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Wednesday, May 27, 2015

Trans-Pacific Race to Bottom

                 The Trans-Pacific Trade Partnership ---
      A Race to the Bottom and a Subversion of Democracy




Chinese assembly workers' average work week: 56 hours. Average income: $1.33 to $1.74 an hour, or  $75 to $97 per week, or $3,900 to $5,100 a year. Read the full report at Economic Policy Institute. But other Chinese workers earn less than $0.50 an hour.
In 2007 manufacturing costs in China were 4% of comparable labor costs in the U.S., or $1.36 an hour versus $34 an hour. (See Labor Department publication here.)
For a BLS comparison among 33 countries see here. Mexico average, $6.48 an hour, U.S. $35.55 an hour. In Mexico 66% of workers earn less than 3 times the daily 2015 minimum wage of $4.58 per day, meaning  2/3rds earn less than $15 a day (see this report section 5, table 1). $15 a day is about $75 a week or $3,900 a year. 40% of Mexican workers do not earn enough to maintain their families above the poverty line, see here. These are our trading partners!
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On May 14, 2015, The Senate approved, 65 to 33, “fast track” authority for the trade agreement known as the Trans-Pacific Partnership (TPP) among ten nations.  
The vote fell out: Republicans 49 yes, 2 abstentions; Democrats 16 yes, 31 no; Independents 2 no. Senator Feinstein yes, Senator Boxer no. 

This deal has been highly controversial. The group Private Citizen, Global Trade Watch, summed up their critique: “. . . the deal would extend the incentives for U.S. firms to offshore investment and jobs to lower-wage countries.” Also it would create expanded powers for foreign corporations to challenge protective regulations on finance, on the environment, and workplace safety. It does nothing to end "currency manipulation" according to Robert Scott at the Economic Policy Institute, which if eliminated would create 2.3 to 5.8 million U.S. jobs. Currency manipulation is the "leading cause of these trade deficits" according to Scott. Senator Elizabeth Warren states that the TPP would “tilt the playing field in the U.S. further in favor of big multinational corporations. Worse, it would undermine U.S. sovereignty.” (Both those reports, by Scott and Warren, are essential reading to understand this issue.)

It is challenged by economist Dean Baker who says, “For example, if New York State wants to restrict fracking, a foreign gas or oil company could contest the ban in an investor state tribunal. . . . But the TPP is about corporate profits, not free trade.” 

A statement from Americans for Financial Reform argues, “Any bank from a TPP signatory country that claims disadvantage from a regulation . . . could bring a private challenge and claim compensation from U.S. taxpayers.” The Fed could not increase the reserve requirements on banks without approval from the TPP. The U.S. banking system crashed our economy in 2008 bringing an 18 month recession, and we are still suffering from that disaster. This  Great Recession occurred because between 1996 and 2008 banking and credit expansion went wild; in these 12 years the "debt outstanding" of the "domestic financial sector" (see the Federal Reserve report, Table D.3) grew at a rate 5.5 times faster than the economy grew, adjusting for inflation and population growth. Outstanding debt of the domestic financial sector increased from 59% of GDP to 116% of GDP. (see here to calculate for yourself). How can debt burden  double over 12 years, expanding 5.5 times faster than overall growth per capita, without a train wreck resulting? This unregulated credit system caused the destruction of 15 million jobs (8.75 million permanently eliminated according to the BLS), the nose dive of the employment to population ratio, from which we are only 20% recovered after 6 full years, and the loss of family savings (a 40% loss at the median household from $135,400 to $81,200) and the loss of income combined with mortgage  foreclosure for about 1 in 10 mortgage holders. In 2008, for the second time since 1933, the national income declined. Simultaneous to this bad news, the Federal Reserve bailed the banks with $30 trillion in temporary loans, and corporate profits are now at a historical high, and private wealth has increased by over 30% (adjusting for inflation and population growth). That 30% increase in private wealth, an increase of $24.6 trillion in 6 years, brings total private net worth to $83 trillion, and brings the average net worth of all U.S. households to $675,000. But the typical or median household owns $81,200. Median net worth dropped by 40.2% in the same 6 years, down from $135,000. (Both are Federal Reserve data, Flow of Funds report, page 2, and Fed Chartbook, which I hyper link to below.) The wealthiest Americans are the only group apparently benefitting from the self-destruction of the financial sector. 
Most Americans are still up the creek.  We still need stronger measures to reign in the banks, and the TPP undermines our own laws to protect ourselves.   (See my last essay for a fuller description.) Since 2007, Q4, economic growth, real  GDP per capita, has slowed to its slowest rate since 1950, see the Fed's graph.  This is the consequence of the Bush era disregard for financial regulation, and Obama's preference to protect finance not the general working population. By extension, growth has not been this slow since the Great Depression. 

