No, Seattle’s $15 Minimum Wage Is Not Hurting Workers

On June 30, 2017, Michelle Chen writes in The Nation:Minimum wage

A sign that reads “15 Good Work Seattle” is displayed below Seattle City Hall and the Columbia Center after the Seattle City Council passed a $15 minimum wage, June 2, 2014. (AP Photo / Ted S. Warren)

What happens when wages go up? Workers make more money. It seems intuitive, but now we have proof of concept. It’s happening in one of the first major cities to delve into the $15 wage experiment.

 In April of 2015, Seattle implemented a new law that raised the city’s hourly base wage, with the ultimate target of reaching $15 per hour by 2021. The slow phase-in, which has increased the minimum wage each year at different levels depending on various factors like the size of the company paying a given worker, would eventually be indexed to inflation. In 2017, the increases finally began reaching the full $15 base wage, and now the nationwide “Fight for 15” campaign is finally bearing fruit in the industry where the mobilizations began: restaurants.

The study, by University of California-Berkeley’s Institute for Research on Labor and Employment (IRLE), tracks the policy’s initial implementation phases, starting with firms with 500 or more employees without insurance. Other researchers found that, at least for restaurant workers, bosses are complying with the law, and workers benefit. Much of the improvement accrues to so-called “limited service” restaurants (such as fast-food franchises), where some of the poorest workers, in the most precarious positions, are concentrated.

According to economist Sylvia Allegretto, coauthor of the study, the analysis shows that under the $15 minimum wage “we do see, especially in the limited service sector…a large and statistically significant increase in wages.” They concluded that “the policy is working as much as you want the policy to increase the wages of low-wage workers.”

The researchers also stress that food-service workers are generally reflective of other local low-wage workers, like retail workers, indicating that similar industries would also see gains as the $15 hourly wage is phased in.

There are, of course, naysayers. A recent University of Washington studyargued that Seattle’s wage hike would actually hurt workers overall because an hourly increase would be offset by a reduction of workers’ hours and decreased employment. But IRLE researchers and others challenged that study as excessively limited in scope, based on an unrepresentative sample of workers. The Berkeley researchers contend that their analysis focuses on material impacts in a more representative sector.

The IRLE analysis does not present a comprehensive picture of the law’s long-term effects on issues like employment or job quality. But previous studies suggest raising wage standards generally improves workers’ well-being, does not significantly undermine jobs, and might even make workers more productive and improve worker retention. Struggling low-wage workers are “always trying to look for better opportunities,” Allegretto notes, and there’s strong evidence that by lifting base wages, “businesses will have a little bit less turnover.”

Nationwide, eight other cities and eight states, including California and New York, are implementing minimum-wage increases in the $12-to-$15 range, eventually impacting several million workers. Boosted by election-season grassroots campaigns, a bill for a national $15 minimum wage was recently introduced by Bernie Sanders and other progressive senators, reflecting the energetic mobilizations of Fight for $15 campaign groups over the past several years.

An earlier IRLE analysis projected that in California a $15 base wage would increase earnings for “5.26 million workers, or 38.0 percent” of the statewide workforce. The vast majority of these workers would be over age 20, and nearly half would have some college education. The beneficiaries would be primarily Latino workers, disproportionately working only part-time jobs, and who would be less likely to currently have workplace health benefits. In the long-term, the additional wages would strengthen workers’ families as well, through increases in parents’ and children’s health and school achievement.

The Seattle study suggests that as $15-an-hour wages roll out, concrete gains will go toward workers in at least one major service sector. And, despite what conservatives argue, the raise would likely take only a tiny bite out of your restaurant bill.

“The price of your hamburger isn’t completely deterministic by minimum-wage workers and what they make,” Allegretto says. “It has to do with rent, it has to do with how much the food actually costs, it has to do with transport.” So any price increases would ultimately be much less than the added benefit to wages. And why not ask consumers to pay a few pennies more on the dollar if “that helps them cover the cost of the increase in the minimum wage without having to lay off workers”?

The findings may seem obvious, but minimum-wage rates on both the state and federal levels have sunk to irrational levels since the government first instituted the concept of a “minimum wage” during the Depression, seeking to reverse the downward spiral of poverty and mass unemployment as employers ruthlessly exploited a surplus of desperate job seekers.

Since then, state and federal minimum wages have regressed absurdly. The current federal minimum, arbitrarily set at the starvation rate of $7.25 an hour, is basically unsustainable for a worker’s family anywhere in the country. Had the floor simply risen with inflation over the past 50 years, it would be worth about $19 an hour today. In other words, even $15 amounts to a depressed base wage compared to the more realistic, inflation-adjusted national standard.

 In Seattle’s King County, with its extreme income inequality, a single parent of two would need to make about $34.50 an hour to cover basic needs. Daycare costs alone can consume $1,600 a month of a typical restaurant worker’s income. Other complexities of Seattle’s economy make it even harder to get by; the prevalence of part-time jobs without benefits, low union representation, and classification of short-term workers as “contractors” so they don’t qualify as wage-earning employees.

 One unprecedented regression in Seattle’s law aims blatantly to placate businesses: The law introduces a tipped-wage credit for full-service restaurants, Though the offset is smaller in Seattle than the federal standard, as well as that of many others states, the new $1-to-$2 credit benefits employers by telling them to pass additional labor costs to customers, so diners subsidize low wages, whether those diners end up being cheap or generous in their tips. The findings suggest that the workers in food-service jobs with a regular hourly wage would see a larger economic benefit than bartenders and waitstaff typically would.

Despite the Seattle law’s breaks for business and slow phase-in (the real value of the $15 wage itself will have eroded by 2021), IRLE’s research helps further bolster the case for the reasonableness of $15 an hour with concrete evidence that restaurant workers do okay at $15 an hour. And a look around Seattle shows that its restaurants seem to be chugging along.

No, Seattle’s $15 Minimum Wage Is Not Hurting Workers

Gary Reber Comments:

This is yet another article now submitted in the debate squabble for and opposed a $15.00 minimum wage.

This is fundamentally a wage cost increase without increasing productivity on the part of humans.

For centuries technological change has make tools, machines, structures, and processes ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power — and relatively constant). The technology industry is always changing, evolving and innovating. And as businesses are faced with increased costs they are in constant search for solutions to lower their operational costs, which translates to employing the non-human means of production. The result is that primary distribution through the free market economy, whose distributive principle is “to each according to his production,” delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor.

Furthermore, if businesses cannot off set increased costs outside of their control, the result is they raises prices, which results in inflation.

The study says so what, what a few cents or dollars more?

 “The price of your hamburger isn’t completely deterministic by minimum-wage workers and what they make,” Allegretto says. “It has to do with rent, it has to do with how much the food actually costs, it has to do with transport.” So any price increases would ultimately be much less than the added benefit to wages. And why not ask consumers to pay a few pennies more on the dollar if “that helps them cover the cost of the increase in the minimum wage without having to lay off workers”?

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

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

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

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

Researchers should start with this proposal and study its impact.

See my article “What Is Needed To Resolve The Destruction Of American Jobs Problem?” published by The Huffington Post at http://www.huffingtonpost.com/entry/593adb89e4b0b65670e569e9.

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

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

Robots Stealing Human Jobs Isn’t The Problem. This Is.

On June 29, 2017, Alia E. Dastagir writs on USA Today:

A 15-hour work week. That’s what influential economist John Maynard Keynes prophesied in his famous 1930 essay “Economic Possibilities for Our Grandchildren,” forecasting that in the next century technology would make us so productive we wouldn’t know what to do with all our free time.

This is not the future Keynes imagined.

Many higher income workers put in 50 or more hours per week, according to an NPR/Harvard/Robert Wood Johnson Foundation poll. Meanwhile, lower-income workers are fighting to get enough hours to pay the bills, as shown in a University of Washington report on Seattle’s $15 minimum wage publicized this week.

Yet some of today’s best minds are making Keynes-like predictions. This month, Apple co-founder Steve Wozniak said robots will one day replace us — but we needn’t worry for a few hundred years.

In May, Facebook CEO Mark Zuckerberg told Harvard’s 2017 class that increased automation would strip us not only of our jobs but also of our sense of purpose.

The problem: Skills gap

Automation. Artificial intelligence. Machine learning. Many experts disagree on what these new technologies will mean for the workforce, the economy and our quality of life. But where they do agree is that technology will change (or completely take over) tasks that humans do now. The most pressing question, many economists and labor historians say, is whether people will have the skills to perform the jobs that are left.

“We are moving into an era of extensive automation and a period in which capitalism is just simply not going to need as many workers,” said Jennifer Klein, a Yale University professor who focuses on labor history. “It’s not just automating in manufacturing but anything with a service counter: grocery stores, movie theaters, car rentals … and this is now going to move into food service, too.

“What are we going to do in an era that doesn’t need as many people? It’s not a social question we’ve seriously addressed.”

Instead of worrying about the mass unemployment a robot Armageddon could bring, we should instead shift our attention to making sure workers — particularly low-wage workers — have the skills they need to compete in an automated era, says James Bessen, an economist, Boston University law lecturer, and author of the book Learning by Doing: The Real Connection Between Innovation, Wages, and Wealth.

“The problem is people are losing jobs and we’re not doing a good job of getting them the skills and knowledge they need to work for the new jobs,” Bessen said.

Addressing this skills gap will require a paradigm shift both in the way we approach job training and in the way we approach education, he said.

“Technology is very disruptive. It is destroying jobs. And while it is creating others, because we don’t have an easy way to transition people from one occupation to another, we’re going to face increased social disruption,” he said.

