needs, reducing their increasing dependency over time from State welfare redistribution, charity, and high-interest consumer credit.

Who Does Our Economy Serve?

On July 28,2015, Thom Hartmann writes on the Thom Hartmann Program:

During a speech at New York University Friday, Hillary Clinton took aim at “quarterly capitalism,” her name for corporate America’s endless – and senseless – pursuit of profits.

Now, Clinton isn’t exactly Elizabeth Warren and sometimes it sounds like she’s reading a script written by an economics professor, but she’s spot-on when it comes to so-called “quarterly capitalism.” That’s because, to paraphrase Shakespeare, something is rotten in the state of American capitalism.

Instead of using their record profits to invest in innovation or pay their workers more, America’s biggest companies are now using those profits just to buy back their own stock.

As Edward Luce pointed out in a recent piece for The Financial Times,

“The level of US investment is at its lowest since 1947. Last year, according to Goldman Sachs, S&P 500 companies spent more than $500bn on share buybacks. This year it is expected to hit $600bn…. For every dollar the top US public companies spend on investment, they are returning eight or nine dollars to shareholders.”

This is the sign of an economy that’s gone insane.

Stock buybacks don’t grow the economy as a whole; they just make giant rich corporations – and their CEOS – even richer. They’re the perfect symbol of a system that puts profits before people, progress, and, well, pretty much everything else.

It’s hard to imagine given the state of American capitalism these days, but things weren’t always this way.

Between the 1930s and the 1980s, corporate America actually behaved – or was made to behave as a result of smart regulations – in ways that benefited everyone, not just their shareholders or CEOs. Back then, the saying “what’s good for GM is good for America and what’s good for America is good for GM” wasn’t just a saying – it was a statement of fact.

But then Reagan came to town and everything changed.

As part of his big push to “reform” the economy, Reagan changed the compensation laws for CEOs so that they could be paid in stock options. Their income now depended on the value of their company’s stock.

Theoretically, this was supposed to give executives an incentive to make good business decisions, but what it actually did was give them an incentive to skim their bit off the top and screw everyone else. Instead of long-term success, the focus was now on boosting stocks as quickly as possible and therefore making as much money as quickly possible.

This is why big corporations are now spending billions and billions of dollars to buy back their own stock — they’re just trying to keep their CEOS rich and happy.

And who do you think suffers as a result of all this? The American worker, of course! Who else?

The money that’s now going towards stock buybacks and CEO compensation packages has to come from somewhere, and it’s coming straight off the backs of everyday working Americans.

Even though workers are now more productive than ever, wages have stagnated since the Reagan era. CEOs are quite literally sucking up the profits that used to be shared more equally between management and workers.

This is the “quarterly capitalism” problem Hillary Clinton has been talking about, and it’s the most glaring example of how the Reagan Revolution fundamentally transformed our country, and transformed it for the worse.

Before Reagan, there was an informal agreement among all Americans that the economy served us, not the other way around, and we had things like tariffs, taxes, and unions to make sure things stayed this way.

But then Reagan flipped the cards. He smashed unions, slashed taxes, and gutted regulations, and, as a result, we now serve the economy and the people who run it.

This isn’t democracy; it’s feudalism, and it’s just the latest example of why need to undo the Reagan Revolution once and for all.



I Retired At 30. The Best Part Isn't Leisure — It's Freedom.

On July 27, 2015, Mr. Money Mustache writes on VOX:

When somebody finds out that I retired 10 years ago at age 30, the first question that comes up is usually, “How?!”

This leads to a series of skeptical questions about how anybody could possibly save enough in 10 years of work to live off for the remaining 70, or how I handle raising kids, health insurance, college tuition, emergencies, groceries, and luxuries.

But that’s all just the nuts-and-bolts stuff. For anyone familiar with the principles of personal finance and investing, my trick was unimpressive and easily reproducible: Just spend much less than you earn and pour the difference into efficient index funds. When your collection of investments reaches 25 times your annual spending, you’re done.

Much more interesting is the debate over whyanybody would want to retire at 30

Occasionally an angry heckler with credit card balances and car loans will insist that my impossible tale is all fabricated, which is sort of like a person who has trouble climbing 10 flights of stairs insisting that a 200th-place marathon runner must have cheated his way across the finish line because nobody could possibly run that far. Like running 26 miles, accumulating enough money for early retirement is not really easy, but it’s pretty simple.

Much more interesting is the debate over why anybody would want to do this. After all, if you look at the accomplishments of humankind over the last few thousand years, you can see that at the core, we really love to work. We don’t just stop at food and shelter like every other species — we go on and on to create cathedrals, concerts, spaceships, and genetic maps. Meanwhile, with so many of us still starving and/or killing each other, you could argue that there is plenty of work left to do.

On the other hand, not every job is quite as rewarding as creating art or saving the world. Here in the US, around two-thirds of us are dissatisfied with our workplace and would probably quit if we really had the option. Most of the remaining people would at least welcome a longer weekend every now and then, or the chance to take a month or two off in the summer if the paychecks would remain uninterrupted. It is these smaller enticements that I usually try to plant as seeds when sharing the idea of what early retirement is really like.

Initially, my own reason for early retirement was the desire to be a good dad. My long-time girlfriend and I knew that marriage was coming up on the horizon, and we planned to start a family. But when we looked around at our engineering colleagues, we could see that the demands of young children did not work well with the all-encompassing nature of a career in high tech. How could we both be dedicated to these jobs, working late and answering emails on the weekends, while also supplying the 12 to 16 hours a day of attention that a toddler sucks up? Leveraging our frugal 1970s upbringings in a less wealthy country and our new above-average incomes, we decided to live below our means and save for financial independence before becoming parents ourselves.

All that turned out to be just the start of a much bigger experiment. Ten years ago, I realized I was onto something good when my baby son was born and I didn’t have to fight for a few weeks of paternity leave. I had no desire to return to the office during those first months of sleepless “hit by a freight train” baby care. But as the seasons and years wore on and free time started shining down from the sky again with increasing frequency, I came to realize that work is a far more essential part of life than I had ever guessed.

What if work were something that you did only when it worked for you? If you could go at it with gusto on certain days, or even certain seasons or years, but then shift to other things for a while when your priorities changed? You might spend most of your 20s burning up the corporate ladder or being the workhorse that keeps a startup company in the black. But then your 30s might be mostly consumed by bringing up young children, your 40s might see you starting more companies or reclaiming your youth as a touring rocker, and your 50s and 60s are yet to be charted. Now that I’ve met a large number people who have actually followed this path, I can see that financial independence isn’t so much about freedom from work. It is more about freedom to do your best work, without money getting in the way.

This is what I’m really describing when I talk about early retirement. It’s not really retirement at all, but that’s because I don’t think anybody should truly retire in the old sense of the word — swearing off all forms of paid activity in favor of a dramatic increase in television watching and golf playing. Creation of new ideas, new enterprises, or new things is the biggest joy of being alive. Learning more about life, the world, and yourself and then trying to mix the ingredients together to the best of your ability is the happiest path you can take as a human. We’re uniquely lucky to even have such an option available to us these days.

Financial independence isn’t so much about freedom from work. It is more about freedom to do your best work, without money getting in the way.

So in my own case I started just with the goal of being a parent, but then ended up starting a house-building company to pursue my lifelong love of building things. Then I learned that the daily stress and schedule of big, multi-person projects was still too much for me at the time, so it evolved into a boutique carpentry operation that still does local projects to this day.  Other ventures have come and gone, but none of them were done because we needed the money. That is my definition of a modern retirement: the activities you pursue once you are done searching for money.

Like an old-time homesteader, I enjoy learning new skills as the opportunity comes up, because I find it’s more satisfying to learn something than to outsource it to others, even if you can afford it. Housekeeping and haircutting, cooking and gardening, but also welding and plumbing, framing and roofing, heating and cooling, auto repair and strength training, drum playing and electronic dance music composition and beer brewing are just a few of the things I have had the joy of working on in this first decade of retirement.

Somewhere in there I also started a blog with the goal of reducing the rich world’s resource consumption while suggesting that we could all have a lot more fun in the process. It was done mostly on a whim and only possible due to the free time available in the absence of a real job. But even this side gig has blown up into something much more fun than my original work career and is in fact what has brought you and me together at this very moment.

Even though some of these activities may look like “work,”  the word “retirement” is still a very good one to describe all of this freedom, because it does require you to make a pretty big escape from social norms. Our society is built upon a series of assumptions that you need to examine and then throw away if you want to get here before everyone else. For example, would a Mercedes ML550 with leather seats provide you with a happier life than a Toyota Corolla with a manual transmission? Would a Harvard doctorate give your child a happier life than a bachelor’s degree from a lesser university? And while we’re at it, what are the happiest choices in fashion, convenience, travel, dining, shopping, and lawn care? Most of us consistently get the answers to these questions wrong.

In general, we’ve been trained to always seek the highest level of luxury and the minimum level of personal effort, except in the area of work, where maximum exertion from age 25 through 67 is the only moral choice.

Taken to the extreme, a few of us would be permanently floating in an infinity pool while servants delivered gourmet meals and opened the boxes of an incoming stream of high-end products for our amusement. The only possible improvement would be the addition of a bedpan and a catheter.

The rest of us would be straining and struggling, out of shape and deep in debt, short on time and wondering why life is so difficult and yet so unsatisfying. When I look at the life of the middle class today, it seems we creep a little closer to this extreme every year. The standard practice of newspaper articles is to blame a system that prevents the middle class from getting ahead, but I think it’s a much bigger problem: a middle class that is permanently caught up chasing the idea of “more,” which of course you can never catch.

The solution is to duck out the side door of this suffocating circus tent and seek out a completely different and better life. Instead of shopping for the easiest life you can afford, look for the most challenging one you can handle with your current level of ability. Instead of the closest elevator, find the highest staircase. Forgo the longest drive in the fanciest car for the most consistent walk in the most varied weather. As you produce more value for the world and increase your income, simultaneously increase your efficiency and decrease your material needs. As you buy fewer treats for yourself, your level of satisfaction and happiness with life will increase.

This is both the recipe for financial independence, and the reason you’ll never want to sit around and do nothing once you get there. Because work becomes better once you have the freedom to choose how and when you do it. And better work is worth working harder at.

It’s all a giant circle. I just wish everyone were allowed to see this happy secret.




The Automation Myth

On July 27, 2015, Matthew Yglesias writes on VOX:

Over the past five years, American politics has become obsessed with robots.