My take is that TPP would continue to lower wages. Presently the collective wage earnings of the lower-earning half (77 million) of all U.S. workers is less than 8 percent of total national income. Their average annual income is less than $10,000, while the average income for all 155 million workers is more than $80,000. This is a little complicated because only 68.2% of all income is from wage and salaries (see the next link below, page 26). But if we compare taxpayers, not workers, the top 1% of taxpayers earn one sixth of all income, more than 54% of lower-earning taxpayers. The top-earning 5% collectively earn more than the collective income of the lower 69% (see the report from the Joint Committee on Taxation, page 30). As for wealth, the portion of private wealth held by the poorer 50% of U.S. households is 1.1%. These ratios are worse in Mexico and China. (See here, page 45, inter quintile ratios 20/80) Economists claim 3.2 million (read the entire report by Robert Scott) to 5 million U.S. jobs have been lost due to trade with China since 2000. This is a race to the bottom. 

While trade could be a means to enrich low-income America, it has not, in fact incomes have increased almost only to the wealthiest in spite of greater trade and bigger trade deficits. See the EPI report that shows 2.9% gain in growth of income to the lower 99% of Americans while the top 1% gains 180.9%, 1979 to 2012, 33 years. The top triples its income in 33 years, while the rest of the nation see no gain. 

Our trade could and should promote inclusive prosperity, and it is possible.
A radio interview dealing with the TPP with Roger Hickey, co-founder of the Economic Policy Institute, was aired on KPFA on May 24, listen to it here. The Senate may be lost but the House of Representatives may still block passage.

Chinese labor classroom

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If the above essay was not long enough, here is a letter I wrote to Congressman McClintock's Facebook page. It follows:

Dear Mr. McClintock, 
In the last 51 years, since January 1964, 80% of the nation's workers, called nonsupervisory workers, have seen their average weekly incomes (and by extension their annual incomes) decline by 4%. Adjusting for inflation, the $730.65 weekly earning in 1964 is now $704.33 in April 2015 --- a decline of 3.6%. In contrast, the disposable (after tax) income of average Americans has increased by 193% since 1964 — this is almost a tripling (from $13,048 to $38,211, see the Fed graph here). Why have 80% of the nation's workers been subject to a frozen income level while the nation's per capita disposable income has nearly tripled? 
See the Fed graph: http://research.stlouisfed.org/fred2/series/CES0500000030
80% of U.S. workers are nonsupervisory. You claim that the trade pacts, TPP in particular, are good for the average worker. They are not. 

Here's a quote about the TPP trade pact that you advocate:
"Most (not all, but most) of the countries that would be included in the TPP are poorer and more labor-abundant than the United States. Standard trade theory has a clear prediction of what happens when the United States expands trade with such countries: total national income rises in both countries but so much income is redistributed upwards within the United States that most workers are made worse off. " See the  full essay against the logic of your "free trade" proposal. Instead of issuing more baseless rhetoric, you should read the essay from the Economic Policy Institute, http://www.epi.org/blog/no-the-tpp-wont-be-good-for-the-middle-class/

This is a disaster! We send jobs to them, they send cheap products back to us. We lose jobs, they gain income. But on net, the savings from lower priced products do not match the loss of income from lost jobs, and the resultant depression in wage growth. We lose. It's that simple. (See the report, The Middle-Class Squeeze, page 9 to confirm that price increases have outpaced consumer price decreases.) Workers' average weekly and annual income have decreased by more than almost 4% since 1964 (see .stlouisfed link below). Working age families' median income has increased by 8% since 1979, while average disposable income has increased by 80%, see here and here. (BEA.gov).This is a disaster, clear and obvious. See the Federal Reserve graph and convert for inflation: 
http://research.stlouisfed.org/fred2/series/CES0500000030

Here is the Federal Reserve graph on the current account balance (foreign trade balance): 
https://research.stlouisfed.org/fred2/series/NETFI
Dean Baker states, " This is truly remarkable since 

the $500 billion plus annual trade deficit (@3 

percent of GDP) is the main cause of the 

economy's weakness and continued high 

unemployment."