In this new age, Bessen said, we can’t treat learning as finite.

“We need to move to a world where there is lifelong learning,” he said. “You have to get rid of this idea that we go to school once when we’re young and that covers us for our career. … Schools need to teach people how to learn, how to teach themselves if necessary.”

Universal basic income

A universal basic income (UBI) has been proposed as one possible solution to the loss of jobs caused by automation. A UBI would give everyone a fixed amount of money, regularly, no matter what. Proponents say not only would it help eradicate poverty, but it would be especially useful for people whose jobs are eliminated by automation, giving them the flexibility to learn new skills required in a new job or industry, without having to worry about how they’d eat or pay rent.

Some also suggest it would breed innovation. In his Harvard speech, Zuckerberg told the audience: “We should have a society that measures progress not just by economic metrics like GDP, but by how many of us have a role we find meaningful. We should explore ideas like universal basic income to give everyone a cushion to try new things.”

Several countries are exploring or experimenting with a UBI, including Kenya, Finland, the Netherlands and Canada.

Concerns about automation aren’t new

Americans have been worrying about automation wiping out jobs for centuries, and in some occupations, automation has drastically reduced the need for human labor.

  • In 1900, 41% of American workers were employed in agriculture, but by 2000, automated machinery brought that number down to just 2%, MIT professor David Autor wrote in the Journal of Economic Perspectives in 2015.
  • The arrival of the automobile ushered out horses, reducing the need for blacksmiths and stable hands.
  • In the 21st century, computers are increasingly performing tasks humans once did.

But the relationship between automation and employment is complex. When automation replaces human labor, it can also reduce cost and improve quality, which, in turn, increases demand.

Marlin Steel in Baltimore was able to stay in business by automating its processes to stay competitive when many other manufacturing jobs went overseas. Video by Jasper Colt, USA TODAY

Such was the case in textiles. In the early 19th century, 98% of the work of a weaver became automated, but the number of textile workers actually grew.

“At the beginning of the 19th century, it was so expensive that … a typical person had one set of clothing,” Bessen said. “As the price started dropping because of automation, people started buying more and more, so that by the 1920s the average person was consuming 10 times as much cloth per capita per year.”

More demand for cloth meant a greater need for textile workers. But that demand, eventually, was satisfied.

When ATMs were introduced in the 1970s, people thought they would be a death knell for bank tellers. The number of tellers per bank did fall, but because ATMs reduced the cost of operating a bank branch, more branches opened, which in turn hired more tellers. U.S. bank teller employment rose by 50,000 between 1980 and 2010. But the tasks of those tellers evolved from simply dispensing cash to selling other things the banks provided, like credit cards and loans. And the skills those tellers had that the ATMs didn’t — like problem solving — became more valuable.

When computers take over some human tasks within an occupation, Bessen’s research shows those occupations grow faster, not slower.

“AI is coming in and it’s going to make accountants that much better, it’s going to make financial advisers that much better, it’s going to make health care providers that much more effective, so we’re going to be using more of their services at least for the next 10 or 20 years,” Bessen said.

These examples, though, are of occupations where automation replaces some part of human labor. What about when automation completely replaces the humans in an entire occupation? So far, that’s been pretty rare. In a 2016 paper, Bessen looked at 271 detailed occupations used in the 1950 Census and found that while many occupations no longer exist, in only one case was the demise of an occupation attributed mostly to automation: the elevator operator.

2017 report from the McKinsey Global Institute found that less than 5% of occupations can be completely automated.

What’s in store

History has taught us a lot about how automation disrupts industries, though economists admit they can’t account for the infinite ways technology may unsettle work in the future.

When a new era of automation does usher in major economic and social disruption — which Bessen doesn’t predict will happen for at least another 30 to 50 years — it’s humans that will ultimately decide the ways in which robots get to change the world.

“It’s not a threat as much as an opportunity,” he said. “It’s how we take advantage of it as individuals and a society that will determine the outcome.”

https://www.usatoday.com/story/money/2017/06/29/ai-stealing-human-jobs-isnt-problem-is/412217001/

Gary Reber Comments:

This article misses the solution that is starring them in the face. Citizens need to OWN the technology!

When Abraham Lincoln enacted the 1862 Homestead Act, his efforts to broaden ownership could go only so far as  land is limited, and by 1893 Frederick Jackson Turner could, with a great deal of justification, declare the closing of the land frontier.  What is needed today is the opening of the effectively unlimited industrial and commercial technological frontier with a “Capital Homestead Act.” — an initiative in which the billionaires could lead the way.

I written about the solution extensively and my response here will refer readers to my article “What Is Needed To Resolve The Destruction Of American Jobs Problem?” published by The Huffington Post at http://www.huffingtonpost.com/entry/593adb89e4b0b65670e569e9 and “Education Is Critical To Our Future Societal Development” at http://www.foreconomicjustice.org/?p=9058.

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

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

What Should We Make Of The UW Minimum Wage Study?

Ed murray minimum wage r6mdxs

 

On June 27, 2017, Hayat Norimine writes on the  Seattle Met:

Rarely does a study put University of Washington researchers at odds with the city, but that’s what happened today with new analysis released on the city’s minimum wage. Seattle officials have in the past looked to the top-rated university’s experts as a resource to develop policy—UW Law (Hugh Spitzer) for the city’s income tax, UW School of Public Health (Jim Krieger) for the soda tax, UW Aquatic and Fishery Sciences (Jeff Cordell) for the seawall’s salmon habitat. This time, though, a University of California Berkeley professor briefed the city on the effects of the minimum wage the same morning a group of UW researchers came out with their study on the same topic.

On Monday mayor Ed Murray-championed minimum wage bill took a hit when UW researchers released conclusions that the legislation led to fewer hours worked (a 9 percent cut) and a total loss in wages ($125 a month). Berkeley professor Michael Reich pointed out that UW’s results are three times more than what minimum wage critic David Neumark estimated. Robert Feldstein, director of the mayor’s Office of Policy and Innovation, on Monday sent a letter to Jacob Vigdor—a professor from UW’s Daniel J. Evans School of Public Policy—echoing criticisms from Reich. Before the UW study came out, the mayor’s office asked him for comments, according to a letter from Reichdated Monday.

“Although we appreciate the time and effort invested by your team, professor Reich’s concerns lead us to believe that your report may not, in fact, tell the full story of the effects of Seattle’s minimum-wage policy,” Feldstein wrote to Vigdor. “We would hope that future work will address these substantive and methodological concerns, and that your team will be open to looking at how to examine more precisely the characteristics of Seattle’s labor market.”

The study had very different results to previous minimum wage reports that have been published—including a Berkeley study published just last week–and Reich at a city council briefing Monday said UW’s findings “are not credible. They have a lot more work to do.”

But, as Vigdor pointed out, both UW and Berkeley studies reported the same results among restaurant jobs. The minimum wage didn’t hurt those jobs. UW’s report included employees’ number of hours worked and included seven faculty members, as well as some graduate students.

“If you do an apples-to-apples comparison, there’s absolutely no contrast between our reports,” Vigdor told PubliCola. “The catch is that restaurant employment is not the same thing as low-wage employment. It’s when we look specifically at low-wage employment that we’re picking up very different results.” Vigdor said a lot of restaurant jobs, especially in Seattle, cater toward affluent Seattleites and hire employees who have a fair amount of experience in the service industry. That means higher wages.

Criticism: The UW report excluded multi-site businesses. 

Explanation: UW researchers used data from the Employment Security Department, to which employers send their data every three months. Let’s say business owners have two locations, one in Seattle and one in Bellevue. Owners then have two options when they’re reporting their numbers—they can either add to an existing ESD account or open up a second account to keep their locations separate. With a multi-site business, you can’t tell which employees are based in Seattle and which are based in Bellevue, Vigdor said. Employees outside of the city wouldn’t be affected by Seattle’s minimum wage bill.

So yes, it’s possible some of those jobs “lost” actually just got transferred outside the city. But Vigdor said a survey showed those businesses—which tend to be larger corporations with more employees—are also more likely to report reducing employment as a consequence of minimum wage.

Criticism: The UW report compared Seattle to other parts of the state, as opposed to similar cities across the country. 

Explanation: Data varies quite a bit depending on the state. For example, it would be tough to compare Seattle to San Francisco because there’s a completely different state agency that collects employment data in California. The quality of data collected by Washington state’s Employment Security Department is way better—it includes the number of hours worked.

Criticism: The UW report went too low by capping low-wage jobs to $19 an hour. 

Reich said over the same period, jobs at all pay levels increased at single-site businesses.

Explanation: Vigdor said the researchers put a lot of thought into where to draw the line between low-wage and high-wage jobs. They repeated their analysis 13 different ways, he said, experimenting with wages anywhere between $13 to $25 an hour. “The results don’t change.”

Criticism: The UW report didn’t adequately account for Seattle’s economic boom and how that factors into the results. 

This is the toughest factor to consider. With an economic boom, employers replace low-wage jobs with higher-wage jobs to compete with other employers in the area—so maybe jobs aren’t disappearing, just paying better. Reich pointed out that it’s difficult to separate out the boom’s effects, especially in the UW report. The control cities UW used (other cities in the state) aren’t booming like Seattle, and may not be adequate controls at all.

Explanation: “You have to ask yourself, ‘Was Seattle in the economic doldrums until January 2016, when it suddenly grew explosively?’ That’s the only kind of boom that could explain away our results,” Vigdor said, which showed those employment impacts appear beginning of 2016. That’s exactly when the $13 minimum wage began. “Anybody living in Seattle back in 2015 will probably recall that it was booming pretty well back then too.”