President Obama has warned that ATMs and airport check-in kiosks are contributing to high unemployment. Sen. Marco Rubiosaid that the central challenge of our times is “to ensure that the rise of the machines is not the fall of the worker.” A cover story in the Atlantic asked us to ponder the problems of a world without work. And in the New York Times, Barbara Ehrenrich warns that “the job-eating maw of technology now threatens even the nimblest and most expensively educated.”

The good news is that these concerns are wrong. None of the recent problems in the American economy are due to robots — or, to be more specific about it, due to an accelerating pace of automation. Moreover, even if the pace of automation does speed up in the future, there’s no real reason to believe that it will be a problem.

The bad news is that these concerns are wrong. Rather than an accelerating pace of automation, we’ve actually been living through a slowdown in the pace of productivity growth. And that slowdown is a huge problem. Unless it reverses, we’ll be waking up soon to find ourselves in a depressing world of longer working years, unmanageable health-care needs, higher taxes, and a public sector starved of needed infrastructure resources.

In other words, don’t worry that the robots will take your job. Be terrified that they won’t.

The past of automation

When people hear about robots, they think of science fiction — the Johnny Cab taxi from Total Recallchrome maid Rosie from The Jetsons, or the thinking, talking computer that powers the starship Enterprise. All this and more may come to pass some day (who knows?) but the reality of day-to-day change is more mundane.

Machines have been replacing humans for hundreds of years. And when it happens to you, it stinks. It stank for small business owners whose photo development shops were driven out of business by digital cameras. It stank for analog graphic designers like my mother who were disemployed by desktop publishing software in the late 1980s. It stank for stevedores who were put out of work by container ships. It stank for weavers put out of work by the spinning jenny. It stank for railroad engineers put out of work by the automobile.

But for society as a whole, these were huge leaps forward. Specific individuals did in fact lose jobs and oftentimes ended up with lower wages. But on average, job growth continued and living standards rose.

The techno-pessimists often admit this. The problem, they say, is if technology reduces the need for human labor really, really fast, then society won’t have time to adjust, and there will be broad unemployment.

Well, again, we can look to the past. Despite the cliché that technology today is progressing faster than ever, the per-worker output of the American economy actually increased at its fastest-ever rate in the quarter century between 1948 and 1973.

This is the period in which the spread of refrigerators put milkmen out of work, while the initial adoption of machines to wash clothing and dishes rendered full-time household servants superfluous for the middle class. This was a time when television displaced live theater, and when truck-based delivery upended product distribution networks and rendered many neighborhood retailers obsolete. New interstates bypassed old towns and rail depots. Automatic telephone switches put operators out of work. New fertilizer products derived from wartime research increased per-acre crop yields and reduced the number of laborers needed.

So what happened?

Well, people worked less. In 1950 (the first year for which we have records), the average employed person in the United States worked about 1,909 hours. By 1973, that had fallen to 1,797 hours. That’s a decline of about 6 percent. It’s the equivalent of going from having two weeks of paid vacation per year to having five weeks. Or of going from working 9 to 5 every day to working 9:30 to 5 every day.

But there was no overall collapse in employment. The total number of employed people grew by more than 50 percent during this period, keeping up with population growth. Wages rose steadily at a pace of about 2.23 percentage points faster than inflation in the average year.

And the growth was widely shared. There were rich people and poor people, of course, but the share of overall national income accruing to the very wealthy was modest and generally falling. The fast pace of automation did not mean the only people who could get ahead were those clever enough to invent the new machines or lucky enough to earn them. Individual people lost out at particular moments in time, but on average, the tide rose rapidly and lifted the vast majority of the boats.

The big slowdown

Today it appears to most people that we are living in a period of immense technological change. A rather small device that I carry in my pocket replaces the telephone that used to sit in my bedroom, the Walkman in my pocket, the TI-85 calculator in my backpack, every single book I’ve ever owned, the Sega Genesis on the shelf, the alarm clock on my bedside table, and even, to some extent, my television. And yet it doesn’t only replicate the functions of those devices. In most cases it far surpasses them.

But despite the techno-hype and the national obsession with disruption, the pace of productivity growth has slowed down. The American economy has grown, but largely by adding workers rather than by workers equipping themselves with powerful new machines to multiply their capabilities. And the number of hours worked per worker has stayed relatively flat, even while other countries have continued to enhance their leisure.

 Matt Bruenig / Demos

If robots were taking our jobs, the productivity of the workers who still have jobs — the total amount of work that gets done divided by the total number of people who are employed — would be going up rapidly. But it’s not. It is rising, but it’s rising slower than it did in the past.

And the slowing rate of productivity growth is an important source of the wage slowdown that people have been worrying about.

The 2015 Economic Report of the President calculated that if productivity growth had continued at its 1948–1973 pace for the past 40 years, the average household’s income would be $30,000 higher today. By contrast, had inequality stayed at its 1973 level for the same period, Obama’s Council of Economic Advisers calculates that the average household’s income would be only $9,000 higher.

The productivity issue is bigger than inequality, in other words. And yet it’s much less discussed.

In fact, it’s almost anti-discussed due to the obsession in media and political circles with the alleged rise of the robots. We’re so busy worrying about how to counteract an imaginary, robot-driven productivity surge that we’re barely paying attention to the real story of the productivity slowdown.

The Solow Paradox

But what about the bounty of digital technology that is in evidence all around us? Almost 30 years ago, the great economist Robert Solow quipped, “You can see the computer age everywhere but in the productivity statistics.”

An answer to the riddle might be that digital technology has transformed a handful of industries in the media/entertainment space that occupy a mindshare that’s out of proportion to their overall economic importance. The robots aren’t taking our jobs; they’re taking our leisure.

Data from the American Time Use Survey, for example, suggests that on average Americans spend about 23 percent of their waking hours watching television, reading, or gaming. With Netflix, HDTV, Kindles, iPads, and all the rest, these are certainly activities that look drastically different in 2015 than they did in 1995 and can easily create the impression that life has been revolutionized by digital technology.

What’s more, the media industry itself has been turned upside down by the internet and has spent the last decade telling anyone who will listen how complete and wrenching the transformation has been. That further amplifies a narrative about rapid change.

But clearly the media and entertainment industries don’t comprise anything close to 23 percent of the workforce or the total economic output of the United States. Most other job categories have been impacted by digital technology, but only in relatively superficial ways. Something like 9 percent of all private sector jobs are in the food service industry. These days people are perhaps more likely to book a reservation or order a takeout meal with an app rather than a phone call, but the core work of serving and preparing food has seen very little progress.

At the higher end of the salary spectrum, we still don’t have robot doctors who can treat patients in lieu of costly and inconvenient human ones. Indeed, we can’t even get medical records digitized properly.

As it becomes clearer and clearer over time that smartphones and the internet simply aren’t economic game changers on the same scale as air conditioning, jet planes, container ships, and televisions, it’s become increasingly fashionable in Silicon Valley to simply retreat into denial.

“There is a lack of appreciation for what’s happening in Silicon Valley,” Google’s chief economist, Hal Varian, told the Wall Street Journal, “because we don’t have a good way to measure it.”

The article states that Varian believes a “problem with the government’s productivity measure” is that “it is based on gross domestic product, the tally of goods and services produced by the U.S. economy.”

But this is not a measurement error. This is the definition of economic productivity. When people can create more goods and services for sale in the market economy, their productivity goes up. When they cannot, it does not. It is obviously true that there are things in life that matter that are not monetized in this way. I, personally, derive enormous pleasure from daily jokes on Twitter. That said, Silicon Valley hardly invented the idea that the best things in life are free. The joy that my infant son’s smile brings to my face isn’t in the GDP numbers either. Nor is the sadness I feel when reflecting on the fact that my late mother didn’t live to meet him.

But if you want to put a roof over your baby’s head, to keep him in diapers and formula, and to buy some plane tickets so he can go with you to visit his grandparents, then you are going to need some money. And money derives from monetized economic activity.

It’s getting worse

The productivity slowdown began decades ago and initially corresponded with bad news from abroad about oil prices. It persisted through a sharp recession that broke the back of inflation, and continued through the Reagan recovery. In the mid- to late 1990s things briefly turned around, and it momentarily looked like the Solow Paradox was gone. Walmart and other big-box stores learned to use computers to better control their inventories and greatly improved the productivity of the retail sector.

As is typical with periods of rapid technological change, this led to some displacement and suffering and heartburn. But even though the late ’90s were a terrible time to be the owner of a mom-and-pop hardware store, on average it was a period of low unemployment and rising wages.

But as Paul Krugman has written, “We did not, it turned out, get a sustained return to rapid economic progress. Instead, it was more of a one-time spurt, which sputtered out around a decade ago.”

In the most recent years, it’s actually gotten worse than ever.

This extreme slowdown has coincided with a period of weak demand, high unemployment, and agonizingly slow wage growth. That all adds up to an environment in which managers have little budget to invest in new equipment due to weak sales, and little incentive to give raises due to poor worker bargaining power.

Rather than hot business trends relating to new equipment that allows workers to deliver more value than ever before, one of the signal trends of our time has been a proliferation of online services that reduce the friction associated with having people get in their car and bring you things. Washio, for example, will send someone to my house to pick up my dry cleaning. Seamless will ping a restaurant and tell it to deliver takeout to my door. Postmates will send someone to get a takeout dinner from a restaurant that doesn’t offer delivery. Homejoy will send someone to clean my house. These startups are okay business ideas, but they are not doing anything to advance the efficiency with which clothing is laundered, meals are cooked, or houses are cleaned.

The main industry in which productivity is accelerating rapidly is the information technology industry itself. We are getting better and better at making smartphones, apps, cloud services, and all the rest. Those things just aren’t driving change in the larger economy. Indeed, the way modern digital technology blurs the lines between entertainment devices and productivity devices in some ways works to undermine the productivity of the modern office worker. Email means you can stay in touch with remote colleagues, but it also means you can send a note to your dad during business hours. It’s clear from the analytics at Vox.com and every other website that America’s white-collar workforce is doing a lot of Facebook updates, tweeting, and casual web browsing during business hours. It’s surely not a coincidence that 2015’s hottest office productivity tool is a group chat service called Slack.

This may make life more pleasant in some respects (and annoying in others, as family dinners are now interrupted by random work emails), but it adds up to a remarkably modest impact on the overall health of the economy.

The less-work future

Of course, all this might change. The power of Moore’s Law — which states that the power of computer chips doubles roughly every two years — is such that the next five years’ worth of digital progress will involve bigger leaps in raw processor power than the previous five years. It’s at least possible that we really will have a massive leap forward in productivity someday soon that starts substantially reducing the amount of human labor needed to drive the economy forward.

But robots are never going to take all the jobs. The problem with trying to envision “a world without work” is that it asks us to envision an unrealistically large change.