See here. 

Not since the early 1980s have we had a nearly balanced current account (foreign trade balance). G. W. Bush pushed the record foreign trade imbalance to the lowest limit, $858 billion in 2006. Today the trade deficit stands at $521 billion. When money leaves the country in foreign trade, workers' incomes drop. That $521 billion, in part, would have gone into workers’ income. Since 1980 we have been shipping money off-shore, like foreign aid, to cheaper labor markets. The wealthiest in all nations have become even wealthier, the poor workers not so. It’s a class war, and you are on the wrong side, the side of the world’s super-ultra-extremely-rich. You are advocating a continuation of this negative reality for American workers, whose wage income has declined since 1964 while total income has nearly tripled! 

Thank you for your e-mail in which you support the TPP, but please go back and do some real analysis. You are closer to a fantasy about trade than truly understanding it. I can help you understand this better if you would just ask for some further info I have available.  

Friday, April 24, 2015

The New Economy Will Be
                 Managed Democratically

                Stimulus Without Debt, A Novel Plan    

       Huge wealth gains while economy declines   
--- $26.4 trillion in added savings has been created during 6 years of a crippled economy, increasing total private wealth to over $83 trillion, or $675,000 per household on average.  
                          
MoneyThe large American economy can serve everyone. That's the objective of this essay. In recent fact it has served just a minority who were already well-off. Stimulus Without Debt is a plan by professor L. Seidman to directly create money without debt or taxation to fund a stimulus, which I have put forth as a direct job creation program, similar to the Congressional Progressive Caucus plans of 2011 to 2015. The economy can employ all workers and create security for all households. It is not impossible. 

Since 2008 private household net worth has risen by $26.4 trillion, or $214,000 per family or household. (see here, page 2) This is a 47% increase in private wealth, or 30% adjusted for inflation and population growth. 
Now the average savings per household is over $675,000
The median savings in 2013 is $81,200. (Source, Fed Reserve Chartbook, see note below.) Median household savings has dropped by 40.2% since 2008, from $135,000 to $81,200. 
Real median household income according to the Fed has dropped by 8%.  The last six years has brought turmoil -- job loss, income loss, house loss and life savings loss --- for most families. 
With one exception ----
This enormous $26.4 trillion gain (or $214,000 more private savings for every household) went mostly to the wealthiest 5% who own 75% of all financial assets. 
Most people, 90%, were unaffected by the asset value increase, which reflected the rise of corporate stocks.
A few retirees with savings were rewarded to some extent, as were pension funds.
The source of this gain of $26.4 trillion is two-fold, increased corporate profits due mostly to lowered costs in labor expenses, stock buybacks and corporate dividends (see William Lazonick's article Profits Without Prosperity here), and a limited universe of places where the rich could put their money. The limited range of "investments" (or secure places to park money) meant that the existing finite selection increased their value, as in a bubble situation. The employment to population ratio is at a 31 year low, among age 25 to 54 the E/P ratio is at a 29 year low, and the labor force participation level is at a 37 year low. 

