The Rich Are Different; They Get Richer

Harold Meyerson’s column in The Washington Post (March 27, 2012) is an excellent overview of how capitalism, if left unfettered, will never create broadly shared prosperity.

“Occupy Wall Street is not known for the precision of its economic analysis, but new research on income distribution in the United States shows that the group’s sloganeering provides a stunningly accurate picture of the economy. In 2010, according to a study published this month by University of California economist Emmanuel Saez, 93 percent of income growth went to the wealthiest 1 percent of American households, while everyone else divvied up the 7 percent that was left over. Put another way: The most fundamental characteristic of the U.S. economy today is the divide between the 1 percent and the 99 percent.”

“If belief and participation in democracy are sustained by people’s conviction that democracy produces good economic outcomes, then the growing concentration of wealth and income in the United States is a long-term threat to everything we profess to stand for. A nation where 93 percent of income growth goes to the top 1 percent is not a nation that will embark on great projects, or long command the allegiance of its people.”

At Agenda 2000, the advocacy consulting firm I founded in the late 1960s with binary economist Louis Kelso, we used 90 percent, while the Rand Corporation statistic was 98 percent, to represent the productive capital factor input to creating products and services. In concentrated capital ownership terms, roughly 1 percent own 50 percent of the corporate wealth with 10 percent owning 90 percent. This leaves 90 percent of the people scrambling for the last 10 percent, with them dependent on their labor worker wages to purchase capital. Thus, we have the great bulk of the people providing a mere 10 percent or less of the productive input. Contrast that to the less than 5 percent who own all the productive capital providing 90 percent or more of the productive input, and who initiate and oversee most of the technological advances that replace labor work with capital work. As a result, the trend has been to diminish the importance of employment with productive capital ownership concentrating faster than ever, while technological change makes capital ever more productive. But because this is not well understood, what we as a society have been doing is to continually shift the work burden from people labor to real capital while distributing the earning capacity of capital workers (via capital ownership of stock in corporations) to non-owners through jobs and welfare. Such policies do not function effectively.

In a democratic growth economy, based on Kelso’s binary economics, the ownership of capital would be spread more broadly as the economy grows, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate wealth. Instead, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader, also benefiting the traditionally disenfranchised poor and working and middle class. Thus, productive capital income would be distributed more broadly and the demand for products and services would be distributed more broadly from the earnings of capital and result in the sustentation of consumer demand, which will promote economic growth.

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

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

Thus, as Kelso asserted, “the government continues to discharge its responsibility for the health and prosperity of the economy through coerced trickle-down; in other words, through redistribution achieved by the rigging of labor prices, by taxation to support redistribution and job “creation,” or subsidization by inflation and by all kinds of welfare, open and concealed.”

Kelso also was quoted as saying, “Conventional wisdom says there is only one way to earn a living, and that’s to work. Conventional wisdom effectively treats capital (land, structures, machines, and the like) as though it were a kind of holy water that, sprinkled on or about labor, makes it more productive. Thus, if you have a thousand people working in a factory and you increase the design and power of the machinery so that one hundred men can now do what a thousand did before, conventional wisdom says, ‘Voila! The productivity of the labor has gone up 900 percent!’ I say ‘hogwash.’ All you’ve done is wipe out 90 percent of the jobs, and even the remaining ten percent are probably sitting around pushing buttons. What the economy needs is a way of legitimately getting capital ownership into the hands of the people who now don’t have it.”

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

In Kelso’s words, “a democratic capitalist economy is a private-property, free-market economy in which goods and services are produced through the voluntary and universal cooperation of concurrent labor workers and capital workers under a politically democratic government.” At present the United States economy, nor for that matter any other economy does not operate as a private-property democratic-capitalist, free-market economy. What needs to transpire is an understanding of binary economics along with instituting 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.

http://www.washingtonpost.com/opinions/concentrated-wealth-is-a-long-term-threat-to-america/2012/03/27/gIQAMJt1eS_print.html

Reinstate Collective Bargaining?