The more likely outcome is a world with less work. And that’s a world we should welcome rather than fear. It’s a world in which we can make some policy decisions we want to make, rather than decisions we really don’t want to make.

The “normal” Social Security retirement age in the United States used to be 65. Currently it is moving up to 67. Many prominent politicians, from Jeb Bush and Christ Christie to the bipartisan Simpson-Bowles commission on deficit reduction, say that to keep the system solvent we need to move it up even further, to 70. In a world of more productivity and less work, instead of doing that, we might move it back down to 65. Or maybe even cut it back to 62.

Some more ideas:

  • Right now the average American gets 10 paid vacation days and six paid holidays. We could emulate Germany, where 20 and 10 are the current minimum. Or go really nuts and copy Austria, where it’s 22 and 13.
  • We could reduce the high school and college dropout rates, and slightly increase the number of college graduates who go on to some form of graduate school.
  • We could emulate Sweden’s 480 days of paid leave for new parents.
  • We could give college students more generous grants so more of them could focus full-time on their studies rather than dual-tracking school with work.
  • Right now, 44 percent of mothers with full-time jobs say they would rather work part time. We could make that happen.

These are just illustrative ideas, of course, not a comprehensive program. But they go to show that given decent public policy, an automation-driven productivity surge is nothing to be afraid of. For any given item on that list, the natural objection will be that “we can’t afford it.” If productivity accelerated, we could easily afford it — and more — reducing the total amount of human toil while still maintaining the basic life-cycle concept of a career.

If the robots don’t arrive

The real threat is precisely the opposite — that the per-hour productivity of the American worker won’t increase at a more rapid rate.

If you’ve ever heard a dreary lecture about the “entitlement crisis,” that is the world they are talking about. The American population is aging and is projected to continue aging. In other words, the ratio of working-age people to retired people is falling. That means that we will have to either reduce the living standards of the elderly by cutting their benefits, or reduce the living standards of the non-elderly by raising their taxes or cutting spending on programs they depend on.

By the same token, the proposition that “health-care costs” will bury the country is essentially the proposition that technology won’t dramatically increase the productivity of the health-care sector. That means, again, some combination of reduced benefits for the sick and higher premiums and taxes for the healthy.

Most likely, we’ll keep doing a little bit of both.

Unless, that is, some robots come along to help us out.



The Conundrum Of Corporation And Nation

On March 8, 2015, Robert Reich writes:

The U.S. economy is picking up steam but most Americans aren’t feeling it. By contrast, most European economies are still in bad shape, but most Europeans are doing relatively well.

What’s behind this? Two big facts.

First, American corporations exert far more political influence in the United States than their counterparts exert in their own countries.

In fact, most Americans have no influence at all. That’s the conclusion of Professors Martin Gilens of Princeton and Benjamin Page of Northwestern University, who analyzed 1,799 policy issues – and found that “the preferences of the average American appear to have only a miniscule, near-zero, statistically non-significant impact upon public policy.”

Instead, American lawmakers respond to the demands of wealthy individuals (typically corporate executives and Wall Street moguls) and of big corporations – those with the most lobbying prowess and deepest pockets to bankroll campaigns.

The second fact is most big American corporations have no particular allegiance to America. They don’t want Americans to have better wages. Their only allegiance and responsibility to their shareholders – which often requires lower wages  to fuel larger profits and higher share prices.

When GM went public again in 2010, it boasted of making 43 percent of its cars in place where labor is less than $15 an hour, while in North America it could now pay “lower-tiered” wages and benefits for new employees.

American corporations shift their profits around the world wherever they pay the lowest taxes. Some are even morphing into foreign corporations.

As an Apple executive told The New York Times, “We don’t have an obligation to solve America’s problems.”

I’m not blaming American corporations. They’re in business to make profits and maximize their share prices, not to serve America.

But because of these two basic facts – their dominance on American politics, and their interest in share prices instead of the wellbeing of Americans – it’s folly to count on them to create good American jobs or improve American competitiveness, or represent the interests of the United States in global commerce.

By contrast, big corporations headquartered in other rich nations are more responsible for the wellbeing of the people who live in those nations.

That’s because labor unions there are typically stronger than they are here – able to exert pressure both at the company level and nationally.

VW’s labor unions, for example, have a voice in governing the company, as they do in other big German corporations. Not long ago, VW even welcomed the UAW to its auto plant in Chattanooga, Tennessee. (Tennessee’s own politicians nixed it.)

Governments in other rich nations often devise laws through tri-partite bargains involving big corporations and organized labor. This process further binds their corporations to their nations.

Meanwhile, American corporations distribute a smaller share of their earnings to their workers than do European or Canadian-based corporations.

And top U.S. corporate executives make far more money than their counterparts in other wealthy countries.

The typical American worker puts in more hours than Canadians and Europeans, and gets little or no paid vacation or paid family leave. In Europe, the norm is five weeks paid vacation per year and more than three months paid family leave.

And because of the overwhelming clout of American firms on U.S. politics, Americans don’t get nearly as good a deal from their governments as do Canadians and Europeans.

Governments there impose higher taxes on the wealthy and redistribute more of it to middle and lower income households. Most of their citizens receive essentially free health care and more generous unemployment benefits than do Americans.

So it shouldn’t be surprising that even though U.S. economy is doing better, most Americans are not.

The U.S. middle class is no longer the world’s richest. After considering taxes and transfer payments, middle-class incomes in Canada and much of Western Europe are higher than in U.S. The poor in Western Europe earn more than do poor Americans.

Finally, when at global negotiating tables – such as the secretive process devising the “Trans Pacific Partnership” trade deal – American corporations don’t represent the interests of Americans. They represent the interests of their executives and shareholders, who are not only wealthier than most Americans but also reside all over the world.

Which is why the pending Partnership protects the intellectual property of American corporations – but not American workers’ health, safety, or wages, and not the environment.

The Obama administration is casting the Partnership as way to contain Chinese influence in the Pacific region. The agents of America’s interests in the area are assumed to be American corporations.

But that assumption is incorrect. American corporations aren’t set up to represent America’s interests in the Pacific region or anywhere else.

What’s the answer to this basic conundrum? Either we lessen the dominance of big American corporations over American politics. Or we increase their allegiance and responsibility to America.

It has to be one or the other. Americans can’t thrive within a political system run largely by big American corporations – organized to boost their share prices but not boost America.


Comment by Robert Reich:

One of the biggest fights consuming Washington these days is whether to extend the life of the Ex-Im Bank, whose charter runs out Thursday. The Bank gives U.S. taxpayer-financed loans and loan guarantees to “foreign” corporations that purchase the products of “American” corporations. But what’s an American corporation, and what’s a foreign one? Big American corporations now hire all over the world and park their profits wherever they’re least taxed. In 2013 (the last date for which we have good data), 81% of the Bank’s funds went to help big businesses, and about two-thirds to help ten giant global businesses such as General Electric and Boeing.

Good for American jobs? Not necessarily. The airline industry estimates the Bank has killed off 7,500 jobs in the United States by giving foreign airlines taxpayer-subsidized financing on American-made jets.

A fundamental fact you must remember: What’s good for a global corporation headquartered in the U.S. has little or no bearing on what’s good for Americans. Yet such corporations are among the biggest Washington lobbyists and campaign donors, and biggest recipients of taxpayer-financed corporate welfare.

Corporate charters need to be reformed to incentivize broadened wealth-creating, income-producing capital ownership.

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 dictate that from now on 100 percent of all profits be paid out fully as dividend payments to stockholders (thus, eliminating the corporate income tax), and be subject to progressive individual taxation rates during the short term until a flat tax, after an exemption of $100,000 for a family of four to meet their ordinary living needs, can be instituted. 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 imposing 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 (past savings).

In place of retained earnings and debt financing, the government should require 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 by purchasing the newly issued stock using insured, interest-free  “pure credit” repayable out of the full earnings generated by the earnings produced by the actual future capital assets. Of course, there needs to be 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 resulting in savings 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, both new start-ups and established ones, subject to this policy and those corporations that qualify overseen so as to insure 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.

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 on 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 be enabled to acquire 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.

Capital acquisition takes place on the logic of self-financing and asset-backed credit for productive uses. People invest in capital ownership on the basis that the investment will pay for itself. The basis for the commitment of loan guarantees is the fact that nobody who knows what he or she is doing buys a physical capital asset or an interest in one unless he or she is first assured, on the basis of the best advice one can get, that the asset in operation will pay for itself within a reasonable period of time––5 to 7 or, in a worst case scenario, 10 years (given the current depressive state of the economy). And after it pays for itself within a reasonable capital cost recovery period, it is expected to go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.

Still, there is at least a theoretical chance, and sometimes a very real chance, that the investment might not pay for itself, or it might not pay for itself in the projected time period. So, there is a business risk. This is why: using the example of ESOP financing (next), the lender has no reason to loan to the ESOP trust unless it has two sources of repayment. In addition to determining that the investment is viable and that the company is credit worthy and reliably expected to make loan repayments, there needs to be security against default. Thus, for the lender to make the loan the company must provide the security.

On a larger scale, there is another path to solve the security issue, that is, the risk can be absorbed by capital credit insurance or commercial risk insurance. Thus, in order to achieve national economic democracy, we need a way to handle risk management in finance by broadly insuring the risks. Such capital credit insurance would substitute for the security demanded by lenders to cover the risk of non-payment, thus enabling the poor and others with no or few assets (the 99 percenters) to overcome the collateralization barrier that excludes the non-halves from access to productive capital.

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

The fact is money power rules. When money power is broadly distributed in the hands of the citizens, not the politicians or bankers, the people shall rule.

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

Another actionable policy should provide that any government contract or loan guarantee be only awarded to American companies who, through the government award, expand their ownership to their employees.

Still another short-term action, to reinvigorate “Make It In America” and “Made In America,” is the government should create financial incentives and tax provisions to reward American companies that bring manufacturing back to the United States from abroad, promote manufacturing investment, and incentivize more investment by foreign companies, all with the condition that the employees will share in the ownership benefits generated by the new capital formation projects. The result will be more broadened employee ownership and in-sourcing of jobs created by the new capital formation projects, and make America self-reliant.

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 “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. As a result, America is experiencing the deindustrialization of America. This has forced policy makers to adopt a redistributive socialist solution rather than a democratic capitalist one whereby democratic 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. At present, the various incentives in place do not broaden capital ownership but instead further concentrate ownership.

The labor union movement should transform to a producers’ ownership union movement.

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.”

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 unproduced 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.