The Stimulus Without Debt Solution
Without creating more debt, Congress could fund a stimulus. As an  example of a stimulus, in 2008 George W. Bush issued tax rebates worth $152 billion that were mailed to all adults ($600) and children ($300) in most households. 
But rebates are scatter shot, not targeted. Better than a rebate, Congress could fund direct job creation. It would employ the one in four (25%) who are un-employed or under-employed, dropped out, or working full-time year round for less than poverty wage income. It would help those most in need of help. And this would also help everyone. 
Congress would authorize it. The Fed would determine how large to make it. This would establish a separation of power. 
This is the sensible plan, rather than the top-down method the Fed chose with the $2.5 trillion quantitative easing program. The Fed created money out of thin air, absolutely debt free. We can call it "bank rescue without debt". 
I'm proposing the plan, Stimulus Without Debt, of professor Lawrence Seidman, see here, and read it slowly,
http://www.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2014/UDWP2014-01.pdf

Federal-State Coordination for Direct Job Creation
Another permanent plan for direct government job creation is the Federal Employment Reserve Authority proposed by Princeton University professor Martin Shubik. In each of the 50 states an agency would prioritize projects for emergency employment to avoid unnecessary levels of unemployment. See the proposal here and here (page 23) in a much longer report from the Levy Economics Institute. Sample quote: "(4) Once unemployment goes above a fixed level of, say, 6 or 7 percent (to be adjusted as circumstances warrant), the Authority would put out bids for projects in coordination with federal and state funding authorities involved in financing."

A Jobs Program Without Debt
Not mentioned in Seidman's direct money creation plan, is the corollary for the Fed to create out of nothing, out of thin air, and debt free, $300 billion each year (or 1.7% of GDP), and Congress could then create 10 million public jobs at $30,000 per job net cost. The only danger is inflation, and the Fed would monitor for that possible result. Inflation danger is thoroughly discussed in Seidman's paper. 

The cost per job would be $30,000, using the estimate of Philip Harvey’s plan, Back to Work. On page 11 he shows that a cost of $28.6 billion in government outlays would create 1,414,000 jobs. This indicates a net cost of $20,226 per job. "Net" is the key idea. Such a plan is affordable, perhaps indispensable. I am assuming his per job figures are too low. Experts will have to evaluate the costs. 

The Congressional Progressive Caucus promotes a direct job creation plan; it has promoted a variant of this plan for the last 5 years. It proposes $336 billion in direct job creation for the next three years. See the section "Renewed Fiscal Expansion . . ." in their budget. In all they propose $1.6 trillion over a 10 year period, most of it in the first three years. 
Their plan involves borrowing, going into debt. But the enlarged economic output translates into greater tax collection and a growing economy. Debt is a ratio, debt over income. Growing the denominator is the best, maybe only, way to exit a recession/depression. 
Additional debt or borrowing is politically problematic. Another method would be to increase taxes, also problematic. Direct money creation, Stimulus Without Debt, would neither increase debt or raise taxes, nor would it increase inflation which is the primary danger of such a plan. Inflation fears are fully dealt with in the proposal by Seidman.  
The Fed can create the money without borrowing or taxing — this would be a quantitative easing directed at the low-income sector that would enrich the entire society. 

Wage income has fallen badly since 1970 when non-supervisory employees earned 51.5% of the national income. Today they earn 41.9%, a loss or difference of over $1.3 trillion. 
This represents a loss of about $11,000 a year per employee (non-supervisory worker) among the lower-earning 80% who work. 
On a per household level, incomes would rise by $16,000 if the 20 year average (1950 to 1970) percentage of national income was restored to the level of 50%. See Fed graph: 
http://research.stlouisfed.org/fred2/series/W270RE1A156NBEA

The EPI states almost the same, "
  • By 2007, the growing wedge between economy-wide average income growth and income growth of the broad middle class (households between the 20th and 80th percentiles) reduced middle-class incomes by nearly $18,000 annually. In other words, if inequality had not risen between 1979 and 2007, middle-class incomes would have been nearly $18,000 higher in 2007.
The inflation adjusted, "real", weekly wage, and the annual wage, for 80% of workers has decreased by 4% over a 51 year period, 1964 to 2015, (see Fed graph here), while the disposable (after-tax) income per capita has increased by 196%. See the Federal Reserve graph demonstrating this Real Disposable Income Per Capita


                            The Big Picture     
I'm going to leave this essay incomplete. Later --- much later, many years later I'll get back to this --- I'll include topics such as 
    ~ converting to clean energy to combat climate change
NASA scientist comment on the new monthly high of over 400 parts per million of CO2 in the atmosphere. Read here.