It’s fair to say UW did its due diligence—and though some may still dispute the researchers’ claims, it certainly wasn’t out of any sort of negligence.

The big takeaway? Vigdor said it’s too early for that. The UW study isn’t perfect, and Vigdor said they’re not claiming any sort of conclusion. The message is not, “Seattle’s minimum wage is terrible for poor workers.” (Though some headlines offer some derivative of that.) There’s still a lot of work to do and a lot of unanswered questions. Researchers have 30 other papers in the works on the minimum wage, Vigdor told PubliCola, and they’re not expected to finish that research until 2025.

“We get this question asked repeatedly,” Vigdor said. “What should Seattle do about this? What should another city that’s contemplating another minimum wage think about this study? There’s still more that we need to know before you make any kind of judgment call like that.”

For one thing, the UW study doesn’t elaborate which low-wage employees are being hurt the most. Is it teenagers who still live with their parents, or, say, single mothers who work well over 40 hours a week and barely cover their rent? Which workers are being impacted, and how? The data researchers received from the Employment Security Department include names, social security numbers, and information about the hours they work and their wages, but they know nothing about the people beyond that.

The next step, Vigdor said, is to bring data in from the Department of Social and Health Services—to keep track of who’s eligible for benefits like SNAP, Medicaid, and housing assistance—and Department of Licensing to get birthdates. Because of the sensitivity of that private information, Vigdor said, taking appropriate cautions to protect people’s identity and finalizing a contract with DSHS will take another few months.

https://www.seattlemet.com/articles/2017/6/26/what-should-we-make-of-the-uw-minimum-wage-study

Gary Reber Comments:

I have written extensively on this subject. Below is a bit of history provide by my colleague Michael D. Greaney at the Center for Economic and Social Justice:

“In 1914, Henry Ford more than doubled the base wage at the Ford Motor Company from $2.34 per day, to $5.00 per day for certain classes of machinists and widows with children. He was soon forced to raise it across the board for every Ford worker or face a strike.

“Other automakers had to raise their base wages in order to keep trained workers. Riots ensued in the middle of a Michigan winter — which destroyed a number of small businesses and were broken up with fire hoses — when vast numbers of unemployed workers descended on Detroit to apply for jobs at Ford.

“Ford’s unilateral increase in wages without any corresponding increase in productivity is credited with being the “official” start of the modern wage-price inflationary spiral (“cost-push inflation”). Combined with Keynesian monetary theory intended to stimulate demand by issuing massive amounts of government debt (“demand-pull inflation”), the U.S. economy was eventually ground between the upper and nether millstones of increasing the costs of production with no increase in production, and creating demand without producing anything at all. Jobs either disappeared as workers were replaced with more productive (and thus lower relative cost) technology, or went to lower wage areas where workers would produce the same goods at less cost.

“The lesson here is that increase the cost of anything without a corresponding increased benefit, and you decrease demand for it. How much you can increase the cost or price of something varies according to the “elasticity of demand” for a particular good or service, but regardless how inelastic or elastic demand might be, if the price keeps going up, eventually everyone will be priced out of the market.

At least Ford were playing with his own money. “Three years ago the city of Seattle, Washington, decided to play with other people’s money, and mandated the gradual implementation of a $15.00 per hour minimum wage. When the increases started, studies showed no change in employment, although the data sometimes appeared a little questionable.

“What did change was the cost of living. Rents started increasing, forcing people on fixed incomes to find lower cost housing in the city, or move. While not factored in to employment statistics (most people on fixed incomes are retired), there was a spate of angry articles about greedy landlords and price-gouging grocers, etc., as if such increases were unheard of in the wake of across the board pay increases . . . as happens inside the Washington, DC Beltway every time the government gives an across the board increase.

“The latest study, though, shows something unexpected by virtually everyone, ourselves included. There have been some layoffs and cutbacks in hours. This is usual, as would happen, e.g., if the definition of “full time worker” (with a corresponding increase in benefits) was defined in some areas as working 40 hours a week. A large number of workers would find themselves scheduled for 39½ hours per week.

“No, the unusual thing was that low-income workers started losing jobs to higher-income workers. Better-trained and experienced workers making $19.00 and $20.00 per hour can produce more goods and services in the same time than untrained and inexperienced workers paid less money, decreasing the relative cost of production.

“As a result, the average income of higher-income workers increased, while that of the average low-income worker (the one the increased minimum wage is supposed to be helping) decreased by $125.00 per month . . . just as costs are increasing in anticipation of their increased income. In effect, low-income workers are experiencing on the micro level what the U.S. economy has been experiencing on the macro level: rising costs, falling production.

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

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

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

As for the question that is asked repeatedly, University of Washington’s Jacob Vigdor said. “What should Seattle do about this? What should another city that’s contemplating another minimum wage think about this study? There’s still more that we need to know before you make any kind of judgment call like that.”

The logical answers are to think outside the one-factor LABOR/WAGE box and begin to think how to make EVERY citizen productive through OWNING interests in the corporations growing the economy. To acquire OWNERSHIP financial mechanism are needed to provide interest-free capital credit without the requirement of “past savings” and repayable out of the future earnings of the investments in our economy’s growth and quality living standards. How to solve the “past savings” security collateral problem to make good on the relatively few bad loans that are inevitable, is to insure banks against such risks using commercial capital credit insurance and reinsurance (ala the Federal Housing Administration concept).

Researchers should start with this proposal and study its impact.

See my article “What Is Needed To Resolve The Destruction Of American Jobs Problem?” published by The Huffington Post at http://www.huffingtonpost.com/entry/593adb89e4b0b65670e569e9.

Billionaire Warren Buffett Says ‘The Real Problem’ With The US Economy Is People Like Him

On June 27, 2017, Catherine Clifford writs on CNBC Make It:

Warren Buffett says people like him are the problem with the U.S. economy.

With a net worth of more than $75 billionBuffett is currently the second richest man alive, according to Forbes. As the CEO of investing house Berkshire Hathaway, he is hallowed as the Oracle of Omaha. But for all his personal success, Buffett says the issue really is the 1 percent.

“The real problem, in my view, is — this has been — the prosperity has been unbelievable for the extremely rich people,” says Buffett on PBS Newshour.

“If you go to 1982, when Forbes put on their first 400 list, those people had [a total of] $93 billion. They now have $2.4 trillion, [a multiple of] 25 for one,” he says. “This has been a prosperity that’s been disproportionately rewarding to the people on top.”

“THE REAL PROBLEM, IN MY VIEW, IS … THE PROSPERITY HAS BEEN UNBELIEVABLE FOR THE EXTREMELY RICH PEOPLE.”-Warren Buffett, CEO of Berkshire Hathaway

The stock market has been trending upwards since the crash in March 2009 and the U.S. economy is growing at roughly 2 percent, says Buffett on Newshour. That growth rate (while a third less than the 3 percent rate President Donald Trump has been touting) is a healthy number for the economy and will improve the quality of life of many Americans.

It will add “$19,000 of GDP per person, family of four, $76,000 in one generation,” says Buffett. “So, your children and your children’s children and all that, they will live far, far, far better than we live with 2 percent growth.”

And yet, many individuals are stuck. “The economy is doing well, but all Americans aren’t doing well,” says Buffett.

Part of the reason some are struggling, says the octogenarian investor, is that the automation and digitization of the U.S. labor force is happening faster than employees can be retrained.

“We always see shifts in employment. If you think about it, if you go back to 1800, it took 80 percent of the labor force to produce enough food for the country. Now it takes less than 3 percent. Well, the truth is that market systems move people around,” says Buffett.

“There’s always a mismatch. I mean, you know, as the economy evolves, it reallocates resources.”

As employees fall out of the labor force because their skills are no longer utilized, Buffett says it ought to be the responsibility of society to take care of them as they are retrained to re-enter the workforce.

The evolving economy “doesn’t benefit the steelworker maybe in Ohio,” says Buffett on Newshour. “And that’s the problem that has to be addressed, because when you have something that’s good for society, but terribly harmful for given individuals, we have got to make sure those individuals are taken care of.”

Buffett made his extreme wealth by investing in the stock market, an interest that took hold young. Buffett bought his first stock when he was 11 and has been in the market for 75 years. He recommends others do the same.

“They should just keep buying and buying and buying a little bit of America as they go along. And 30 or 40 years from now, they will have a lot of money,” he says.

In an effort to compensate for the wealth inequality that he himself has benefited from, Buffett and his billionaire buddy Microsoft co-founder Bill Gates co-founded the Giving Pledge, a voluntary commitment by the richest people in the world to give away at least half of their wealth. The goal of the Giving Pledge is not only to help those in need but to encourage others to do the same.

http://www.cnbc.com/2017/06/27/warren-buffett-says-the-problem-with-the-economy-is-people-like-him.html

Gary Reber Comments:
Warren Buffet is a “hoggist” capital owner propelled by greed and the sheer love of power over others. “Hoggism” institutionalizes greed (creating concentrated capital ownership, monopolies, and special privileges). “Hoggism” is about the ability of greedy rich people to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership.

Buffett says to the solution is simple:”They [people] should just keep buying and buying and buying a little bit of America as they go along. And 30 or 40 years from now, they will have a lot of money.” Yet the reality is the vast majority of Americans on either in poverty, near-poverty, afloat due to consumer credit and living week-to-week or month-to-month. They are in situations that prevent them from saving and speculating, as Buffet says he has since he was 11.