There are other actionable policies that will dramatically impact the market economy and strengthen the middle class in a positive way, while expanding the base of private capital ownership and thus strengthening the way consumers make the money to purchase the products and services made possible by the new capital formation. The result will be to expand production and bring more wealth to the economy, which will provide not only growth in expanded ownership of productive capital but also in expanded employment opportunities as the economy revs up to meet expanded consumer demand. Furthermore, the more broadly real capital is acquired by individuals throughout our society with the earnings of capital, the more we will profitably employ unused capacity and promote economic growth. With greater earnings from capital worker investment, people will be able to support and pay for products resulting from “greener” technologies that today people cannot afford. Such policies are perfectly in tune with the natural incentive of business corporations to broaden ownership so that the market for their products will increase. Such policies will liberate the economy.

The American Middle Class Is No Longer The World’s Richest

The American middle class, long the most affluent in the world, has lost that honor, and many Americans are dissatisfied with the state of the country. “Things are pretty flat,” said Kathy Washburnof Mount Vernon, Iowa. “You have mostly lower level and high and not a lot in between.”CreditNicole Bengiveno/The New York Times

On April 24, 2014, David Leonhard and Kevin Quealy write in The New York Times:

The American middle class, long the most affluent in the world, has lost that distinction.

While the wealthiest Americans are outpacing many of their global peers, a New York Times analysis shows that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.

After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States. The poor in much of Europe earn more than poor Americans.

The numbers, based on surveys conducted over the past 35 years, offer some of the most detailed publicly available comparisons for different income groups in different countries over time. They suggest that most American families are paying a steep price for high and rising income inequality.

Although economic growth in the United States continues to be as strong as in many other countries, or stronger, a small percentage of American households is fully benefiting from it. Median income in Canada pulled into a tie with median United States income in 2010 and has most likely surpassed it since then. Median incomes in Western European countries still trail those in the United States, but the gap in several — including Britain, the Netherlands and Sweden — is much smaller than it was a decade ago.

In European countries hit hardest by recent financial crises, such as Greece and Portugal, incomes have of course fallen sharply in recent years.

The income data were compiled by LIS, a group that maintains the Luxembourg Income Study Database. The numbers were analyzed by researchers at LIS and by The Upshot, a New York Times website covering policy and politics, and reviewed by outside academic economists.

The struggles of the poor in the United States are even starker than those of the middle class. A family at the 20th percentile of the income distribution in this country makes significantly less money than a similar family in Canada, Sweden, Norway, Finland or the Netherlands. Thirty-five years ago, the reverse was true.

LIS counts after-tax cash income from salaries, interest and stock dividends, among other sources, as well as direct government benefits such as tax credits.

The findings are striking because the most commonly cited economic statistics — such as per capita gross domestic product — continue to show that the United States has maintained its lead as the world’s richest large country. But those numbers are averages, which do not capture the distribution of income. With a big share of recent income gains in this country flowing to a relatively small slice of high-earning households, most Americans are not keeping pace with their counterparts around the world.

“The idea that the median American has so much more income than the middle class in all other parts of the world is not true these days,” saidLawrence Katz, a Harvard economist who is not associated with LIS. “In 1960, we were massively richer than anyone else. In 1980, we were richer. In the 1990s, we were still richer.”

That is no longer the case, Professor Katz added.

Median per capita income was $18,700 in the United States in 2010 (which translates to about $75,000 for a family of four after taxes), up 20 percent since 1980 but virtually unchanged since 2000, after adjusting for inflation. The same measure, by comparison, rose about 20 percent in Britain between 2000 and 2010 and 14 percent in the Netherlands. Median income also rose 20 percent in Canada between 2000 and 2010, to the equivalent of $18,700.

The most recent year in the LIS analysis is 2010. But other income surveys, conducted by government agencies, suggest that since 2010 pay in Canada has risen faster than pay in the United States and is now most likely higher. Pay in several European countries has also risen faster since 2010 than it has in the United States.

Three broad factors appear to be driving much of the weak income performance in the United States. First, educational attainment in the United States has risen far more slowly than in much of the industrialized world over the last three decades, making it harder for the American economy to maintain its share of highly skilled, well-paying jobs.

Americans between the ages of 55 and 65 have literacy, numeracy and technology skills that are above average relative to 55- to 65-year-olds in rest of the industrialized world, according to a recent study by the Organization for Economic Cooperation and Development, an international group. Younger Americans, though, are not keeping pace: Those between 16 and 24 rank near the bottom among rich countries, well behind their counterparts in Canada, Australia, Japan and Scandinavia and close to those in Italy and Spain.

A second factor is that companies in the United States economy distribute a smaller share of their bounty to the middle class and poor than similar companies elsewhere. Top executives make substantially more money in the United States than in other wealthy countries. The minimum wage is lower. Labor unions are weaker.

And because the total bounty produced by the American economy has not been growing substantially faster here in recent decades than in Canada or Western Europe, most American workers are left receiving meager raises.

Finally, governments in Canada and Western Europe take more aggressive steps to raise the take-home pay of low- and middle-income households by redistributing income.

Janet Gornick, the director of LIS, noted that inequality in so-called market incomes — which does not count taxes or government benefits — “is high but not off the charts in the United States.” Yet the American rich pay lower taxes than the rich in many other places, and the United States does not redistribute as much income to the poor as other countries do. As a result, inequality in disposable income is sharply higher in the United States than elsewhere.

Whatever the causes, the stagnation of income has left many Americansdissatisfied with the state of the country. Only about 30 percent of people believe the country is headed in the right direction, polls show.

“Things are pretty flat,” said Kathy Washburn, 59, of Mount Vernon, Iowa, who earns $33,000 at an Ace Hardware store, where she has worked for 23 years. “You have mostly lower level and high and not a lot in between. People need to start in between to work their way up.”

Middle-class families in other countries are obviously not without worries — some common around the world and some specific to their countries. In many parts of Europe, as in the United States, parents of young children wonder how they will pay for college, and many believe their parents enjoyed more rapidly rising living standards than they do. In Canada, people complain about the costs of modern life, from college to monthly phone and Internet bills. Unemployment is a concern almost everywhere.

But both opinion surveys and interviews suggest that the public mood in Canada and Northern Europe is less sour than in the United States today.

“The crisis had no effect on our lives,” Jonas Frojelin, 37, a Swedish firefighter, said, referring to the global financial crisis that began in 2007. He lives with his wife, Malin, a nurse, in a seaside town a half-hour drive from Gothenburg, Sweden’s second-largest city.

They each have five weeks of vacation and comprehensive health benefits. They benefited from almost three years of paid leave, between them, after their children, now 3 and 6 years old, were born. Today, the children attend a subsidized child-care center that costs about 3 percent of the Frojelins’ income.

Even with a large welfare state in Sweden, per capita G.D.P. there has grown more quickly than in the United States over almost any extended recent period — a decade, 20 years, 30 years. Sharp increases in the number of college graduates in Sweden, allowing for the growth of high-skill jobs, has played an important role.

Elsewhere in Europe, economic growth has been slower in the last few years than in the United States, as the Continent has struggled to escape the financial crisis. But incomes for most families in Sweden and several other Northern European countries have still outpaced those in the United States, where much of the fruits of recent economic growth have flowed into corporate profits or top incomes.

This pattern suggests that future data gathered by LIS are likely to show similar trends to those through 2010.

There does not appear to be any other publicly available data that allows for the comparisons that the LIS data makes possible. But two other sources lead to broadly similar conclusions.

A Gallup survey conducted between 2006 and 2012 showed the United States and Canada with nearly identical per capita median income (and Scandinavia with higher income). And tax records collected by Thomas Piketty and other economists suggest that the United States no longer has the highest average income among the bottom 90 percent of earners.

One large European country where income has stagnated over the past 15 years is Germany, according to the LIS data. Policy makers in Germany have taken a series of steps to hold down the cost of exports, including restraining wage growth.

Even in Germany, though, the poor have fared better than in the United States, where per capita income has declined between 2000 and 2010 at the 40th percentile, as well as at the 30th, 20th, 10th and 5th.

Stability in Sweden

Malin Frojelin lives with her two children, Engla, 6, and Nils, 3, in Vallda, Sweden, along with her husband, Jonas. Vallda is about a 30-minute drive from Gothenburg, the

second-largest city in the country. CreditCasper Hedberg for The New York Times

Stability in Sweden

More broadly, the poor in the United States have trailed their counterparts in at least a few other countries since the early 1980s. With slow income growth since then, the American poor now clearly trail the poor in several other rich countries. At the 20th percentile — where someone is making less than four-fifths of the population — income in both the Netherlands and Canada was 15 percent higher than income in the United States in 2010.

By contrast, Americans at the 95th percentile of the distribution — with $58,600 in after-tax per capita income, not including capital gains — still make 20 percent more than their counterparts in Canada, 26 percent more than those in Britain and 50 percent more than those in the Netherlands. For these well-off families, the United States still has easily the world’s most prosperous major economy.

Median per capita income has remained unchanged since 2000. That’s not good news for America. Or for Americans.

How Louis Kelso Invented The ESOP

The following article was excerpted from Equity: Why Employee Ownership Is Good for Business (Harvard Business School Press, 2005), copyright © Corey Rosen, John Case, and Martin Staubus. Sources can be found in the book.

This is a historical perspective of the founding of binary economics and the concept of broadened personal wealth-creating, income-producing capital ownership. The architect of this movement is Louis Kelso.

This excerpt is absolutely a MUST READ for those interested in solutions to wealth and income inequality.

Employee stock ownership plans, or ESOPs, are the chief vehicle for employee ownership in the United States. They’re a form of trust, set up under government regulations spelled out by various laws. Ever wonder how this came to be? Here’s the story:

“All truth passes through three stages,” wrote the nineteenth-century philosopher Arthur Schopenhauer.

“First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” The idea that employees should own a good part of the company they work for was indeed both ridiculed and opposed before it became the quasi-mainstream notion that it is today.

But it didn’t proceed smoothly through Schopenhauer’s stages. It has regularly cropped up and faded away. It has undergone periodic reinvention. Today’s most common form—the ESOP—owes its existence not to any deep historical roots but to a small band of devotees who rallied around the ideas of an iconoclastic lawyer and self-taught social theorist named Louis Kelso. Thanks to their efforts, the ESOP is now well ensconced in the United States, both in policy and in practice. Even so—and true to the on-again, off-again history of the concept—it is by no means clear that the ESOP will be the most common form of employee ownership in the decades to come.