Have you heard the news? "The last time there was this much carbon dioxide (CO2) in the Earth's atmosphere, modern 

humans 

didn't exist. Mega-toothed sharks prowled the oceans, the 

world's seas were up to 100 feet higher than they are today, 

and the global average surface temperature was up to 11°F 

warmer than it is now."  




And, "Atmospheric concentrations of 

the greenhouse gas [co2], which helps drive global warming, 

haven’t been this high in somewhere between 800,000 and 

15 million years."    Read some article here and here and 

here and here  Employment in energy system conversion 

can change this.

    ~ increasing the minimum wage together with the Earned Income Tax Credit to eliminate poverty. The median annual income for 155  million workers is $28,031, and it should be closer to the average workers' income, $73,000.  
    ~ imposing mandatory paid vacation rules on all corporations,   
    ~ funding Individual Development Accounts, or IDAs, to increase the typical and low-income household savings. The median household saving, $81,200, should be closer to the average, $675,000. (see Fed Chartbook here. It shows that the median household net worth fell by 40%, from $135,400 to $81,200 between 2007 and 2013. It's difficult to find this chart as the pages are not numbered. It's perhaps chart #40, if you wish to look.) Half of U.S. households own 1.1% of all wealth, see here. About 44% of U.S. households report that they could not survive longer than three months on their "liquid asset" savings, which for a family of four amounts to $5,763. About half the families in the U.S. have less than $6,000 in liquid assets, see here. Pew Trusts issued an excellent report in January, 2015, The Precarious State of Family Balance Sheets, that indicates similar levels of savings as reported by the Fed.  
    ~ democratizing the Federal Reserve Board
    ~ taxing personal savings above $50 million or variants such as the Financial Transaction Tax, FTT, which will effectively repress extreme capital formation and utilize the economy's surplus instead of wasting it in astronomical net worth accumulation, 
    ~ creating tax preferences to small corporations
    ~ establishing state banks and regional development and self-sufficiency programs, 
    ~ creating foreign trade agreements that include labor rights and environmental protections and protection against currency manipulation with penalties for violation against them, 
    ~ exploring direct job creation subsidies to corporations

The discussion will also include a reform of the parasitical sectors of the economy --- the financial system, the medical health system, and the military. Somewhere I'll also squeeze in childcare subsidies. And when I finish I'll have also mentioned that we need to take down the telephone poles -- really. Bury the telephone wires  in most neighborhoods. This is a direct jobs program waiting. After that we can paint the classrooms if needed. The American Society of Civil Engineers has a program for all states, see here
Their projects are more important than painting classrooms. But care programs should be mentioned as part of a Jobs Program (see Why Obama Should Care About Care). 

In all, the economy can serve humanity. 
Humanity can save the earth's ecology and still preserve a healthy level of freedom, personal savings and prosperity. Internationally we can create a high quality of life with environmental beauty and health.  

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I wrote a comment on Robert Reich's article "The Political Roots of Widening Inequality", and you can read it here

Saturday, March 21, 2015

The GOP Budget Proposal, March 2015

The Republicans in the House and Senate presented their budget for the next 10 years. I hope here to clarify the main goals.  First you can read my summary and then I explain a second time with a few details about the Progressive Caucus budget, also released this past week. The last deserves more discussion. One commenter said that she searched Google for articles and found five references for it, while the Republican plan got over 1,300. You can read the Progressive Caucus budget at this site.
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               Hold the Presses.
The Best Summary and Advice Essay to Appear in Years 
can be found at the Economic Policy Institute, here, titled
                  "How to Raise Wages". 
Also look here for the rest of the program from EPI. The first one I linked to describes things to do as well as things to avoid; this is foundational to understanding how everything fits together. I found this one day ago, so it is new. It is not difficult reading; it shows the entire economic plight of our nation, in about 15 pages.

___________________________

Why the Republican budget plan is objectionable

Because  
1) It cuts the tax burden for the richest 1% of households by about half. (Also see here.) This trickle down magic has not worked in the past. The 2000 to 2010 period brought the slowest growth in 70 years. The top-earning 1% managed to accrue over 50% of all growth during the past 3 decades. See here and here "The top 1 percent of earners saw cumulative gains in annual wages of 153.6 percent between 1979 and 2012—far in excess of economy-wide productivity."