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

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

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

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

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

When labor unions transform to producers’ ownership unions, opportunity will be created for the unions to reach out to all shareholders (stock owners) who are not adequately represented on corporate boards, and eventually all labor workers will want to join an ownership union in order to be effectively represented as an aspiring capital owner. The overall strategy should assure that the labor compensation of the union’s members does not exceed the labor costs of the employer’s competitors, and that capital earnings of its members are built up to a level that optimizes their combined labor-capital worker earnings. A producers’ ownership union would work collaboratively with management to secure financing of advanced technologies and other new capital investments and broaden ownership. This will enable American companies to become more cost-competitive in global markets and to reduce the outsourcing of jobs to workers willing or forced to take lower wages.
Kelso stated, “Working conditions for the labor force have, of course, improved over the years. But the economic quality of life for the majority of Americans has trailed far behind the technical capabilities of the economy to produce creature comforts, and even further behind the desires of consumers to live economically better lives. The missing link is that most of those unproduced goods and services can be produced only through capital, and the people who need them have no opportunity to earn income from capital ownership.”

http://wegoted.com/blog/default.asp?NID=1285

See http://foreconomicjustice.com/11/economic-justice/

foreconomicjustice.com

Democratic Capitalism And Binary Economics: Solutions For A Troubled Nation And …Economy I would like to reflect on the direction I advocate for the nationSee More

Obama To Sign Pro-Crowdfunding JOBS Act

The JOBS Act has the potential to be a good program, but unfortunately it requires people to first accumulate “savings” in order to purchase newly issued shares of stock representing investment in new productive capital formation. And that means that only a minority of people can benefit, and even then their asset holdings will be minimum compared to the 1 percent wealthy minority who now own America, and who continue to exponentially concentrate future ownership.

In concentrated capital ownership terms, roughly 1 percent own 50 percent of the corporate wealth with 10 percent owning 90 percent. This leaves 90 percent of the people scrambling for the last 10 percent, with them dependent on their labor worker wages to purchase capital.

With 95 percent of our citizens systemmatically denied legitimate access to “private property” in our ever-expanding base of productive capital, with government and corporate managers now withholding arbitrarily about 75 percent of the stream of profits from productive capital, the institution private property has atrophied almost to the point of its extinction. If the trend continues, the government-controlled redistribution of corporate profits will result in a socialist state.

What we need is a system which extends “pure credit” or “capital credit” to every American citizen to invest in the economic future of America. Capital credit is restricted to the purchase of assets that are expected to pay for themselves out of the revenue generated from the capital investment, which it financed, and therefore these assets are expected to earn a continuing flow of profit for whoever owns the assets.

Capital formation investments are made by companies annually based on projections a number of years out (at least 5 to 10 years) with the expectation that the investment will pay for itself as a result of sustainable growth and consumer demand. Thus, the concept embraces the idea that capital formation is self-financing.

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, 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.

We need to free the system of dependency on Wall Street or 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 newly issued shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable goods and services produced by the newly added technology in the economy.

Once the national economic policy bases policy decisions on two-factor (human and non-human employment in production) binary 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.

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

http://venturebeat.com/2012/03/31/jobs-act-law/

Abundance Is Our Future

During a TED talk, Peter Diamandis makes a case for optimism–– that we’ll invent, innovate and create ways to solve the challenges that loom over us.

“I’m not saying we don’t have our set of problems; we surely do. But ultimately, we knock them down.”

Technology promises the efficient use and management of resources, which are necessary to produce affluence for all citizens. Without a policy shift to broaden productive capital ownership of the non-human technology simultaneously with economic growth, further development of technology owned by a minority will undermine the American dream. The national economic policy should be universal participation in the ownership of productive capital. See http://foreconomicjustice.com/11/economic-justice/

http://www.youtube.com/watch?v=BltRufe5kkI

House Approves Radical GOP Budget Plan

“This is a budget plan that ends Medicare’s guaranteed benefit, takes health care coverage from millions of Americans, radically redistributes wealth in the wrong direction, slashes taxes on the very wealthy, and would “take food from poor children, make it harder for low-income students to get a college degree, and squeeze funding for research, education, and infrastructure.

“And despite what you heard on the House floor if you watched the debate, the Ryan plan does not reduce the debt, either. It simply punishes the poor severely, in order to finance lavish tax breaks for the wealthy.”