Louis Kelso

Louis Orth Kelso was an American original, the kind of grand contradictory character who crops up repeatedly in the history of the United States. Born poor, he made good. A successful lawyer and investment banker, he sought to transform the economic system that had been so rewarding to him. His several books are by turns inspiring, illuminating, impossibly grandiose, and utterly impenetrable. The economic world view he espoused attracted that band of devotees and generated a good deal of attention from pundits and politicians, yet was ignored or dismissed—indeed, ridiculed—by conventional economists. A charming, witty, persuasive man, he was also single-minded and opinionated. He suffered fools poorly—and “anybody who disagreed with him was by definition a fool,” as one erstwhile colleague remembers. A 1970 article in the Nation by the journalist Robert Sherrill, though generally admiring, was headlined “Louis Kelso: Nut or Newton?” Like Sherrill, much of the world didn’t quite know what to make of him.


As with many minor luminaries, what we know of Kelso’s early life was what he himself told us. He was born on December 4, 1913, in Denver. His grandparents on both sides were of pioneer stock, but his father, a musician, was not of a practical turn of mind, and it often fell to his mother to support the family with the little grocery store she managed. (As best she could: “The railroad tracks ran alongside the store and the hobos dropped off at night and robbed the place too regularly to permit profit,” wrote Sherrill, presumably reporting Kelso’s recollections.) Kelso was going on sixteen when the stock market crashed in October 1929, and he came to adulthood in the heart of the Great Depression. Bright and inquisitive, he wondered how on earth this catastrophe could be happening. Why were factories running at half speed, their unused machinery rusting? Why were millions of threadbare and ragged people foraging in garbage cans or standing in soup lines, when farmers could grow mountains of food and fiber on land now lying idle and manufacturers were as eager and able to make clothing and every other useful thing as storekeepers were to sell them? Why did growers saturate entire orchards of sweet ripe oranges with gasoline before throwing them into rivers to float past starving children? Why did trains meant to carry people rattle along with coaches almost empty, while freight trains were loaded down with homeless, jobless vagrants?

His elders weren’t much help: “They took it for granted that a capitalist economy would sooner or later collapse.” President Hoover counseled patience, reminding the nation that the country had been through fifteen major depressions in the last century. Kelso was like an ambitious young scientist who learns that the authorities have given up on the single most important problem in his field. “Brash young man” that he was, he recalled, he decided he would figure out the answer.

So Kelso read, worked, and put himself through school. Landing a scholarship to the University of Colorado, he presented himself to the chairman of the economics department and said that he planned to study the causes of the Depression and what could be done about it. It was a touchy subject—economists didn’t really know what was responsible for the Depression—and the chairman didn’t take kindly to the cheeky fellow who figured he already had the inkling of a solution. (“He said, ‘You’re just the type of young man we don’t want,’ ” recounts Kelso’s widow, Patricia Hetter Kelso. “‘You are a troublemaker.’ So he kicked him out.”) Instead of economics Kelso studied business and finance, earned a law degree, and began practicing. When war broke out, he enlisted in the navy and was commissioned as an officer in naval intelligence. “He was trained for a secret mission behind Japanese lines,” writes Stuart M. Speiser, a lawyer-turned-author who is as close to a biographer of Kelso as we have, “. . . but he was shipped to the Panama Canal Zone and put in charge of processing counterespionage information from Latin America.” That undemanding job gave him the opportunity to produce a book manuscript, which he titled The Fallacy of Full Employment.


But when the war was over, Kelso decided against trying to get his new book published. He needed to earn a living. Maybe he was even a little uncertain as to whether he was on the right track. “I said to myself, ‘Louis, you’d better settle down and practice law, which is what you’re trained to do, and let the country recover from the war,’” he remembered later. “‘Stick your manuscript in the closet, and if after 25 years you still think the thesis is valid, dig it out, update it, and publish it.’” The “closet” was a bank vault, and there the manuscript stayed until 1955, when Kelso happened to get into a discussion with the philosopher Mortimer Adler. That year, Kelso had been attending a series of lectures by Adler on the Great Books. Great Books was a popular reading program that Adler had helped to develop and that had made his name about as close to a household word as most philosophy professors ever get. Now, invited to a weekend party by a mutual friend, the two men were arguing about what they called the “theory of capitalism.” Kelso charged Adler with ignorance of the theory. Adler suggested there was no such theory and that he of all people ought to know. Kelso responded that Adler may have thought he had read everything in the field, but he hadn’t—the manuscript in his closet, for example. Irritated—and worried that this mouthy amateur would now present him with a huge dog-eared manuscript—Adler asked for the “five-minute version” of Kelso’s ideas. Kelso began expounding. When he had finished (again, by Kelso’s account), Adler “jumped about 12 feet off the ground. ‘There’s no justice!’ he said. ‘I’ve spent 22 years studying this subject, and you stumble across the answer with no effort at all.’” In just a couple of years, the two men had written a book they titled The Capitalist Manifesto, based partly on Kelso’s unpublished manuscript. They sent it off to four publishers. All accepted it; Random House published it in 1958. Thanks in part to Adler’s name, the book promptly made the best-seller list—though the “academic economics establishment,” as Speiser notes, “practically ignored it.”

To read this modest-sized volume today—and not many people do, since it is long out of print {now available as a free E-Book download at http://www.kelsoinstitute.org/pdf/cm-entire.pdf —is to step back into another era. That sense of time warp stems partly from the book’s cold war–inspired title and language, and partly from its 1950s-style technological innocence (“It seems certain that atomic energy will be the basic source of industrial power for the production of wealth in the future”). It also stems from the presentation itself. The Capitalist Manifesto’s arguments are abstract and almost startlingly dry (“Concretely stated, if A, B, C and D are four persons or families in a society having only four independent participants in the production of wealth; and if, through the use of the productive property they own, A, B and C contribute to the total wealth produced in the ratio 3, 2, 1, then the distributive shares they should receive, according to their just deserts, should also be in the ratio of 3, 2, 1 . . .”). Its proposals are laid out in mind-numbing detail (“Effective security flotation procedures during the transition period may require the establishment of preferential opportunities for investment by households whose aggregate capital interests are subviable”). A cynic might suggest that not everyone who bought the book actually plowed his or her way through it. But the reviews were favorable, and there was a powerfully simple idea lurking amidst the verbiage. It was an idea that defined the book’s appeal and that would eventually make Kelso into a nationally known figure.

In the 1950s, Americans were worried not only about the Russians but about being thrown out of a job. Unemployment wasn’t unusually high, to be sure. But the nation’s economic future seemed uncertain. Automation was making its way into industry. Economists and others were arguing that machines would eventually take over nearly all manual work. What were people to do? The Depression was fresh in every middle-aged adult’s memory; equally dismal times might lie ahead. But wait—here was this smart guy Adler (and somebody named Kelso) with a solution! Yes, these authors said, the pace of automation was likely to increase. But no one should fear it, because it held the potential of releasing everybody from mind-numbing manual work. The key was to break the link between a person’s income and survival on the one hand and his or her job on the other. No one should have to live on labor income alone. If more people enjoyed what the rich already enjoyed, namely ownership of capital and the income that flowed from that ownership, they would get along just fine. If you have enough stock, after all, you don’t worry about unemployment. And if everyone had an income regardless of whether or not they were working, they could continue to buy things. The economy would be that much less likely to collapse.

Could the idea be implemented? Sure, said the authors. The rules governing ownership and capital accumulation are just social inventions. Social inventions can be changed. If we really want a just, democratic society—not to mention an economy that isn’t prone to depression—we can create mechanisms by which ordinary people can build up capital and eventually live off it. We can figure out policies that enable the process. We can write tax laws that facilitate it. Indeed, we can begin right now, with the “transitional programs” that the authors spelled out in so much detail. The programs’ objective was simple, they said: it “should be to maintain a steady decrease in the proportion of households that are entirely dependent on wages and a steady increase in the number that are able to live on capital earnings.”

That, so it seemed, was an idea that anybody could get behind. Forget socialism, Adler and Kelso were arguing. Let’s turn everybody into capitalists.


Capitalism in Kelso’s view had always been marked by a maldistribution of income. The rich got richer because they enjoyed the fruits of capital ownership. The not-rich struggled to get along, because they lived only on the fruits of their labor. With automation, the return to capital could only increase, and workers could lose what little income they had. Governmental attempts to redistribute income through social programs were ineffectual. The only solution was to broaden the base of capital ownership.

As to how that might be possible, Kelso’s brilliant insight was to see that individual savings alone would never be sufficient—especially if, as he predicted, real wages began to stagnate. Few wage earners could ever hope to accumulate enough capital to replace their laborincome just by stashing a little away each year. That was the trouble with the stock-ownership plans of the 1920s: they expected workers to buy stock, albeit at a discount, a little at a time, through payroll deductions. Kelso had another idea.

Look at what happens, he suggested, when a company owner wants to expand his business. The owner borrows money, buys physical capital such as machinery or buildings, and pays off the loan with the profits that the new capital generates. Every year U.S. businesses added billions of dollars’ worth of new physical capital. Suppose the laws were changed, suggested Kelso, so that people with no ownership got a chance to buy shares of stock representing that new capital. They could borrow the money to buy the shares and pay the loan off over time with the dividends from the stock. To ensure that dividends would be sufficient for this purpose, Kelso advocated a law requiring corporations to pay out all their earnings as dividends and to raise new capital through debt (which in turn could be funded by an ESOP).

Presto—the rich would still get to keep what they had, but now the not-rich would be able to accumulate capital of their own as the economy grew. And nobody would be getting a handout, because all the stock would be paid for through future earnings.

In his books, Kelso spelled out only some of the practical details as to how all this could be accomplished. He left many others to be worked out in the future. But he was very much proposing a broad-based governmental initiative, open to all needy citizens, and very much not proposing shared ownership at the company level, which by definition would be open only to that company’s employees. The ESOP—mentioned only briefly in The Capitalist Manifesto and not at all in Kelso and Adler’s next book, The New Capitalists [available as a free E-Book download at http://www.kelsoinstitute.org/pdf/nc-entire.pdf]—was at first a bit player on Kelso’s grand stage. Oddly, it wound up as the star of his show and was arguably his greatest legacy.