With all his wealth tied to his personal OWNERSHIP of wealth-creating, income-producing productive capital assets held by him in the business corporations that he has an ownership interest, you would think that he would be educating himself to and advocating financial mechanism that, with NO requirement of past savings (equity worth), would empower EVERY child, woman, and man to acquire ownership interest in new, productive and viable capital asset formation simultaneously with the growth of the economy, on the basis that the investments will generate their own earnings sufficient to repay the insure, interest-free capital credit and then go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.

Buffett is part of the problem. The exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.
 
Anyone who seeks to own productive power that they cannot or won’t use for consumption are beggaring their neighbor — the equivalency of mass murder — the impact of concentrated capital ownership.

At the top of the order of Buffett’s and fellow billionaires’ philanthropy is a plan to use at least half of their their wealth to support causes focused on “poverty alleviation” and “education.”

I think the most good can result if the focus of their wealth is on reforming the monetary and financial system to eliminate the requirement of “past savings” to qualify for capital credit to finance viable capital asset formation projects and provide for EVERY citizen to acquire ownership stakes in future viable capital asset formation simultaneously with the growth of the economy, without taking from those who already own.

A study of billionaires would certainly result in either inheritance of large sums of capital asset ownership stakes or savings accumulated to invest in wealth-creating, income-producing capital assets, on the basis that the investments paid for themselves. In either case, the key operative is “past savings,” which the vast majority of people do not have as they are dependent on jobs in which they earn insufficient income to meet their personal and family consumption needs. And because they are trapped in poverty or near poverty, or even in middle-class status, they cannot earn the income to satisfy their wants above their consumption necessities, and even then they carry high consumer debt.

If only these billionaires would support education to enlightened all Americans and politicians to reform the monetary and financial system and enact legislation to provide an annual allocation into the capital credit account of EVERY child, woman, and man strictly for investment in new viable capital asset formation projects tied to the growth of the economy, which generate their own revenue stream to initially pay off the loan and following produce a full-earnings dividend for consumption (creating further demand for the economy’s growth).

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.

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

Thus, the question is who pledges the security and takes the risk of failure to return the expected yield from which to repay the loan. The answer is capital credit loan security (collateral) requirement can be replaced with private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept).

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 to the lending entity, the new capital formation will continue to produce income for existing and future owners.

The non-profit Center for Economic and Social Justice (www.cesj.org) is dedicated to such education to alleviate poverty and educate on the financial mechanisms and legislation necessary to put American on a path to inclusive prosperity, inclusive opportunity, and inclusive economic justice.

At the CESJ Web site are volumes of articles and proposed legislation focused on broadening individual capital asset wealth and income simultaneously with the growth of the economy, without redistribution by empowering EVERY citizen to be productive through their capital asset and their labor contributions to the economy.

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

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

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

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

Study: Seattle’s $13 Minimum Wage Led To Drop Of $1,500 In Income For Low-Wage Earners

On June 27, 2017, Ben Shapiro writes on The Daily Wire:

Remember that time Seattle’s socialist city council member Kshama Sawant pressed for the city to increase its minimum wage to $15 per hour? I actually debated Sawant on the issue; I asked her if she would be in favor of raising the wage to $1,000 per hour. She misdirected from the issue.

Seattle actually ended up embracing $13 per hour, raising the minimum wage from $9.47 in 2014 to $11 in 2015 to $13 in 2016 under the theory that an increase wouldn’t throw people out of work, wouldn’t encourage part-time hiring, and would inflate salaries enough to allow more affordability in the Seattle housing market.

A new study demonstrates that, as usual, central planning of the economy leads to precisely the reverse of the results the planners seek to achieve.

According to a new paper from the National Bureau of Economic Research:

“Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. Evidence attributes more modest effects to the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies.”

In other words, restaurants didn’t fire anybody, they just put them on part-time shifts and cut back their hours. That shouldn’t be a surprise, since that’s precisely what happens every time the government places an extra burden on employers. One of the great myths of minimum wage movement — and the central planning movement as a whole — is that business owners aren’t operating at a slim margin, but raking in dollars to hide in their Scrooge McDuck moneybins, depleting the potential income of their employees. But that’s not true. Thanks to competition — and competition is fierce in industries that employ minimum wage workers — profit margins are never enormous. Even in 2013, a booming year for the restaurant business, Capital IQ estimated the average profit margin for restaurants at 2.4%. Profitability varies by chain as well, and by local franchise.

Even leftists were taken aback by Seattle’s sizeable minimum wage increase. Jared Bernstein of the Center on Budget and Policy Priorities, a leftist himself, derided the minimum wage increases in Seattle as “beyond moderate” — extreme, in other words. But he admitted, “you [don’t] know what the outcome is going to be. You have to test it, you have to scrutinize it, which is why Seattle is a great test case.”

Or you could leave the market alone, since “testing” markets by cramming down interventionism puts people out of work, at least part-time. Here are the facts: Seattle barely had any jobs under the $11 threshold before the legislation passed. But that wasn’t true of $13 jobs. And the regulations essentially priced a good deal of full-time low-wage labor out of the market. Furthermore, the economy in Seattle right now is strong. What happens during a downturn, when businesses have to shed costs?

Government intervention isn’t the answer to the free market. The free market is. But don’t expect the Left to admit that they’re not merely punishing “evil” businessmen, they’re skewing the entire labor market and hurting a broad swath of people, including minimum wage employees.

http://www.dailywire.com/news/17933/study-seattles-13-minimum-wage-led-drop-1500-ben-shapiro#

Gary Reber Comments:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Why Wall Street Isn’t Useful For The Real Economy

On September 1, 2016, Lynn Stout writes on Premarket.com and Economics:

Bank executives frequently proclaim that Wall Street is vital to the nation’s economy and performs socially valuable services by raising capital, providing liquidity to investors, and ensuring that securities are priced accurately so that money flows to where it will be most productive. There’s just one problem: the Wall Street mantra isn’t true.

In the wake of the 2008 crisis, Goldman Sachs CEO Lloyd Blankfein famously told a reporter that bankers are “doing God’s work.” This is, of course, an important part of the Wall Street mantra: it’s standard operating procedure for bank executives to frequently and loudly proclaim that Wall Street is vital to the nation’s economy and performs socially valuable services by raising capital, providing liquidity to investors, and ensuring that securities are priced accurately so that money flows to where it will be most productive. The mantra is essential, because it allows (non-psychopathic) bankers to look at themselves in the mirror each day, as well as helping them fend off serious attempts at government regulation. It also allows them to claim that they deserve to make outrageous amounts of money. According to the Statistical Abstract of the United States, in 2007 and 2008 employees in the finance industry earned a total of more than $500 billion annually—that’s a whopping half-trillion dollar payroll (Table 1168).

Let’s start with the notion that Wall Street helps companies raise capital. If we look at the numbers, it’s obvious that raising capital for companies is only a sideline for most banks, and a minor one at that. Corporations raise capital in the so-called “primary” markets where they sell newly-issued stocks and bonds to investors. However, the vast majority of bankers’ time and effort is devoted to (and most bank profits come from) dealing, trading, and advising investors in the so-called “secondary” market where investors buy and sell existing securities with each other. In 2009, for example, less than 10 percent of the securities industry’s profits came from underwriting new stocks and bonds; the majority came instead from trading commissions and trading profits (Table 1219). This figure reflects the imbalance between the primary issuing market (which is relatively small) and the secondary trading market (which is enormous). In 2010, corporations issued only $131 billion in new stock (Table 1202). That same year, the World Bank reports, more than $15 trillion in stocks were traded in the U.S. secondary marketmore than the nation’s GDP. Yet secondary market trading is fundamentally a zero sum game—if I make money by buying low and selling high, it’s money you lost by buying high and selling low.

So, what benefit does society get from all this secondary market trading, besides very rich and self-satisfied bankers like Blankfein? The bankers would tell you that we get “liquidity”–the ability for investors to sell their investments relatively quickly. The problem with this line of argument is that Wall Street is providing far more liquidity (at a hefty price—remember that half-trillion-dollar payroll) than investors really need. Most of the money invested in stocks, bonds, and other securities comes from individuals who are saving for retirement, either by investing directly or through pension and mutual funds. These long-term investors don’t really need much liquidity, and they certainly don’t need a market where 165 percent of shares are bought and sold every year. They could get by with much less trading—and in fact, they did get by, quite happily. In 1976, when the transactions costs associated with buying and selling securities were much higher, fewer than 20 percent of equity shares changed hands every year. Yet no one was complaining in 1976 about any supposed lack of liquidity. Today we have nearly 10 times more trading, without any apparent benefit for anyone (other than Wall Street bankers and traders) from all that “liquidity.”

Finally, let’s turn to the claim that Wall Street trading helps allocate society’s resources more efficiently by ensuring securities are priced accurately. This argument is based on the notion of “price discovery”–the idea that the promise of speculative profits motivates traders to do research that uncovers socially useful information. The classic example is a wheat futures trader who researches weather patterns. If the trader accurately predicts a drought, the trader buys wheat futures, driving up wheat prices, causing farmers to plant more wheat, helping alleviate the effects of the drought. Thus (the argument goes) the trader’s profits from speculating in wheat futures are just compensation for providing socially valuable “price discovery.” Once again, however, this cheerful banker “just-so story” turns out to be unsupported by any significant evidence. Let’s start with the questionable premise that the average trader earns profits from doing good research. The well-established fact that very few actively-managed mutual funds routinely outperform the market undermines the claim that most trading is driven by truly superior information.