Once again, this defines the Republican Party as a privileged citizens group who continue to promote policies and programs that “save” their constituents taxes necessitated through redistribution in order to prop up an economy that is failing the vast majority of Americans because they are shut out of a system employing capital credit to finance future productive capital ownership. Instead the system works for those who have accumulated significant “savings,” which are continually reinvested and multiplied through the use of retained earnings and debt financing to further concentrate ownership in new productive capital growth.

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

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

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

See http://foreconomicjustice.com/11/economic-justice/

http://maddowblog.msnbc.msn.com/_news/2012/03/29/10925721-house-approves-radical-gop-budget-plan?threadId=3382230&commentId=64010286#c64010286

 

 

Are The "Less Fortunate" Less Fortunate?

Of course they are relative to the 1 percent who own America. In concentrated capital ownership terms, roughly 1 percent own 50 percent of the corporate wealth with 10 percent owning 90 percent. This leaves 90 percent of the people scrambling for the last 10 percent, with them dependent on their labor worker wages to purchase capital. Thus, we have the great bulk of the people providing a mere 10 percent or less of the productive input. Contrast that to the less than 5 percent who own all the productive capital providing 90 percent or more of the productive input, and who initiate and oversee most of the technological advances that replace labor work with capital work. As a result, the trend has been to diminish the importance of employment with productive capital ownership concentrating faster than ever, while technological change makes capital ever more productive. But because this is not well understood, what we as a society have been doing is to continually shift the work burden from people labor to real capital while distributing the earning capacity of capital workers (via capital ownership of stock in corporations) to non-owners through jobs and welfare. Such policies do not function effectively.

The problem is that fewer and fewer people, regardless of shrinking or expanding population growth, are participating in the industrial-technological shift to non-human means of producing products and services. Without private, individual ownership property rights in productive capital formation, the vast majority or 99 percent are left with securing a job to earn money. And the jobs are exponentially becoming scarcer and scarcer, particularly good paying jobs, which are generally skilled or specialized. “The United States got rich off of young workers” is a falicy. The rich got rich off of owning productive capital. Since the Industrial Revolution there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. 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.

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.

Binary economist Louis Kelso asserted: “The government continues to discharge its responsibility for the health and prosperity of the economy through coerced trickle-down; in other words, through redistribution achieved by the rigging of labor prices, by taxation to support redistribution and job “creation,” or subsidization by inflation and by all kinds of welfare, open and concealed.”

Such transfers from capital worker owners through coerced means to the non-working, under-employed, old and sick does not have to be “the necessary price of a wealthy modern society.”

In a democratic growth economy, based on Kelso’s binary economics, the ownership of capital would be spread more broadly as the economy grows, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate wealth. Instead, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader, also benefiting the traditionally disenfranchised poor and working and middle class. Thus, productive capital income would be distributed more broadly and the demand for products and services would be distributed more broadly from the earnings of capital and result in the sustentation of consumer demand, which will promote economic growth.

The problem is with the “system.” 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. 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, or continue to face growing dependency on “welfare” in one form or another.

The problem is that fewer and fewer people, regardless of shrinking or expanding population growth, are participating in the industrial-technological shift to non-human means of producing products and services. Without private, individual ownership property rights in productive capital formation, the vast majority or 99 percent are left with securing a job to earn money. And the jobs are exponentially becoming scarcer and scarcer, particularly good paying jobs, which are generally skilled or specialized. “The United States got rich off of young workers” is a falicy. The rich got rich off of owning productive capital. Since the Industrial Revolution there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. 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.

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.

Binary economist Louis Kelso asserted: “The government continues to discharge its responsibility for the health and prosperity of the economy through coerced trickle-down; in other words, through redistribution achieved by the rigging of labor prices, by taxation to support redistribution and job “creation,” or subsidization by inflation and by all kinds of welfare, open and concealed.”

Such transfers from capital worker owners through coerced means to the non-working, under-employed, old and sick does not have to be “the necessary price of a wealthy modern society.”

In a democratic growth economy, based on Kelso’s binary economics, the ownership of capital would be spread more broadly as the economy grows, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate wealth. Instead, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader, also benefiting the traditionally disenfranchised poor and working and middle class. Thus, productive capital income would be distributed more broadly and the demand for products and services would be distributed more broadly from the earnings of capital and result in the sustentation of consumer demand, which will promote economic growth.