How that happened reflects one more contradiction in Kelso’s multifaceted character. A determined visionary and big-picture thinker, he was at the same time a practical lawyer and an opportunistic political operator who never let his theories get in the way of what could be done right now. In 1955, for example, he was a junior partner in a San Francisco law firm. One of the firm’s clients was part owner of a company called Peninsula Newspapers, Inc. (PNI), which published several small papers. Kelso learned that this client and the other owners of PNI wanted to sell the company to its employees. He also learned that the employees liked the idea and were working hard to make it happen. A man named Gene Bishop, who coincidentally had been Kelso’s commanding officer in the navy, was now second-in-command at PNI and was spearheading the effort on the employees’ behalf. The parties had engaged Crocker Bank to scrutinize the relevant finances. Could Bishop and his colleagues put together the capital they needed to buy the paper through savings, payroll deductions, second mortgages, investments from relatives, and so on? Alas, the bank’s conclusion was negative. There just wasn’t enough money to be found. If the employees borrowed what they needed, they could afford to pay only the interest, not the principal. “When Gene Bishop passed my office that day,” Kelso remembered, “I said to him, ‘Hey, Gene, are you a newspaper owner now?’ He said no and told me the story. I said, ‘Gene, I think it’s very possible you were given bad advice.’ . . . He said,

‘Listen, this is a life-and-death matter for me. I’m not going to stay with this newspaper if it’s going to be sold to Hearst or some other chain. I like it the way it is.’” So Kelso said he would look at the file and see what he could come up with. Next day he reported his conclusions to Bishop. “‘Gene,’ I said, ‘this thing will fly like a birdie. You don’t have to take anything out of your pockets or out of your paychecks. You don’t have to mortgage your house. You don’t have to do any of those things. Five or six years downstream, the employees will own the business free and clear. And the present owner will have his money and his interest.’ Gene thought I was kidding, but I was not.”

The secret, of course, was for the buyers to pay for their ownership out of the company’s future earnings. It is a familiar principle today, since it is the basis for most of the leveraged buyouts (LBOs) that have taken place in the last few decades. But in the mid-1950s it was an astonishing notion. Kelso set up profit-sharing trusts to borrow the money to buy the business from the retiring owners. Employees’ individual accounts were credited with share ownership as the trusts paid off the loans.

“Kelso’s blueprint was a smashing success,” reports Speiser. The newspaper company prospered. The trusts paid off the original owners even faster than Kelso had allowed for. By 1974 PNI’s balance sheet showed shareholders’ equity of more than $6 million. When the employees did finally sell to another newspaper publisher, they realized a huge return on their minimal investments.

So Kelso spent the 1960s and early 1970s organizing more such buyouts. (They came to be known as Kelso Plans, a label he found distasteful.) He also continued with his contradictory life. He was a successful San Francisco lawyer and later an investment banker. He was a member of the best clubs, a director of several companies, a frequent attendee at the annual summertime Bohemian Grove retreats, known for attracting the cream of the (male) establishment. His habitual dress included a well-tailored suit and a blue bow tie with white polka dots. On the other hand, he was devoted to spreading what he was ever more frequently calling his “revolution.” He wrote more books, collaborating now not with Adler but with his young research associate Patricia Hetter, whom he later would marry. He gave numberless speeches and wrote (again with Hetter) many articles. He whispered in the ears of powerful businessmen, believing he could persuade them to implement his notions. “His idea was to start the capitalist revolution through the business system,” says Patricia Hetter Kelso. But the ears, however attentive to Kelso they might be at the moment, were seemingly deaf to what he was arguing for.

So Kelso decided to launch an attack on Washington, hoping there might be a way to line up political leaders behind his ideas. Granted, he had had only spotty success with this approach so far. Barry Goldwater, the Republican candidate for president in 1964, “listened politely” to Kelso at the Bohemian Grove that year, but deferred judgment on the ideas to his economic adviser, Milton Friedman. Like nearly all academic economists, right and left, Friedman thought Kelso was far more nut than Newton. Gerald Ford, then a congressman, got excited about Kelso’s ideas and set up a meeting in 1965 with a Republican task force; later that year, Kelso spent several hours with Richard Nixon, who declared himself “no economist” but added, “politically I could sell this to the American people in six months.” Neither meeting led to anything. Undaunted, Kelso in 1968 set up a Washington-based organization he called the Institute for the Study of Economic Systems and hired an idealistic young attorney and civil rights activist named Norman Kurland to head it. {Shortly thereafter, Gary Reber, an economic development planner, founded Agenda 2000 Incorporated as an advocacy consulting firm based on Kelsonian binary economics, in which Kelso served as chairman and John W. Dyckman, chairman of the City And Regional Planning Department at the University of California, Berkeley served as president. Kurland became a vice president.]

Kurland and Kelso put together a board for their institute, making a point to include representatives from the left (longshore union leader Harry Bridges, future D.C. mayor Marion Barry) and from the right (the chairman of Arthur Andersen, actress Shirley Temple Black). They set about raising money, though without much success. (“By 1970 Kelso could no longer pay me,” remembers Kurland.)

Kurland began casting about, both for receptive ears and for legislation that he could push in a Kelsonian direction. Sen. Paul Fannin of Arizona was intrigued enough to sponsor Kurland’s “wish list” legislation, dubbed the Accelerated Capital Formation Act, and invited Kelso to make a presentation to several members of the Senate Finance Committee. But the legislation went nowhere. In 1972, Kelso and Kurland testified on legislation to save the financially troubled railroad system in the eastern United States, proposing that it should be owned by its employees. Sen. Mark Hatfield of Oregon liked the idea, agreed to sponsor legislation to this effect, and was joined by four other senators. But it was still a rearguard action unlikely to garner much support.

At that point Kelso tried a different tack. He wanted more than anything else to get to Russell Long, the Louisiana senator who was chairman of the Finance Committee and one of the most powerful men anywhere in government. Long, he thought, not only might be receptive; he also was in a position where he could get something done. So Kelso began nosing around to see who might know him. Kelso’s friend Henry McIntyre, a fund-raiser for Planned Parenthood, had an idea: his organization’s national chairman, a Louisiana physician named Joe Beasley, might know Long. Sure enough, Beasley did. But he recommended that they approach Long by way of his legislative assistant, Wayne Thevenot.

Beasley called Thevenot—the name is pronounced TEV-uh-no—and sent him a copy of a 1968 Kelso and Hetter book called Two-Factor Theory: The Economics of Reality. (The original and much better title of the 1967 hardback edition had been How to Turn Eighty Million Workers Into Capitalists on Borrowed Money.) Then Beasley started calling. Had Thevenot read it? When he still hadn’t, some months later, Beasley said he was flying to San Francisco and invited Thevenot to join him, at Beasley’s expense. Thevenot agreed: “It was the last part of that proposal that caught my attention,” he said later. He took the book with him to read on the plane. He didn’t like it. “There was obviously something wrong with it. It was too damned easy,” he told Speiser. But after two days of listening to Kelso’s persuasive voice, he changed his mind and suddenly had all the passion of the newly converted. “I just became totally sold on the idea,” he recalled. He went back to Washington to try to persuade his boss, Russell Long.

Long was the son of Huey Long, the legendary Louisiana “Kingfish” who wanted to make every man a king. More than just Finance Committee chair, Russell was a brilliant politician in the mold of Lyndon Johnson, both well liked and well respected by senators on both sides of the aisle. What he supported tended to get passed. What he didn’t support tended to get buried. As for his politics, Long wasn’t the soak-the-rich radical his father had been—indeed, he was often perceived as just another southern Democrat whose prime concern was the health of the oil and gas industries—but he still had several populist bones in his body. So Kelso’s ideas didn’t require a hard sell from Thevenot. “I didn’t have to go very far because Long started tracking on it right quick,” remembered Thevenot. “. . . He said, ‘I’ve got to meet this guy Kelso.”

On November 27, 1973, they met. Kurland had picked Kelso up at the airport the day before. On the way in, they had heard the well-known newscaster Eric Sevareid supporting Sen. Hatfield’s Kelso-like proposal for the railroads. It seemed a favorable omen. Next day, they went to the Senate, where Long was engaged in a debate on campaign reform, and waited in the gallery. At seven o’clock Long sent for his limousine. The four men—including Thevenot—went to the tony Montpelier Room in Washington’s Madison Hotel for dinner. Dinner lasted three or four hours. Kelso outlined his ideas. Long listened and then began to talk. He told anecdotes about Huey. He expounded notions of his own. His father had been a “Robin Hood” populist, he said. He himself wasn’t a Robin Hood populist, but he liked the idea of more people becoming capitalists. Of course, he had questions and concerns. If everyone was an owner, would they be like the idle rich, never working? And if this was such a good idea, why hadn’t it already gone further? Who was against it? Kelso’s answers are lost to history. But they were evidently satisfactory, because a couple of hours into the conversation, Long’s tone changed. “Louis, you’ve made your sale,” Thevenot recalls him saying. “Now, what can I do to help you?”

Kurland promptly interjected that they already had a bill, introduced by Sen. Hatfield, to apply Kelso’s ideas to the railroads. “I said, ‘We need somebody with guts to take this and make it into law,’” remembers Kurland. “He looked at me and said, ‘You bring me something tomorrow morning.’”

From that moment forward, Kelso’s ideas were a live issue in Washington and would be written into a series of legislative initiatives over a period of many years. But there was a twist: what Long had fastened onto, ironically, was the idea that workers in a company should share ownership, through ESOPs, not that the government should somehow make ownership available to citizens in general. Speiser asked him why he focused on ESOPs rather than on the more general thrust of Kelso’s writings. Long replied that ESOPs were a stepping stone, a device that “starts people thinking about the idea.” Eventually, people would have to figure out how to redistribute all the new wealth that the nation created every year, but not right away. “He doesn’t have the whole blueprint drawn up yet,” observed Speiser, whose book appeared in 1977, “but he’s going to keep on writing ESOP into every tax law in which he can find it. He’s going to try to force corporations to broaden the ownership of new capital, even if he has to do it all by himself.”


The history of ESOPs since that time reflects, in no small measure, Long’s efforts to do exactly what Speiser predicted. He began by trying to get employee ownership into the Railroad Reorganization Act. But other senators were leery because the rail unions weren’t on board, and Congress ended up deciding only to sponsor a study of the idea. Long then inserted provisions regarding ESOPs into the Employee Retirement and Income Security Act (ERISA), the landmark legislation that has governed company-sponsored retirement accounts ever since its passage in 1974.

This was a turning point. Until then, Kelso and his associates had been setting up legal entities known as stock bonus plans, which then borrowed money to buy stock from retiring owners. They argued that the law permitted this. But most lawyers disagreed, so Kelso found it difficult to sell his ideas to many companies.

ERISA—which happened to be the bill that was moving through Congress and that Long felt he could use to make such transactions legal—finally put the government’s imprimatur on Kelso’s ideas. “Before ERISA passed, you were dealing with a much higher degree of skepticism,” explains Ron Ludwig, an attorney who worked with Kelso at the time. “You had to show people and their lawyers that this was in fact legal. Once ERISA passed it became easier. They were still skeptical . . . but it was easier than dealing with no law at all.” Of course, it was simply historical coincidence that ERISA was the first law governing ESOPs. It was the “tax train leaving the station at the time,” as one expert puts it, and Long’s expertise and inclination naturally pointed him in the direction of supporting ESOPs by writing them into tax law.