2) It is Robin Hood in reverse. To adjust for the loss of revenue due to the large tax cut to the richest, they eliminate government programs that serve the poorest. Two thirds of programs cuts come from programs that serve the poor. (And see here.) 

3) It doesn’t balance. The revenue cuts are greater than the program cuts, so tax deductions called tax expenditures must be eliminated. But the Republicans refuse to specify which deductions will be abolished. “We’ll show you how later,” is their position. The CBO has stated that the national debt would rise to 150% of GDP by 2050 as no new revenues compensate the net loss derived from the tax cuts. While their main selling point is a balanced budget, their budget does not balance. At the CBPP its president stated last year
" No one should take seriously its claim to balance the budget in ten years."

4) Obamacare is repealed. In the past year 24.4 million American adults between ages 18 and 65 obtained health insurance coverage — either through the expansion of Medicaid or through subsidies towards health insurance or through being connected to their parents’ insurance plan until age 27. (See the facts at Obamacare Facts.) In 2012 47 million such adults had no insurance, so Obamacare has reduced that number in half. The Republican plan would  eliminate that improvement. The revenue funding that pays for the ACA coverage originates mostly from a surtax on high income households, those whose incomes have tripled in the past 30 years. 

5) Social Security and Medicare will be substantially altered. 

6) It doesn’t address the economic needs of the nation. The chronic decline in wage income affecting 80% of workers who are non-supervisory employees would worsen. Their average weekly and annual income has grown by 3% in the 50 years since 1964, while the nation’s per person disposable income and worker productivity have increased by 155%. After-tax income, called disposable income, has increased by 177% since 1964, average wages by 3%. The wealthiest have more than tripled their incomes. Prosperity has left the majority of the nation behind. Rewarding the rich with tax cuts and ignoring the needs of the lower-income majority is bad policy in the era of record high corporate profits and increasing inequality. (See the previous essay for a list of graphs from the Federal Reserve making this point.) 

Some sources I draw upon are the Center for Budget and Policy Priorities, the Center for American Progress, the Campaign for America’s Future (and here), and the Economic Policy Institute that has just released the 2016 budget proposal of the Congressional Progressive Caucus. The last source describes a different vision from the voodoo economics of the Republican plan. 
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Here's a radio interview that summarizes the budget issue, also at  Between the Lines online . org. ---  btlonline.org

An excellent comparison study comes from The National Priorities Project. It compares four budget plans (Obama's, the Republican Senate and House plans, and The People's Budget) with a survey of popular priorities. This link takes you directly to the comparison. For example:
"For example: 67% of Americans say improving the job situation is a key priority. Here's how each of the four major budget proposals tackles job creation:
  • President Obama would invest $478 billion over six years into job creation initiatives.
  • The House Budget includes no new funding for job creation.
  • The Senate Budget includes no new funding for job creation.
  • The Congressional Progressive Caucus would invest $1.3 trillion over 10 years in job creation initiatives."
  • And an inspiring 12 minute video about the national budget, here.
  • ___________________________________
  • ___________________________________

A second explanation: 

The economy generates about $73,000 of income per worker per year. (This $73,000 figure comes from this report, page 2. I converted average income for all households, $93,900 before tax income, into the average for all workers, $73,000.) Yet half of U.S. workers earn less than $28,031 a year according to the Social Security Administration. Half of U.S. workers earn in annual wage income less than 8% of the national income -- you can add the amounts from the SSA report and divide by the national income amount obtained here: BEA.gov (personal income). The $73,000 figure derives from this CBO report on income for 2011

The national debt is not the problemDistribution of income and wealth is our problemWithout healthy growth, the federal debt problem is hopeless, absolutely beyond help. Healthy growth involves re-employment, and the economy must grow employment directly through direct government job creation, and finance that by a Fed/Congress "dual-mandate transfer" as recommended by 
Lawrence Seidman's "Stimulus Without Debt" proposal. (Read the essay that is linked. Seidman is a professor of economics at University of Delaware. I'll write more about this in future posts.) To fund the employment of millions we need not resort to either borrowing (and more government debt) or raising taxes. We may fund the program without risk of higher inflation through a joint process with the Congress and the Federal Reserve of "direct money creation" to fund the program, what Seidman calls a "dual-mandate transfer", involving Congress and the Fed. This argument in the coming years will reeducate us all on the possibilities of managing the economy. 