The problem is with the “system.” 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. 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, or continue to face growing dependency on “welfare” in one form or another.

http://townhall.com/columnists/dennisprager/2012/03/27/creators_oped

The Economic Dangers Of An Aging America

“Two economists envision a scary — and scarily realistic — future where the working population expands slower and slower, and jobless recoveries are the only recoveries we know”

The problem is that fewer and fewer people, regardless of shrinking or expanding population growth, are participating in the industrial-technological shift to non-human means of producing products and services. Without private, individual ownership property rights in productive capital formation, the vast majority or 99 percent are left with securing a job to earn money. And the jobs are exponentially becoming scarcer and scarcer, particularly good paying jobs, which are generally skilled or specialized. “The United States got rich off of young workers” is a falicy. The rich got rich off of owning productive capital. Since the Industrial Revolution there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. 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.

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.

Binary economist Louis Kelso asserted: “The government continues to discharge its responsibility for the health and prosperity of the economy through coerced trickle-down; in other words, through redistribution achieved by the rigging of labor prices, by taxation to support redistribution and job “creation,” or subsidization by inflation and by all kinds of welfare, open and concealed.”

Such transfers from capital worker owners through coerced means to the non-working, under-employed, old and sick does not have to be “the necessary price of a wealthy modern society.”

In a democratic growth economy, based on Kelso’s binary economics, the ownership of capital would be spread more broadly as the economy grows, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate wealth. Instead, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader, also benefiting the traditionally disenfranchised poor and working and middle class. Thus, productive capital income would be distributed more broadly and the demand for products and services would be distributed more broadly from the earnings of capital and result in the sustentation of consumer demand, which will promote economic growth.

The problem is with the “system.” 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. 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, or continue to face growing dependency on “welfare” in one form or another.

Stacy 3 Reply: “The problem? Actually the “system” enables everyone who wants to gain access to productive capital ownership.  It’s called the New York Stock Exchange or the NASDAQ.  While progressives of both parties have enabled their cronies to make big bucks at the expense of taxpayers,  the VAST majority of rich people (1) worked really hard at something people were willing to pay for, and (2) voraciously saved and invested.  Either/Or will not work…it has to be both.  If you follow this formula over many years, you will probably be rich when you get old.

But hardly anyone does that.  Most people who make a little dough want to spend twice as much as soon as they get it.  Progressives of both parties get their votes by demonizing the the most productive citizens.  And worse, they offer all kinds of incentives for people to engage in the most self-destructive behavior you can think of.  So yes, over time compounding does lead to concentration of wealth.  But the problem is not the “system”, but that so many decline to participate in it.”

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, 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 binary economist Louis 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.”

Unfortunately, pursuing democratic capitalism 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 two-factor binary 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.

Stacy3 Reply: “I don’t get how people still embrace Kelso’s thesis with all its inconsistencies and omissions.  ESOPs were a pretty good idea, but how could so many of his other ideas be proven more wrong?  Although his notion that asset-based financing favored the rich was somewhat accurate from the post-FDR period through the 1970s, it certainly did not describe previous periods in American history.  And since his death in 1991,  debt securitization, private equity, and venture capital have reduced traditional bank financing to a small and marginally profitable source of investment capital.  But innovation can absolutely get financed, and the evidence abounds in industries as diverse as technology, retail, manufacturing…the list goes on.

Yet his notion that inequality is a systemic problem independent of behavior has inspired some of the most destructive policies anyone could dream of.  The housing debacle resulted primarily from government policies and bank regulations which promoted low-cost home financing for the very folks Kelso wanted to empower.  And rather than enrich them, these ill-conceived policies have condemned millions to povery!

With regard to the “1% rulers of corporations”, you should consider that many of today’s leading corporations had not even been started when Kelso wrote his seminal work.  Similarly, almost none of the richest Americans were even rich when I was a kid in the ’70s.  Rigged?  Sure progressives of both parties have enriched their cronies at the expense of taxpayers.  But the vast majority of the rich earned their money by innovation, hard work, and saving and investing their gains.  These are behavioral characteristics which harness the power of compound returns over time.  Progressive policies which discourage these characteristics or worse, incentivize less productive behavior simply exacerbate inequality and erode general prosperity.”