At any rate, ERISA was just the start. Over the next dozen years, Long was instrumental in passing numerous pieces of ESOP-related legislation. (Many would be amendments to ERISA, while others were amendments to the tax code.) He didn’t have to do it all by himself, as Speiser had suggested he might; on the contrary, he was already inspiring a band of devotees who—if they hadn’t done so already—were now deciding to commit their lives to furthering employee ownership.

Kelso, Thevenot, and Kurland, the triumvirate that had started Long down this path, continued their efforts. So did Jack Curtis, a staff member of the Senate Finance Committee, and Kelso associate Ron Ludwig. One of the authors of this book (Corey Rosen) was a staffer for the Senate Small Business Committee at the time; a young academic named Joseph Blasi was working on the House side as an aide to a newly elected representative.

“The House and Senate staffers started meeting for lunches,” Blasi remembers, “and we started cooperating on bills and discussions. Out of those meetings came a lot of things . . . [including] a lot more obvious House support for Russell Long’s initiatives in the Senate.” When Jack Curtis went on to practice ESOP law, a lawyer named Jeff Gates, who had worked with Ludwig in San Francisco, took Curtis’s place on the Finance Committee staff. Gates, who today is recognized as a leader in the field of employee ownership, liked to work on a dozen different possibilities at once. “I’d come up with fifteen ideas,” he recalls. “He [Long] would go with ten of them into the Finance Committee, hope to get eight of them out of committee and maybe three out of conference. And the last time I looked, we had twenty-five separate pieces of federal legislation.”

Today, much of that legislation has come and gone, amended beyond recognition or simply allowed to expire. The Tax Reduction Act of 1975, for example, created the Tax Credit Stock Ownership Plan, known as TRASOP, giving employers a 1 percent tax credit on certain capital investments if they contributed a corresponding amount of stock to an ESOP. In effect, the government was paying companies to print shares and give them to employees. The provision was popular with large companies, but it didn’t in fact get much stock into employees’ hands. In 1981 the Economic Recovery Tax Act phased out TRASOPs in favor of a new device known as the PAYSOP (payroll-based stock ownership plan), in which the government effectively bought a company’s stock through tax credits and gave it to employees. That, too, was popular, but it expired at the end of 1986.

Meanwhile, employee-ownership provisions were inserted into various bits of special legislation. The Chrysler Loan Guarantee Act of 1979, for instance––otherwise known as the Chrysler bail-out––required Chrysler to create an ESOP and provide it with 25 percent ownership of the company over four years.

Meanwhile, too, large public companies that felt themselves vulnerable to hostile takeover realized that a large block of stock held by “friendly” owners—their employees—might keep the corporate raiders at bay.

ESOPs proliferated among large businesses for that reason alone. They also proliferated for a reason Kelso had never imagined. In 1979, when Corey Rosen was working for the Small Business Committee, a man named Ed Sanders came into the office. He owned a twenty-
employee plywood distributor in Alexandria, Virginia, called Allied Plywood. He wanted to sell the business to those employees through an ESOP, but he wasn’t happy with one part of the deal. If another corporation bought his company and paid him in stock, he noted—John Deere and others had made offers—he could defer capital gains tax on the proceeds. But if he sold to the ESOP, he’d have to pay the taxes right away. That didn’t seem fair. He himself would sell to the ESOP anyway, he said, but he thought that other company owners should get a better deal if they did the same.

So Rosen drafted a bill allowing for deferral of capital gains taxes for company owners who sold a certain percentage of their stock to an ESOP. Long and his staff didn’t think the provision was important. Rosen’s boss, the liberal senator Gaylord Nelson, feared it was too socialistic. (Rosen reminded Sen. Nelson that Barry Goldwater, Russell Long, and Orrin Hatch, a conservative from Utah, all backed employee ownership.) But another committee member, Donald Stewart, a liberal senator from Alabama serving out the remains of a fill-in two-year term (he was not reelected), did introduce the bill and got Long, Nelson, and a bipartisan group of House and Senate members to go along with it. And though it didn’t pass right away, the provision survived; in 1984, almost as an afterthought, it was tossed into a late-night conference-committee agreement on a tax bill that contained a number of ESOP amendments, including eliminating the PAYSOP. In fact,

Long made the requirements even more lenient than Rosen had suggested. That provision—deferring taxes on the sale of private-company stock to an ESOP—has been a key incentive for the creation of thousands of such plans. So ESOPs spread, and the community of people interested in them grew in number and in influence.

Kelso himself continued to lead the charge. He gave more speeches, wrote more books, and coauthored more articles. He was admiringly profiled on television by Mike Wallace on 60 Minutes in 1975 and by Bill Moyers on World of Ideas in 1990. (The 60 Minutes profile included scornful comments from the noted economist Paul Samuelson, who thereby seemed to be ridiculing just about the best idea to come down the pike in a long time.) A trade organization, the ESOP Association, came into existence. Rosen left the government and, with Karen Young, created the National Center for Employee Ownership (NCEO) as a center for research, information, and advocacy.

To be sure, the spread of employee ownership provoked some opposition. Labor unions strongly disliked the idea at first, perhaps wondering whether workers who were also owners would really need a union. Some Reagan administration officials also wanted to get rid of ESOPs. Most people, of course, just ignored the whole thing—or if they knew about it, wrote it off as of marginal importance. It continued to grow, nevertheless. Over time, law firms, consulting firms, and business-valuation firms began to specialize in ESOP work. Banks learned how to do ESOP-related lending. Articles began to appear on companies that were owned by their workers; the companies themselves began mentioning their ownership in their ads. By 1990 well over ten thousand companies had ESOPs covering millions of employees, a constituency that Congress was loath to antagonize. To all appearances, employee ownership in this particular guise was here to stay.


Capitalism and the Catholic Social Tradition: Conversing with Father Robert Barron

On July 17, 2015, Keith Michael Estrada writes on Christian Democracy:

“Back to Europe. A third model was added to the two models of the 19th century: socialism. Socialism took two main paths — the democratic and the totalitarian one. Democratic socialism became a healthy counterbalance to radically liberal positions in both existing models. It enriched and corrected them. It proved itself even when religious confessions took over… In many ways, democratic socialism stands and stood close to the Catholic social teachings. It in any case contributed a substantial amount to the education of social conscience.”

—Joseph Cardinal Ratzinger

Father Robert Barron’s piece this week for the National Catholic Register, “A Prophetic Pope and the Tradition of Catholic Social Teaching, considers the many words offered by Pope Francis on the prevailing economic order, the destruction of life—moral and biological—and our duty to the poor.

Father Barron begins by acknowledging the concerns many supporters of capitalism are expressing since the general population started learning church teaching on these realities through the news media:

“…many supporters of the capitalist economy in the West might be forgiven for thinking that His Holiness has something against them. Again and again, Pope Francis excoriates an economy based on materialism and greed, and with prophetic urgency, he speaks out against a new colonialism that exploits the labor of those in poorer countries. With startling bluntness, he characterizes the dominant economic form in the developed world as ‘an economy that kills.’ Moreover, in a speech delivered in Bolivia, a country under the command of a socialist president, the Pope seemed, almost in a Marxist vein, to be calling on the poor to seize power from the wealthy and take command of their own lives. What do we make of this?”

Of course, we must accept and embrace the words of Pope Francis, and must, at the same time, as Father Barron submits, contextualize them so that they may be better “understood in the framework of Catholic social teaching.”

It is unfortunate that Father Barron accepts, without providing any analysis or critique, the idea that the Catholic social tradition rejects socialism absolutely while maintaining that what is needed is merely a refining of the capitalist system. In agreement with Robert Sirico and Michael Novak, Barron writes that Catholic Social Teaching, “clearly aligns itself against socialistic arrangements and clearly for the market economy.”

After highlighting the many advancements made, against the wishes of many capitalists, within our economic order—such as minimum wage, child labor laws, anti-trust provisions, worker unions—Barron touches on moral degradation vis-a-vis capitalism. “Won’t the drive for profit lead to the destruction of nature, unless people realize that the earth is a gift of a gracious God and meant to be enjoyed by all? This is precisely why the moral relativism and indifferentism that holds sway in many parts of the West,” and not necessarily capitalism itself, “—fostered by the breakdown of the family and the attenuating of religious practice—poses such a threat to the economy.” The existential threat to human life fails to make an appearance in Barron’s list of concerns related to capitalist social structures.

Barron reminds us in the end, “the Pope’s attention is not so much on the mechanisms of capitalism, but rather on the wickedness of those who are using the market economy in the wrong way, greedily making an idol of money and becoming indifferent to the needs of others.”

I have a few questions after reading Barron’s piece.

To begin, my initial qualms include what appears to be Barron’s ultimate siding with what he calls capitalism; the way he distinguishes the “mechanisms of capitalism” from the “wickedness of those who are using the market economy in the wrong way, greedily making an idol of money and becoming indifferent to the needs of others,” and his lack of substantial discussion on the topic of socialism and socialization. The first is embodied in the second and third qualm, so I will treat the second and third directly.

The mechanisms of capitalism aren’t the problem for Barron, Pope Francis, or Catholic Social Teaching, we are told, but rather, the abuse of the system by moral deficiencies and/or the decline of the institution of the family and “the attenuating of religious practice.”

The many structures found in human life are very difficult to distinguish entirely – there is a great deal of overlap. Barron appropriately stages the problem of capitalism for us in a way that may have made Robert Sirico (Acton Institute) and Michael Novak (Ave Maria University and American Enterprise Institute) smile.

It is common for supporters of capitalism to also be advocates of religious (hereafter including moral) and family life. Indeed, supporters of capitalism often invoke arguments related to religious and family life in their defense of their beloved economic system. I have not come across a consistent treatment of capitalism, religion, and family, grounded in the Catholic social tradition that concludes with a positive embrace of all three.

Barron agrees that capitalism can be used for unjust ends. What is not considered by Barron is whether injustice, greed, and indifference—including the “-isms” of materialism, irreligiousism, individualism, and relativism—generate and establish the structures of capitalism, while this economic system, at the same time, prefers and reinforces in society these very vicious “-isms” which function as capitalism’s life support.

Sirico and Novak (mentioned above) could be read as answering the question in the negative without providing any demonstration to support such a conclusion. This is particularly suspicious when the heritage of their economic thought rightfully disagrees with them.

Two pro-capitalist thinkers come to mind, Ludwig von Mises and Friedrich August (F. A.) von Hayek.