This is similar to the Congressional Progressive Caucus budget that would  directly employ the under- and unemployed. Direct job creation has been shown to be 10 to 20 times more effective than a tax cut at getting money into the economy. The Bush era tax cut resulted in the slowest 10 year growth period in 70 years. Direct jobs provides more employment per dollar spending. Since 1964, 51 years ago, non-supervisory workers have increased by 3% their average weekly wage income while the economy has grown by 155% per person. Prosperity has by-passed lower-paid workers. Wages have been frozen while the top 1% of households has tripled its income. The 3% figure comes from the Federal Reserve, http://research.stlouisfed.org/fred2/series/CES0500000030

The GOP budget cuts the highest income tax rate from over 40% to 25%. It also reduces taxes on capital income, and all in all reduces the burden by half. In short, the top-earning one percent minority tripled their incomes and now the GOP reduces their taxes by about half. This GOP budget reduces all federal expenditures (excluding Social Security) by about 20%, and this means that programs serving the poor are reduced by about 25%; two-thirds of the program cuts come out of programs serving the poor according to the CBPP.org. Medicaid will be cut by 26%. But the budget still does not balance, and they plan to cut some tax deductions, but they refuse to specify which will be cut. 

The plan is Robin Hood in Reverse. 
Healing the economy will involve revamping income distribution more equitably. Here's an example of this imperative need, the United Nations' Human Development Index Adjusted for Inequality. Note that the U.S. is ranked #5 before adjusting for inequality, and then drops 23 places to #28 after adjusting. Then look at the Gini Coefficient, 40.8, in comparison with other countries, and look at the "Inequality of Income" column (fifth from the right), and compare, again, with other countries. Iran is the only country among 184 countries that exceeds the drop of 23 places; Iran drops 34 places. 
Another study, by the OECD (page 23), shows that in 33 years, 1995 to 2008, annual income in the U.S. increased by 0.9 overall, but the lowest 10% increased their income by 0.1%, the highest 10% by 1.5%. And comparing (on the final page of the report) the ratio between the 20th percentile and the 80th, the "Inter-quintile share ratio 20/80", shows among 34 nations the U.S. tied with Israel for 3rd worst place, only Turkey and Mexico being more unequal.  

Greater income equality will in turn help re-employ those who want full-time work, about 20 million workers. This assertion is open to argument, but the main issue is whether the economy is meant to serve the society or the other way around, society and humans are meant to serve, fit in, and submit to the capricious demands of the capitalist economy that serves the most avaricious who live in the society; and that wages should be a race to the bottom so as to promote greater profits. It is a subject worthy of debate. 

There are also about 12% (or 18 million) who work full-time and year-round for less than poverty wages. In all, about 25% of the work force are either 1) unemployed, 2) under-employed, 3) dropped-out and discouraged, or 4) working full-time year-round for poverty wages --- 25%, or 40 million out of 160 million. (see the link to njfac.org/employment below) About 80% (or 128 million) are poorly payed. Remember that $73,000 is near the average worker income for all 160 million in the workforce, which includes all unemployed, under-employed, partial year, dropped out and discouraged workers. Half the workers earn less than $28,031 and less than 8% of total income. Multiplying $73,000 by 160 million yields $11.6 trillion, while total national income is almost $13 trillion. (See Joint Committee on Taxation, page 30) So the $73,000 average income figure is likely below actual average income. Full employment, or jobs for all, will raise the wage income of all employees and better achieve fair distribution of total income. 

Healing this economy will take major reforms, and it will require massive citizen involvement, and reconceptualizing basics ideas about how to make the economy the servant not the master will take precedence. It will take decades. The GOP budget is a diversion from real improvements that must be done, and it appears to be fraudulent in that its principal aim is to enrich the wealthiest (who are campaign donors). Make the wealthy even wealthier is the main objective, don't be fooled. Its victims are the poorest who are elderly, disabled and children. It is confusing because they are afraid that you, the citizen, might understand it. 