New capital formation financing is “savings-based,” and that will not broaden ownership to the degree necessary to connect the 99 percent majority to the earning power of fully-paid out dividends, which would provide the consumer engine of today and tomorrow. Both retained earnings and debt financing, used to finance virtually 98 percent of new capital formation growth, only enhance the ownership holding value of the existing corporate ownership class and do nothing to create new owners. Thus, the rich get richer systematically and capital ownership concentration is furthered, facilitated by financing further productive capital acquisition out of the earnings of existing productive capital.

In place of retained earnings and debt financing, the government should require business corporations to issue and sell full-voting, full-dividend payout stock to more people to underwrite new productive capital formation, with the purpose of providing opportunity for new owners, both employees of corporations and non-employees, to participate in a growing economy. 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 to pledge against the loan as security, and/or are disqualified on the grounds of either unproven unreliability or proven unreliability.

Housing for households is a consumer-based, not a productive capital-based asset that requires a source of income to pay for, unless used to rent to people, in which the housing unit generates income. Louis Kelso advocates capital credit used to finance new productive capital investment and growth. No one is knocking the idea of earning money “by innovation, hard work, and saving and investing their gains.” The reality is economic asceticism based on “savings” will not work for the 99 percent who struggle from pay check to pay check to survive, that is if they are fortunate to still have a job. Our leaders and financial institutions need to be purged of the savings mystique, which prevents thinking about the economy in physical terms as a system. Understanding  Kelso’s two-factor financing techniques and commercially insured capital credit would be important first steps in that direction.

As Kelso has acknowledged: “Of course, some financial geniuses are able to parlay modest savings squeezed from labor income into large capital fortunes. This has been possible in every age. But rules that work for geniuses do not work for consumers in general, nor the economy as a whole. Geniuses are, and always have been in very short supply. Behind the phenomenon of the ‘self-made man’ is a less obvious and more significant fact. The business genius tightens his belt only in the first stage of his quest for real capital riches. Not thrift but his ability to finance capital acquition out of the wages of his capital is the secret of almost all of his impressive fortune.

“The logic of democratic commercially insured capital credit financing eliminates institutional limits on the availability of capital credit, which mythical except when based upon shortages of the physical ingredients necessary to production and consumption of goods and services. As costs are minimized through more efficient methods of finance, financing itself becomes increasingly more feasible. Rising incomes in the pockets of consumers who have the need and desire to improve their material standard of living expands market demand for goods and services and thereby triggers increased production.”

http://www.theatlantic.com/business/archive/2012/03/gray-nation-the-very-real-economic-dangers-of-an-aging-america/254937/

 

 

Research Evidence On Prevalence And Effects Of Employee Ownership

The National Center or Employee Ownership (NCEO) published an article on their Web site entitled “Research Evidence On Prevalence And Effects Of Employee Ownership: 2002 Report by  Douglas Kruse, Rutgers University.”

This is an excellent article the impact employee ownership has on the economy and society.

The Employee Stock Ownership Plan (ESOP) was the first tool designed by binary economist Louis O. Kelso and used to broaden ownership of productive capital among the employees of a corporation.

http://www.nceo.org/main/article.php/id/26/

Key Studies On Employee Ownership And Corporate Performance

The National Center or Employee Ownership (NCEO) published an article on their Web site entitled “Key Studies On Employee Ownership And Corporate Performance.”

This is an excellent look at employee ownership companies compared to similar non-employee ownership or all non-employee ownership companies. Company performance studies compare pre-ESOP to post-ESOP performance relative to the competition. The studies selected represent the most recent studies that have the largest and most representative samples. There has been no attempt to include only positive studies.

The Employee Stock Ownership Plan (ESOP) was the first tool designed by binary economist Louis O. Kelso and used to broaden ownership of productive capital among the employees of a corporation.

http://www.nceo.org/main/article.php/id/54/

A Comprehensive Overview Of Employee Ownership

The National Center or Employee Ownership (NCEO) published an article on their Web site entitled “A Comprehensive Overview Of Employee Ownership.”

This is an excellent introduction to understanding how employee ownership through the ESOP serves to motivate employees and improve corporate performance. The Employee Stock Ownership Plan (ESOP) was the first tool designed by binary economist Louis O. Kelso and used to broaden ownership of productive capital among the employees of a corporation.

http://www.nceo.org/main/article.php/id/6/