Mises and Hayek, in very plain words, show that Barron’s missed question above should be answered in the affirmative. What is more devastating is that capitalism being generated and established by injustice, greed, indifference—including the “-isms” of materialism, irreligiousism, individualism, and relativism—while at the same time preferring and reinforcing in society these very vicious “-isms”, is seen by Mises and Hayek to be a good thing. We can easily find support for this reading of Mises and Hayek by turning to their works, The Anti-capitalistic Mentality (1956) and The Fatal Conceit: The Errors of Socialism (1988), respectively authored.

Mises and Hayek do a fine job of tying success with relativism, concern for others with defeat. Community life and solidarity are for the materially and technologically retarded, while advanced societies (if we can use the term inappropriately here) give free reign (with implied support, at a minimum, for social Darwinism) to the acceleration of the growth of capital.

It is quite fascinating to consider that the approval of success based on worldly measure, consumerism, and consumer relativism, along with the rejection of simplicity, asceticism, spiritual pursuits, and solidarity appears to contradict the Gospel of Jesus Christ detailed in the social praxis and doctrine of the Catholic Church.

Somehow, Sirico and Novak, and Barron along with them, believe that they are able to consistently support capitalism, family, and religious life at the same time. It would seem that capitalism cannot support family or religious life if we are to understand family and religious (or moral) life in a way compatible with the Catholic faith and natural law.

Family life has been hurt by U.S. capitalism, here and abroad. One need only look towards the many ills people find as caused—in whole or in part—by the current situation begotten by the prevailing economic order: abortion, contraception use, preference-tailored laboratory babies, sterilization, divorce and a reluctance to get married, emigrating (which often pulls families apart), children without parents for most of the day due to the need for multiple incomes, and so much more.

I started the last paragraph by pointing at U.S. capitalism’s effect, here and abroad. It is important to see that capitalism in the U.S. cannot be isolated from other parts of the world in form or in effect. The latter is obvious. The former needs a clarification. Our economic system is not closed. It is not a national market. Since before the colonists rose up against the King, this land had been subject to international economics. To this day, our capitalism depends on, molds, and either elevates or destroys other capitalisms in the world. As if the aforementioned violence against life and family in the U.S. wasn’t enough, people in Latin America, for example, also suffer these injustices alongside incredible poverty, violence, and abuse.

Some may suggest that Francis not only has little issue with U.S. capitalism, but is staunchly against the “cronyism” masquerading as capitalism in the continent he calls home. This capitalism in Latin America exists, in large part, because of then-European economic models and now, primarily, U.S. models. This parallels Michael Novak’s discussion in his sixteenth chapter of The Spirit of Democratic Capitalism (1982). Novak rejects the notion that the poor of the south are suffering at the hand of a powerful north. Instead, Novak says, Latin American Catholic bishops’ condemnation of capitalism, and the life given to it by the United States and other centers of economic power, should, instead, be directed inwards.

“‘We are the victims,’ the bishops say. They accept no responsibility for three centuries of hostility to trade, commerce, and industry… After having opposed modern economics for centuries, they claim to be aggrieved because others, once equally poor, have succeeded as they have not… Before pronouncing moral condemnation, do they understand the laws which affect international currencies? Do they wish to enjoy the wealth of other systems without having first learned how wealth may be produced and without changing their economic teachings? The Peruvian aristocracy and military were for three centuries under their tutelage. Did the Peruvian bishops for three centuries teach them that the vocation of the layman lay in producing wealth, economic self-reliance, industry, and commerce, and in being creative stewards thereof?”

This, and even some teachings on economics by U.S. bishops, is nothing but an “intellectual failure”, Novak writes. Unfortunately, for Novak, we’re left intellectually incomplete by the missing treatment of the history of Latin America.

The English translation of Enrique Dussel’s A History of the Church in Latin America was published the year before Novak published the text we cited, and ten years before the release of the 1991 edition. Perhaps if Novak would have considered the history of the continent in question prior to casually dismissing the cry of the poor, and pitting the blame on their shepherds’ intellectual failures, his conclusions may have been a tad bit different.

While focusing on the history of the church in Latin America, because the social realities of human life overlap, Dussel also manages to outline the transformation of economic life in the new world. It is remarkable how easy it is to discover that the economic and physical violence attached to capital, and its pursuit of self-growth at the expense of others has been a reality in Latin America since the sixteenth century. It is evident that corruption, domination, death, and commodification have been a part of Latin American capitalism before the U.S. system appeared on stage. Wealth and power, which were often hard to distinguish, maintained their position, and were always more socially immobile than mobile, through the centuries. This along with the patronato system enforced a peace wherein the messengers of the gospel of God’s liberating love for the poor were extinguished by death or exile. It is hard to wonder why the Latin American church has had such “hostility to trade, commerce, and industry”, as Novak writes, when trade, commerce, and industry has perpetually resulted in the death of Latin American peoples.

Secularization and the revolutions did very little to help the poor of Latin America. The system of exploitation, while no longer able to feed off of Spain, offered the blood of natives to an eager, new nation, the United States. From revolutions to military coups, the U.S. system has respected the established tradition of accelerating the growth of capital for mostly private gain, utilizing military force through supported dictators in the region, with a cost of countless miserable lives.

I digress.

Robert Barron does very little to support the distinction between capitalism, different manifestations of capitalism, and the misuse of capitalism by people. He also fails to give us reason to believe that a market economy and capitalism are the same thing, as he uses capitalism and market economy interchangeably in his article—an art form found in the work of Novak and Sirico, which often leads readers to believe that capitalism is the winner.

The conclusion that the Church supports capitalism does not seem to be grounded. John Paul II goes so far as to suggest a distinction between capital and the means of production in Laborem Exercens. It does not seem to be the case that capitalism is the final option for the Christian.

Inefficiency and the rejection of the right to private property are two main targets in Barron’s gentle rejection of socialism. I am not sure what socialism Barron is referring to.

To begin, the Church does not hold property rights as absolute. Secondly, even Marx and Engels qualified their rejection of private property. We read in the Manifesto of the Communist Party:

“The distinguishing feature of Communism is not the abolition of property generally, but the abolition of bourgeois property. But modern bourgeois private property is the final and most complete expression of the system of producing and appropriating products, that is based on class antagonisms, on the exploitation of the many by the few. In this sense, the theory of the Communists may be summed up in the single sentence: Abolition of private property. We Communists have been reproached with the desire of abolishing the right of personally acquiring property as the fruit of a man’s own labour, which property is alleged to be the groundwork of all personal freedom, activity and independence. Hard-won, self-acquired, self-earned property! Do you mean the property of petty artisan and of the small peasant, a form of property that preceded the bourgeois form? There is no need to abolish that; the development of industry has to a great extent already destroyed it, and is still destroying it daily. Or do you mean the modern bourgeois private property? But does wage-labour create any property for the labourer? Not a bit. It creates capital, i.e., that kind of property which exploits wage-labour, and which cannot increase except upon condition of begetting a new supply of wage-labour for fresh exploitation. Property, in its present form, is based on the antagonism of capital and wage labour. Let us examine both sides of this antagonism. To be a capitalist, is to have not only a purely personal, but a social status in production. Capital is a collective product, and only by the united action of many members, nay, in the last resort, only by the united action of all members of society, can it be set in motion. Capital is therefore not only personal; it is a social power. When, therefore, capital is converted into common property, into the property of all members of society, personal property is not thereby transformed into social property. It is only the social character of the property that is changed. It loses its class character.”

See the difference?

The socialization of some means of production, given that such socialization maintains its subjective character, is not rejected by the social magisterium—indeed, at times it is suggested. (See Laborem exercens).

Also, the Magisterium has also distinguished between democratic socialism and real socialism (see Centisimus annus, by John Paul II, or Without Roots by Joseph Cardinal Ratzinger). Father Barron does not. (It’s also difficult to find the distinction in Hayek and Mises.) While real socialism is rejected by the Church, certain forms of democratic socialism, that is, socialization of certain means of production with the appropriate respect for the subjective characters of the members of society, are not. (You can see my piece on Laudato si’ for more.)

Lastly, socialism, and we correct Barron’s use of socialism by referring to “real socialism”, is accused of inefficiency. Let it suffice to say that the great capitalism that continues to dominate the world has been wholly inefficient at promoting family life, protecting human and organic life, and supporting economic participation at all levels.

Capitalists should be nervous.

Comment By Norman G. Kurland, J.D., President
Center for Economic and Social Justice (CESJ):

Words count.  I think it’s a mistake to use either the term “Capitalism” or “Socialism” and think that by adding the word “democratic” or “social” to either of these terms people across the current ideological spectrum will become united.  That’s why we invented the “Just Third Way” as our name for the new paradigm and the essence of the Platform of the “Unite America Party” as a party with an ultimate political agenda to end all existing political parties based on simple and universal principles of economic and social justice. Our Platform would offer every living person equal opportunity and specific social means to become economically independent, a political approach that would have been supported by most of America’s Founders.

None of the existing parties offer a world view so committed to Justice, charity and maximum development of the creative potential of every person.  We start with fresh semantics. Our approach will not create a perfect world. But why carry the divisive baggage of the past?  Why slow down the process of mobilizing the threshold of peaceful “people power” needed to win the “war of ideas” over the tiny morally insensitive elite controlling today’s world?

Comment By Michael D. Greaney, Research Director, Center for Economic and Social Justice (CESJ):

All this says is that some kinds of socialism are not as bad as others, and that good can be found in all things.  This is fully consistent with the condemnation of socialism in Quadragesimo Anno:

117. But what if Socialism has really been so tempered and modified as to the class struggle and private ownership that there is in it no longer anything to be censured on these points? Has it thereby renounced its contradictory nature to the Christian religion? This is the question that holds many minds in suspense. And numerous are the Catholics who, although they clearly understand that Christian principles can never be abandoned or diminished seem to turn their eyes to the Holy See and earnestly beseech Us to decide whether this form of Socialism has so far recovered from false doctrines that it can be accepted without the sacrifice of any Christian principle and in a certain sense be baptized. That We, in keeping with Our fatherly solicitude, may answer their petitions, We make this pronouncement: Whether considered as a doctrine, or an historical fact, or a movement, Socialism, if it remains truly Socialism, even after it has yielded to truth and justice on the points which we have mentioned, cannot be reconciled with the teachings of the Catholic Church because its concept of society itself is utterly foreign to Christian truth.

120. If Socialism, like all errors, contains some truth (which, moreover, the Supreme Pontiffs have never denied), it is based nevertheless on a theory of human society peculiar to itself and irreconcilable with true Christianity. Religious socialism, Christian socialism, are contradictory terms; no one can be at the same time a good Catholic and a true socialist.

To twist the words of then-Cardinal Ratzinger into an endorsement of socialism is to misread the teachings of the Catholic Church in the most egregious manner.