But even more significantly, the fact that a trader with superior information can move prices in the “correct” direction does not necessarily mean that society will benefit. It’s all a question of timing.  As famous economist Jack Hirshleifer pointed out many years ago, trading that makes prices more accurate when it’s too late to do anything about it is privately profitable but not socially beneficial. Most Wall Street trading in stocks, bonds, and derivatives moves information into prices only days–sometimes only microseconds–before it would arrive anyway. No real resources are reallocated in such a short time span.

So, what does Wall Street do that benefits society? Doctors and nurses make patients healthier. Firefighters and EMTs save lives. Telecommunications companies and smart phone manufacturers permit people to communicate with each other at a distance. Automobile executives and airline pilots help people close that distance. Teachers and professors help students learn. Wall Street bankers help—mostly just themselves.

Why Wall Street Isn’t Useful for the Real Economy

Gary Reber Comments:

This is an excellent article by Lynn Stout, the Distinguished Professor of Corporate and Business Law at Cornell Law School. Stout challenges the notion that Wall Street helps companies raise capital. “If we look at the numbers, it’s obvious that raising capital for companies is only a sideline for most banks, and a minor one at that. Corporations raise capital in the so-called “primary” markets where they sell newly-issued stocks and bonds to investors. However, the vast majority of bankers’ time and effort is devoted to (and most bank profits come from) dealing, trading, and advising investors in the so-called “secondary” market where investors buy and sell existing securities with each other. In 2009, for example, less than 10 percent of the securities industry’s profits came from underwriting new stocks and bonds; the majority came instead from trading commissions and trading profits (Table 1219). This figure reflects the imbalance between the primary issuing market (which is relatively small) and the secondary trading market (which is enormous). In 2010, corporations issued only $131 billion in new stock (Table 1202). That same year, the World Bank reports, more than $15 trillion in stocks were traded in the U.S. secondary marketmore than the nation’s GDP. Yet secondary market trading is fundamentally a zero sum game—if I make money by buying low and selling high, it’s money you lost by buying high and selling low.”

When I write about broadening productive capital asset ownership, I am advocating that EVERY child, woman and man be empowered to acquire NEW stock issues, representing the formation of new productive capital that generates its own earnings to pay for itself. As binary economist Louis Kelso noted: “The pre-tax yield of corporate assets of prosperous companies varies from 25 to 60 percent. The yield on secondhand securities is around five or six percent. Sure, with capital gains, you can get a little more, but don’t forget, that’s a zero-sum game; for every gainer, there’s a loser. Wall Street doesn’t fly any airplanes or raise any corn or do anything else in the way of producing products and services. It just plays games with your dough. And when you take it out in pensions, you’re going to get less than the company put in for you. You have to; that’s the dynamics of it.”

Unfortunately, the vast majority of Americans have been ill-educated and ONLY think in terms of a job to earn an income or government subsidies such as an Unconditional Basic Income. They have been kept from understanding how real wealth is created and how the system facilitates the already wealthy constantly acquiring ALL new productive capital wealth.

Conventionally, most people do not have the right to acquire productive capital with the self-financing earnings of capital; they are left to acquire, as best as they can, with their earnings as labor workers and the pledge of past savings. This is fundamentally hard to do and limiting. Thus, the most important economic right Americans need and should demand is the effective right to acquire capital with the earnings of capital. Note, though, millions of Americans own diluted stock value through the “stock market exchanges,” purchased with their earnings as labor workers, their stock holdings are relatively minuscule, as are their dividend payments compared to the top 10 percent of capital owners. Statistically, stock market wealth is held by a relatively small number of the most affluent. In reality, most Americans don’t have any stocks to their name. In fact, many Americans don’t even have any savings to their name. Pew Research found that 53 percent of Americans own no stock at all nor any retirement accounts, and out of the 47 percent who do, the richest 5 percent own two-thirds of that stock. And only 10 percent of Americans have pensions, so stock market gains or losses don’t affect the incomes of most retirees.

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

Thus, as Kelso asserted: “The problem with conventional financing techniques is that they address only the productive power of enterprise and the enhancement of the earning power of the rich minority. Sustaining or increasing the earning power of the majority of consumers who are dependent entirely upon the earnings of their labor, or upon welfare, is left to government or governmentally assisted redistribution of income and to chance.”

At Agenda 2000 Incorporated, the advocacy firm I founded with Louis Kelso, and the Institute For The Pursuit Of Economic Justice at Berkeley, we believed that the business corporation, which holds its capital assets in the form of stock ownership, was society’s greatest social invention and that its executives had a fiduciary responsibility to exercise its vast power and finance capital growth in ways that took in the corporation’s natural constituency of employees and consumers as stockholders. We recognized that industrialization established the business corporation as the dominant organizational force of modern America. We saw the business corporation as an untapped, unimagined potential entity for solving the very economic problems that defective corporate strategy has created. We advocated Kelso’s financing tools and economic proposals, while devising other practical ways designed to correct the imbalance between production and consumption at its source, and broaden ownership of productive capital in conformance with private property free market principles, simultaneously with the growth of the economy.

Unfortunately, pursuing economic democracy has been frustrated by the systemic concentration of economic power and exclusionary access to future capital credit to the advantage of the wealthiest Americans. The so-called 1 percent rulers of corporations have rigged the financial system to enable this already rich ownership class to systematically further enrich themselves as capital formation occurs and technological industrialization spreads throughout the world, leaving behind the 99 percent to depend on income redistribution through make work “full employment” policies, government boondoggles, excessive military build-up and dependence on arms production and sales, and social welfare programs due to the lack of an alternative to full employment and the growing economic helplessness and dependency. The unsatisfied needs and wants of society are not in that 1 percent or for that matter the 5 percent; those people are not the ones who are hurting.

Once the national economic policy bases policy decisions on capital ownership-broadening economics, productive capital acquisition would take place through commercially insured capital credit, resulting in a quiet revolution in which economic plutocracy will transform to economic democracy.

What others and I at Agenda 2000 and the Institute For The Pursuit Of Economic Justice advocated was embracing the goal of teaching working people, the 99 percent, to become capital workers, those who contribute productively through their privately owned capital, which is employed in production to supplement their being a labor worker or replace the wage income from their labor entirely. The goal into the future is for all Americans to be capital workers (applying the “tools” they OWN to produce) and not be labor workers dependent on labor earnings too much of our lives. We should all be productive and produce products and services in a way in which the current state of technology permits. Not only is our right to life denied if we don’t have effective access to the ownership of capital, our liberty is denied because without economic power our political power is useless. Thus, the national economic policy should be universal participation in the ownership of productive capital, alongside full employment of the labor workforce as a direct result of building a future economy that can support general affluence for EVERY citizen.

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

Bottom line: we need to focus on CAPITAL OWNERSHIP CREATION as the solution to economic inequality. Every government policy must be structure to optimally promote creating new capital owners simultaneously with the growth of the economy, without resorting to redistribution of wealth and income.

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

For specifics of how to finance future capital formation projects and simultaneously create new capital owners see my article “What Is Needed To Resolve The Destruction Of American Jobs Problem?” published by The Huffington Post at http://www.huffingtonpost.com/entry/593adb89e4b0b65670e569e9.

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

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

Harvard Study: Minimum Wage Hikes Killing Businesses

Amanda Prestigiacomo writes on The Daily Wire:

A new Harvard Business School study found that minimum wage hikes lead to closures of small businesses. “We find suggestive evidence that an increase in the minimum wage leads to an overall increase in the rate of exit,” the researchers conclude.

The study, titled Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit, looks at “the impact of the minimum wage on restaurant closures using data from the San Francisco Bay Area” from 2008-2016.

Researchers Dara Lee Luca and Michael Luca chose the Bay Area due to their frequent minimum wage hikes in recent years. “In the San Francisco Bay Area alone, there have been twenty-one local minimum wage changes over the past decade,” they write.

The Lucas found that lower-quality restaurants (indicated by Yelp scores) were disproportionately affected by wage hikes, increasing their likelihood of closure relative to higher-quality, established restaurants.

“The evidence suggests that higher minimum wages increase overall exit rates for restaurants. However, lower quality restaurants, which are already closer to the margin of exit, are disproportionately impacted by increases to the minimum wage,” says the study. “Our point estimates suggest that a one dollar increase in the minimum wage leads to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale).”

While “firm exit” was the focus of the study, the researchers also noted that there are often other consequences from wage hikes, such as worker layoffs, increased pricing and hour-cuts for existing workers:

“While some studies find no detrimental effects on employment (Card and Krueger 1994, 1998; Dube, Lester & Reich, 2010), others show that higher minimum wage reduces employment, especially among low-skilled workers (see Neumark & Wascher, 2007 for a review). However, even studies that identify negative impacts find fairly modest effects overall, suggesting that firms adjust to higher labor costs in other ways. For example, several studies have documented price increases as a response to the minimum wage hikes (Aaronson, 2001; Aaronson, French, & MacDonald, 2008; Allegretto & Reich, 2016). Horton (2017) find that firms reduce employment at the intensive margin rather than on the extensive margin, choosing to cut employees hours rather than counts.”

Such findings were backed up by Garret/Galland Research’s Stephen McBride, who highlighted in March the “minimum wage massacre.”

“Currently, rising labor costs are causing margins in the sector to plummet. Those with the ability to automate like McDonalds are doing so… and those who don’t are closing their doors. In September 2016, one-quarter of restaurant closures in the California Bay Area cited rising labor costs as one of the reasons for closing,” McBride wrote in Forbes. 

“While wage increases put more money in the pocket of some, others are bearing the costs by having their hours reduced and being made part-time,” he added.

As noted by Red Alert Politics, the Bay Area is headed for a $15 minimum wage in July of 2018, though they’ve already seen over 60 restaurants close since September.

While it would behoove the Bernie Bros picketing for $15 an hour to take a look at this study, it’s entirely unlikely that such evidence would deter their entitled attitudes.

http://www.dailywire.com/news/17758/harvard-study-minimum-wage-hikes-killing-amanda-prestigiacomo#exit-modal

Gary Reber Comments:

This study points to minimum wage increases resulting in worker layoffs, increased pricing and hour-cuts for existing workers, resulting in reduced employment. Furthermore, as profit margins are further squeezed, those with the ability to automate are doing so and those who don’t are closing their doors. All this is happening and yet the minimum wage of $15 set by some cities won’t become law until, at the earliest, July of 2018.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Universal Basic Income Accelerates Innovation By Reducing Our Fear Of Failure

On February 12, 2017, Scott Santens writes on Economics:

Almost two centuries ago an idea was born with such explanatory power that it created shock waves across all of human society and whose aftershocks we’re still feeling to this day. It’s so simple and yet so powerful, that after all these years, it remains capable of making people question their very faith.

The idea of which I speak is that through random mutation and natural selection, every living thing around us was created through millions and even billions of years of what is effectively trial and error, not designed by some intelligent creator. It is the process of evolution through natural selection.

It’s almost impossible for many people to accept that everything around us, including our own lives, could ever be the result of trial and error, but that’s what the scientific method has revealed. Mutations happen. Some of them work better than others depending on the environment. A longer beak here and a longer neck there can be the difference between life and death. Successful mutations are passed on. Iterations continue generation after generation. Discovering this process of evolution was one of the great accomplishments of our species. It’s also possibly the most powerful reason to support another world-changing idea — an unconditional basic income.

Let me explain.

Markets as Environments

Our economy is a complex adaptive system. Much like how nature works, markets work. No one central planner is deciding what natural resources to mine, what to make with them, how much to make, where to ship everything to, who to give it to, etc. These decisions are the result of a massively decentralized widely distributed system called “the market,” and it’s all made possible with a tool we call “money” being exchanged between those who want something (demand) and those who provide that something (supply).

Money is more than a decentralized tool of calculation however. It’s also like energy. It powers the entire process like the eating of food powers our own bodies and the sun powers plants. Without food, we starve, and without money, markets starve. A sufficient amount of money for all market participants is absolutely key to the market system for it to work properly.

If you’ve ever played Monopoly this should be apparent. The game would not work if all players started the game with nothing. Some wouldn’t even make it once around the board. Additionally, if no one received $200 for then passing Go, the game would end a lot sooner. Ultimately the game always grinds to a halt once everyone but one person is all out of money, which is inevitable. No money, no purchases, no market, no game. Game over.

Supply and Demand as Trial and Error

With sufficient money however, markets adapt and evolve based on trial and error. Someone thinks of something to create or do. If people like it, it does well. If people don’t like it, it goes away. What does well is modified. If people like the modified version, it does well. If they don’t, it goes away. If they like it enough, the original version goes away. Survival of the fittest we call it. This is the evolution of goods and services, which runs on supply and demand, which both in turn run on money and one other thing — the willingness to take risks.

Risks as Genetic Mutation

Taking risks is equivalent to random genetic mutation in this biological analogy. A new product or service introduced into the market can result in success or failure. The outcome is entirely unknown until it’s tried. What succeeds can make someone rich and what fails can bankrupt someone. That’s a big risk. We traditionally like to think of these risk-takers as a special kind of person, but really they’re mostly just those who are economically secure enough to feel failure isn’t scarier than the potential for success.

As a prime example, Elon Musk is one of today’s most well-known and highly successful risk takers. Back in his college years he challenged himself to live on $1 a day for a month. Why did he do that? He figured that if he could successfully survive with very little money, he could survive any failure. With that knowledge gained, the risk of failure in his mind was reduced enough to not prevent him from risking everything to succeed.

This isn’t just anecdotal evidence either. Studies have shown that the very existence of food stamps — just knowing they are there as an option in case of failure — increases rates of entrepreneurship. A study of a reform to the French unemployment insurance system that allowed workers to remain eligible for benefits if they started a business found that the reform resulted in more entrepreneurs starting their own businesses. In Canada, a reform was made to their maternity leave policy, where new mothers were guaranteed a job after a year of leave. A study of the results of this policy change showed a 35% increase in entrepreneurship due to women basically asking themselves, “What have I got to lose? If I fail, I’m guaranteed my paycheck back anyway.”

Meanwhile, entrepreneurship is currently on a downward trend. Businesses that were less than five years old used to comprise half of all businesses three decades ago. Now they comprise about one-third. Businesses are also closing their doors faster than new businesses are opening them. Until recently, this had never previously been true here in the US for as long as such data had been recorded. Startup rates are falling. Why? Risk aversion due to rising insecurity.

Growing Insecurity

For decades now our economy has been going through some very significant changes thanks to advancements in technology, and we have simultaneously been actively eroding the institutions that pooled risk like trade unions and our public safety net. Incomes adjusted for inflation have not budged for decades, and the jobs providing those incomes have gone from secure careers to insecure jobs, part-time and contract work, and now recently even gig labor in the sharing economy.

Decreasing economic security means a population decreasingly likely to take risks. Looking at it this way, of course startups have been on the decline. How can you take the leap of faith required for a startup when you’re more and more worried about just being able to pay the rent?

None of this should be surprising. The entire insurance industry exists to reduce risk. When someone is able to insure something, they are more willing to take risks. Would there be as many restaurants if there was no insurance in case of fire? Of course not. The corporation itself exists to reduce personal risk. Entrepreneurship and risk are inextricably linked.Reducing risk aversion is paramount to innovation.

Failure as Evolution

So the question becomes, how do we reduce the risks of failure so that more people take more risks? Better yet, how do we increase the rate of failure? It may sound counter-intuitive, but failure is not something to avoid. It’s only through failure that we learn what doesn’t work and what might work instead. This is basically the scientific method in a nutshell. It’s designed to rule out what isn’t true, not to determine what is true. There is a very important difference between the two.

This is also how evolution works, through failure after failure. Nature isn’t determining the winner. Nature is simply determining all the losers, and those who don’t lose, win the game of evolution by default. So, the higher the rate of mutation, the more mutations can fail or not fail, and therefore the quicker an organism can adapt to a changing environment. In the same way, the higher the rate of failure in a market economy, the quicker the economy can evolve.

There’s also something else very important to understand about failure and success. One success can outweigh 100,000 failures. Venture capitalist Paul Graham of Y Combinator has described this as Black Swan Farming. When it comes to truly transformative ideas, they aren’t obviously great ideas, or else they’d already be more than just an idea, and when it comes to taking a risk on investing in a startup, the question is not so much if it will succeed, but if it will succeed BIG. What’s so interesting is that the biggest ideas tend to be seen as the least likely to succeed.

Now translate that to people themselves. What if the people most likely to massively change the world for the better, the Einsteins so to speak — the Black Swans, are oftentimes those least likely to be seen as deserving social investment? In that case, the smart approach would be to cast an extremely large net of social investment, in full recognition that even at such great cost, the ROI from the innovation of the Black Swans would far surpass the cost.

This happens to be exactly what Buckminster Fuller was thinking when he said, “We must do away with the absolutely specious notion that everybody has to earn a living. It is a fact today that one in ten thousand of us can make a technological breakthrough capable of supporting all the rest.” That is a fact, and it then begs the question, “How do we make sure we invest in every single one of those people such that all of society maximizes its collective ROI?”

What if our insistence on making people earn their living is preventing those one in ten thousand from making incredible achievements that would benefit all the rest of us in ways we can’t even imagine? What if our fears of each other being fully free to pursue whatever most interests us, including nothing, is an obstacle to an explosion of entrepreneurship and truly huge innovations the likes of which have never been seen?

Fear as Death

What it all comes down to is fear. FDR was absolutely right when he said the only thing we have to fear is fear itself. Fear prevents risk-taking, which prevents failure, which prevents innovation. If the great fears are of hunger and homelessness, and they prevent many people from taking risks who would otherwise take risks, then the answer is to simply take hunger and homelessness off the table. Don’t just hope some people are unafraid enough. Eliminate what people fear so they are no longer afraid.

If everyone received as an absolute minimum, a sufficient amount of money each month to cover their basic needs for that month no matter what — an unconditional basic income — then the fear of hunger and homelessness is eliminated. It’s gone. And with it, the risks of failure considered too steep to take a chance on something.

But the effects of basic income don’t stop with a reduction of risk. Basic income is also basic capital. It enables more people to actually afford to create a new product or service instead of just think about it, and even better, it enables people to be the consumers who purchase those new products and services, and in so doing decide what succeeds and what fails through an even more widely distributed and further decentralized free market system.

Such market effects have even been observed in universal basic income experiments in Namibia and India where local markets flourished thanks to a tripling of entrepreneurs and the enabling of everyone to be a consumer with a minimum amount of buying power.

Basic income would even help power the sharing economy. For example, imagine how much an unconditional monthly income would enable people within the Open Source Software (OSS) and free software movements (FSM) to do the unpaid work that is essentially the foundation of the internet itself.

Markets as Democracies

Markets work best when everyone can vote with their dollars, and have enough dollars to vote for products and services. The iPhone exists today not simply because Steve Jobs had the resources to make it into reality. The iPhone exists to this day because millions of people have voted on it with their dollars. Had they not had those dollars, we would not have the iPhone, or really anything else for that matter. Voting matters. Dollars matter.

Evolution teaches us that failure is important in order to reveal what doesn’t fail through the unfathomably powerful process of trial and error. We should apply this to the way we self-organize our societies and leverage the potential for universal basic income to dramatically reduce the fear of failure, and in so doing, increase the amount of risks taken to accelerate innovation to new heights.

Failure is not an option. Failure is the goal. And fear of failure is the enemy.

It’s time we evolve.

Universal Basic Income Accelerates Innovation by Reducing Our Fear of Failure

Gary Reber Comments:

Basically, the author of this article, Scott Santens, is arguing for EVERY person to receive an unconditional basic income, which would serve as a foundation to take risks to be entrepernaural and start businesses. Santens does not define person; does that included every child or are their age restrictions? Nor does he define the basic amount of money that EVERY person would receive monthly, unconditionally. These are important parameters to define as there is a cost to this proposal because it would be funded by redistribution of wealth or by incurring more non-asset government debt.

Santens does not appear to understand the players in an economy. There are two independent factors of production: humans (labor workers who contribute manual, intellectual, creative and entrepreneurial work) and non-human capital (land; structures; infrastructure; tools; machines; robotics; computer processing; certain intangibles that have the characteristics of property, such as patents and trade or firm names; and the like which are owned by people individually or in association with others). Fundamentally, economic value is created through human and non-human contributions.

Santens also does not appear to understand money and its role in an economy. Real physical productive capital isn’t money; it is measured in money (financial capital), but it is really producing power and earning power through ownership of the non-human factor of production. Financial capital, such as stocks and bonds, is just an ownership claim on the productive power of real capital. In the law, property is the bundle of rights that determines one’s relationship to things. As binary economists Louis Kelso and Patricia Hetter put it, “Money is not a part of the visible sector of the economy; people do not consume money. Money is not a physical factor of production, but rather a yardstick for measuring economic input, economic outtake and the relative values of the real goods and services of the economic world. Money provides a method of measuring obligations, rights, powers and privileges. It provides a means whereby certain individuals can accumulate claims against others, or against the economy as a whole, or against many economies. It is a system of symbols that many economists substitute for the visible sector and its productive enterprises, goods and services, thereby losing sight of the fact that a monetary system is a part only of the invisible sector of the economy, and that its adequacy can only be measured by its effect upon the visible sector.”

The role of physical productive capital is to do ever more of the work, which produces wealth and thus income to those who own productive capital assets.  Over the past century there has been an ever-accelerating shift to productive capital — which reflects tectonic shifts in the technologies of production. People invented “tools” to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive — the core function of technological invention and innovation. Kelso attributed most changes in the productive capacity of the world since the beginning of the Industrial Revolution to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital, in Kelso’s terms, does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary. Because of this undeniable fact, Kelso asserted that, “free-market forces no longer establish the ‘value’ of labor. Instead, the price of labor is artificially elevated by government through minimum wage legislation, overtime laws, and collective bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.” An unconditional basic income is yet another form of government subsidization and leaves the ownership of productive capital assets concentrated among a wealthy capital ownership class (the 1 percent).

Furthermore, according to Kelso, productive capital is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. Kelso postulated that if both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all.

The reason that people are in poverty or earn insufficient income to support their lives is because production does not equate to consumption. After all, the purpose of production is consumption. It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.

In today’s economy, the capitalism practiced is institutionalizes greed (creating concentrated capital ownership, monopolies, and special privileges). It is about the ability of greedy rich people to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership. Our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success – always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent are not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption made possible by “customers with money.”

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

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

I agree with Santens that the vast majority of American need to earn more income. I believe we can facilitate that need and create an economy that can support general affluence for EVERY citizen. To do so will require instituting capital credit mechanisms that will implement the goal of broadening productive capital ownership in ways wholly compatible with the U.S. Constitution and the protection of private property, simultaneously with the growth of the economy, without the requirement of “past savings” (what only the wealthy have) or redistribution from the wealthy to the non-wealthy or subsidization by government.

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

We need to create economic democracy. The way to do this is to allocate an annual amount of new asset-backed money (facilitated by the Federal Reserve through its discount window authorized under Section 13(2) of the Federal Reserve Act), based on the projection of GDP growth in any given year, to EVERY child, woman and man for the exclusive use to acquire ownership in viable new productive capital formation by the corporations growing the economy. These new assets are expected to earn a continuing flow of profit for whoever owns the assets. The financial mechanisms needed to implement such broadening of capital ownership simultaneously with the growth of the economy are interest-free capital credit, repayable solely out of the future earnings of the investments. In addition to determining that the investments are viable and that the business corporations are credit worthy and reliably expected to generate earnings sufficient to make loan repayments, there needs to be security against loan default. Thus, for the lender (a local bank) to make the loan, security must be provided.

Instead of the current requirement of “past savings” (assets pledged as security), to solve the security issue, the risk can be absorbed by capital credit insurance or commercial risk insurance. and reinsurance (ala the Federal Housing Administration concept). 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 wealth-creating, income-generating productive capital.

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

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

The Federal Reserve Board is already empowered under Section 13(2) 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.

Over time, EVERY child, woman and man would accumulate a significant, full-voting, full-dividend earnings payout of stocks, which after loan payback, would go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.

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

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

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

The Oligarchy Economy: Concentrated Power, Income Inequality, And Slow Growth

On April 11, 2016, Jordan Brennan writes on Economics:

The emergence of economic inequality as a public policy issue grew out of the wreckage of the Great Recession. And while it was protest movements like Occupy Wall Street that brought visibility to America’s glaring income gap, academic economists have had a near monopoly on diagnosing why it is that inequality has worsened in the decades since 1980.

Monopolies rarely deliver outstanding service, and this is no exception. The economics profession is fond of believing that its theorizing is an impartial, value-neutral endeavor. In actuality, mainstream (‘neoclassical’) economics is loaded with suppositions that have as much to do with ideology as with science.

Take the distribution of income, which economists argue is (in the final analysis) a consequence of production. Whether one earns $10 per hour or $10 million per year, the presumption is that individuals receive as income that which they contribute to societal output (their ‘marginal product’). In this vision, the free market is not only the best way to efficiently divide the economic pie, it also ensures distributive justice.

But what if income inequality is shaped, in part, by broad power institutions—oligopolistic corporations and labor unions being two examples—such that some are able to claim a greater share of national income, not through superior productivity, but through market power?

In a study recently published with the Levy Economics Institute, I explore the power underpinnings of American income inequality over the past century. The key finding: corporate concentration exacerbates income inequality, while trade union power alleviates it.

Mass prosperity—the fabled ‘middle class’—was largely built between the 1940s and the 1970s. When President Roosevelt created the New Deal in 1935 union density was just eight percent. Density soared to nearly 30 percent by the mid-1950s, and the period spanning the 1930s to the 1970s would bear witness two major strike waves.

The combined effect was a surge in the national wage bill. In 1935 the share of national income going to the bottom 99 percent of the workforce was 44 percent. In tandem with strong unions and intense strike activity, the wage bill rose to 54 percent by the 1970s. In the period after 1980, union density and work stoppages both plummeted, pulling the wage bill down with them. American unionization is now just 11 percent and the wage bill sits at 41 percent—a seven decade-low for both metrics.

The declining power of the labor movement has many causes, but a series of state policies in the early 1980s hastened the demise. President Regan’s penchant for union busting and the crippling effects of overly restrictive monetary policy (the infamous ‘Volcker shock’) broke the back or organized labor. As trade union power declined, a crucial mechanism for progressively redistributing income began to fade in significance.

The decline of trade unions did not lead to an economic golden age, as some would have hoped. In the decades after 1980, business investment trended downward, job creation slowed and GDP growth decelerated—a phenomenon often referred to as ‘secular stagnation’. Many economists have wondered why, given business-friendly policies in Washington, investment declined so precipitously after 1980.

My study reveals that America does not suffer from a shortage of investment in the general sense. The American corporate sector has been spending more money than ever, but instead of ploughing resources into job creation and fixed asset investment, historically unprecedented resources are flowing into mergers and acquisitions (M&A) and stock repurchase, the combined effect of which has been slower growth and rising inequality  (a finding which also applies to Canada—see here and here).

Unlike investment in fixed assets, which is linked with job creation, M&A merely redistributes corporate ownership claims between proprietors. The motivation for M&A is straightforward: large firms absorb the income stream of the firms they acquire while reducing competitive pressure, which increases their market power.

In the century spanning 1895 through 1990, for every dollar spent on fixed asset investment, American business spent an average of just 18 cents on M&A. In the period since 1990, for every dollar spent on fixed asset investment an average of 68 cents was spent on M&A—a four-fold increase.

The explosion of M&A since 1990 has led to the concentration of corporate assets (power, in other words). In 1990 the 100 largest American firms controlled 9 percent of total corporate assets. Asset concentration more than doubled over the next two decades, peaking at 21 percent. The creation of a concentrated market structure, which has gone largely unnoticed by the economics profession, is one reason inequality has worsened in recent decades.

image001

With more market power-generated income at their disposal, large firms have paid comparatively more to shareholders in the form of dividends (the enclosed figure contrasts the income share of the richest 1 percent of Americans with the dividend share of national income).

At the same time, the 100 largest firms have spent more repurchasing their own stock than they have on machinery and equipment. And because many executives have stock options in their contracts, the share price inflation associated with stock repurchase has led to soaring executive compensation.

It is in this manner that increasing corporate concentration has simultaneously slowed growth and exacerbated inequality. None of these developments are inevitable, but if we are to meaningfully confront the dual problem of secular stagnation and soaring inequality we must begin to understand the role that power plays in driving these trends.

The Oligarchy Economy: Concentrated Power, Income Inequality, and Slow Growth

Gary Reber Comments:

Author Jordan Brennan, a labor economist for Canada’s largest private sector labor union, while not clear in his terminology, basically presents the case that the cause of economic inequality is concentrated capital asset ownership (though he tends to represent this as “market power”).

The problem with conventional-thinking economist, Brennan included, is they do not distinguish between the human factor and the non-human factor of production, thus couch income disparities in narrow labor productivity measures. But those measure are wrong if they were to view economic value created through human and non-human contributions. Of course, the non-human contributions have to do with the ownership rights to property.

On the other hand, binary economics recognizes that there are two independent factors of production: humans (labor workers who contribute manual, intellectual, creative and entrepreneurial work) and non-human capital (productive land; structures; infrastructure; tools; machines; robotics; computer processing; certain intangibles that have the characteristics of property, such as patents and trade or firm names; and the like which are owned by people individually or in association with others).

The reason the wealthy are more wealthy than ever is because they have increasingly accumulated more ownership of wealth-creating, income-producing capital assets, whether through direct investment or the acquisition of companies to form a market power (monopoly). Both are the result of using retained earnings and debt financing, neither of which create any new owners, but enrich the same wealthy ownership class.

The role of physical productive capital is to do ever more of the work, which produces wealth and thus income to those who own productive capital assets. Full employment is not an objective of businesses nor is conducting business statically in terms of geographical location. Companies strive to achieve cost efficiencies to maximize profits for the owners, thus keeping labor input and other costs at a minimum.

No where does Brennan, as well as other economists, provide a solution that would ensure that future viable investments in the formation of new capital assets are financed using mechanisms that provide interest-free capital credit to EVERY child, woman, and man for the exclusive purpose of acquiring future capital assets on the basis that the investments will generate their own income stream and pay for themselves and once paid for will go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development. Such financial mechanism would use commercial capital credit and reinsurances (ala the Federal Housing Administration concept) as the substitute for the present requirement of “past savings” (accumulated capital wealth) to protect the credit issuers from the risk of failure to return the expected yield from which to repay the loan.

Unfortunately, as a labor economist for a labor union, Brennon appears not to be an advocate for transforming the labor movement to a producers’ ownership union movement and embrace and fight for this workers owning stakes in the corporations that employee them. Instead, he laments the decline of the labor unions, and blames such on rising economic inequality.

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.

Bottom line: we need to focus on CAPITAL OWNERSHIP CREATION as the solution to economic inequality. Every government policy must be structure to optimally promote creating new capital owners simultaneously with the growth of the economy, without resorting to redistribution of wealth and income.

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

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

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

 

This Eye-Popping Chart On Inequality Is A Slap In The Face Of America’s Middle Class

On June 13, 2017, Pedro Nicolai da Costa writes on Business Insider:

Why does the US economy still feel iffy to most Americans despite an eight-year economic expansion and historically low unemployment?

Look no further than this eye-popping chart of income growth between 1980 and 2014 courtesy of Berkeley’s elite-squad of inequality research, including Thomas Piketty, Emmanuel Saez, and Gabriel Zucman.

Featured in a recent blog from the University of Chicago’s Booth School of Business, the graphic highlights just how stratospheric income growth has been for the very wealthiest Americans — and how stagnant, in contrast, wages have been for the rest.

6 13 17 inequality COTDChicago Booth

That’s not a typo on the right. Incomes for the top 0.001% richest Americans surged 636% during the 34-year period. Wow.

There’s more. “The average pretax income of the bottom 50% of US adults has stagnated since 1980, while the share of income of US adults in the bottom half of the distribution collapsed from 20% in 1980 to 12% in 2014,” writes Howard Gold, founder and editor of GoldenEgg Investing, in the Chicago Booth blog.

“In a mirror-image move, the top 1% commanded 12% of income in 1980 but 20% in 2014. The top 1% of US adults now earns on average 81 times more than the bottom 50% of adults; in 1981, they earned 27 times what the lower half earned.”

Here’s a link to the full paper for the academically inclined.

http://www.businessinsider.com/us-inequality-is-worse-than-you-think-2017-6

What absolutely amazes me are people who appear to have no idea as to why the wealthy are getting richer and richer, while the vast majority of Americans see no real significant gains in their labor incomes.

Both the cause and the solution is our technological advances.

Why are technological advances the cause? Because tectonic shifts in the technologies of production are displacing the need for human labor and at the same time devaluing the worth of labor. Yet labor is the ONLY means to an earned income that the vast majority of people have.

The role of physical productive capital is to do ever more of the work, which produces income. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. Thus, the elimination of workers with cost-efficient machines and computerization, and the consequent devaluation of labor’s worth as more and more people compete for fewer and fewer good paying jobs.

Businesses strive to minimize marginal cost, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price, or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role. Those who own the non-human capital are the ones who are getting richer by continually accumulating all future wealth-creating, income producing capital assets.

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

Most changes in the productive capacity of the world since the beginning of the Industrial Revolution can be attributed to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary.

Why are technological advances the solution? Because productive capital is increasingly the source of the world’s economic growth. Therefore, productive capital should become the source of added property ownership incomes for all. Simply put, if both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all.

The system of big government and socialistic programs funded by tax extraction and non-asset-based national debt are not the answer to anything.  The socialistic system almost always results in increased oppression, increased poverty or sameness as EVERY citizen becomes dependent on the State.

What we need is a system that empowers individuals and families to become fully productive, own stakes in the corporations growing our economy, be creative, build businesses and to take care of themselves. The MOST IMPORTANT need is to extend equal opportunity to EVERY child, woman, and man to  share individually in the FUTURE wealth-creating, income-producing capital assets of corporations growing the economy, whereby financing new capital formation and transfers of existing assets is accomplished from the bottom-up and without redistributing property rights of the rich and super-rich with regard to their existing assets (exception at death).

Instead, we have a system where all power and all wealth are increasingly controlled by giant banks and giant corporations that are in turn controlled by the global elite.  The “financialization” of the global economy has turned almost everyone on the planet into “debt serfs,” and the compound interest on all of that debt enables the global elite to constantly increase their giant piles of money.

Not only has EVERY person become a debt slave, but also a wage slave, and increasingly a welfare and charity slave.  Over the past four decades the total amount of consumer debt in America has gone from about 2.2 trillion dollars to nearly 60 trillion dollars.  Many Americans work as debt serfs their entire lives, and they never even know the names or the faces of those that they are making rich as they slowly pay off their debts.

Most thinking people should realize that never-ending consumer debt is not a wise situation to put one into. Such consumer debt requires a source of income that is promised to be paid to the owners of the note, credit card, or mortgage.

But there is a good form of debt, which is constantly used by the rich and the super-rich to make themselves richer. It is capital credit, a loan specifically tailored to finance FUTURE investment, repayable out of FUTURE earnings, without the need for “past savings” or the reduction in one’s personal consumption needs and wants or income. In the business world, physical capital is expected to go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development. This is how technological advances occur and develop over time.

What is needed is to reform the system to simultaneously create new wealth-creating, income-producing capital asset formation and broaden its ownership so that increasingly over time more and more citizens will derive financial benefit and second incomes and/or sole incomes from their expanding diversified wealth-creating, income-producing capital asset portfolios. In this way, we can balance production with consumption––the purpose of production.

This can be achieved with insured, no-interest capital credit loans provided by local banks to EVERY child, woman and man, repayable out of FUTURE earnings generated from new, viable capital asset projects, without the need to pledge “past savings” or equities, or reduce one’s consumption level or income.

The necessary bank repayment insurance can either be facilitated with private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept).

While other forms of non-asset-based debt is inflationary, commercial capital credit relies on non-inflationary capital asset creation, unlike government expenditures which rely on tax extraction or non-asset-backed debt to redistribute or inject inflationary money into the system.

The socialism practiced today relies on tax extraction and non-asset-based national debt to firstly redistribute monies collected into social welfare programs and second to finance public infrastructure and the military, etc. To the extent that modern “capitalistic” economies redistribute they are practicing socialism.

For those who are interested in the specifics of the solution see the Just Third Way and the Capital Homestead Act – the purpose of which is to eliminate privilege and provide EQUAL OPPORTUNITY for EVERY child, woman and man to build independent, sustainable financial security and incomes through acquiring ownership in FUTURE wealth-creating, income-producing capital assets financed without the necessity of pledging “past savings” or a reduction in consumption or income from any source.

The solution eliminates the barriers to ordinary people forming capital themselves in association with others without the necessity for “past savings” or the pledging of equities which only the wealthy ownership class has.

The JUST Third Way is a radical overhaul of the economic system (i.e., the Federal tax system, Federal Reserve policy, inheritance law, welfare and entitlement system, etc.) that will achieve genuine economic democracy, based on the Platform of the Unite America Party and its links and the proposed Capital Homestead Act. Our Platform is a call for a vision of political economy that can unite the left and the right, based on binary economist Louis Kelso’s ownership-based paradigm. Now is the time to cure America’s political cancer (Crony Capitalism) and restore America to again becoming a model for global citizens in all countries.

For a new vision see http://www.foreconomicjustice.org/?p=12331 and www.facebook.com/uniteamericaparty. Support the Unite America Party Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.

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

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