The National Jobs for All Coalition (njfac.org)identifies the unemployment numbers I cite here, and it proposes full employment plans. 
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The other posts below are helpful to fill out the story of the economy and I recommend them. 

Monday, March 16, 2015

All the Puzzle Pieces Together

My Congressman, a Tea Party person, visited the local community. I handed him this essay because, I told him, he needed to take a closer look at the other side of his argument. This essay is both problem and solution; I hope readers will gather a useful, hopeful, and comprehensive overview.

A  VIEW  OF  THE  FUTURE 

            Inequality Devastates Social Norms
What if the total national income was $100 a year, and $50 went to just 10% of the population? What if  $20 went to only 1% of the population? What if the lower-earning half, 50%, received just 16% of all income? Every worker, on average, contributed over $70,000 a year to the national income, but half received less than $28,000 a year and half also average less than $10,000 a year in wage income (that would include all the unemployed, part-time and partial-year workers)? What if half of U.S. workers earned in wage income less than 8% of the total national income? As for savings, what if the average household held over $650,000 in assets? And still, what if the lower-saving half of all households owned just 1.1% of total private net worth, about $14,000 per household, not the $650,000 average for all? What if 1 in 7 in the population survived through the charity of food coupons to purchase their food? What if 40% of the richest nation on earth reported their status as “low income or poor”? What if candidates for public office, both national and state, depended almost entirely on the wealthy minority to fund their  election campaigns? What if only 4% of the national income was devoted in charity, through government programs, to the alleviation of poverty afflicting the elderly, the disabled, and poor children? (see here, Table 3, page 10)  Here is the Economic Policy Institute's report on lop-sided income growth. This report states that in the past 33 years, 1979 to 2012, the top-earning 1% increased its income by 180%, the rest by 3%. This graph shows 9% income growth at the median while total economy growth was 72%, 1979 to present; while between 1949 and 1979 all income groups grew at the exact rate.

 

The above describes the U.S.A in 2015. Furthermore, what if much of the great private annual income and most of past savings were mostly diverted into a large international gambling casino with no productive purpose? For instance, JPMorganChase, one of the largest banks, reported that 46% of its assets were “trading assets” or stock brokerage accounts, not loans to business. Loans to business was less than 12%. Reputable  economists (William Lazonick, here) report that between 2001 and 2010 corporate profits were not directed to improve productive facilities or research or to raise workers’ incomes, but that 94% of record profits went to shareholder dividends and stock buy-backs. From Lazonick's article, " For 2001-2010, 459 companies in the S&P 500 Index in January 2011 distributed $1.9 trillion in dividends, equivalent to 40 percent of their combined net income, and $2.6 trillion in buybacks, equal to another 54 percent of their net income. After all that, what was left over for investments in innovation, including upgrading the capabilities of their workforces? Not much.

How, then, can the majority of Americans appropriate the vast surplus, the non-productive gambling funds, and convert these resources into productive uses that would generate employment, create useful services and products, establish financial security for most households, and even provide more leisure and vacation time for the majority of the population?  

“What is an economy for?” is the general question. What is the goal of coordinated economic activity? Should it be coordinated? How? I argue that an economy should organize human talent and potential to serve society while preserving basic rights and freedoms. The economy should serve. It should raise minimum social standards gradually as techniques and tools, often called productivity, improves. Since 1964 the U.S. economy on a per person basis has increased its output by 155% (see here and do your own calculation, from $19,455 to $49,584 per person), yet the weekly and yearly wage income of 80% of its workers, the non-supervisory workers, has actually increased by 3% — this is a Federal Reserve data fact. 
Median usual weekly real earnings: since 1979, wage and salary workers, employed full time
http://research.stlouisfed.org/fred2/series/LES1252881600Q
Median usual weekly nominal earnings, full time, wage and salary workers, since 1979
http://research.stlouisfed.org/fred2/series/LES1252881500Q
Share of National Income going to Employees as wages and salaries
http://research.stlouisfed.org/fred2/series/W270RE1A156NBEA
Per capita disposable income
http://research.stlouisfed.org/fred2/series/A229RX0A048NBEA
This shows that while after-tax, or disposable, income has tripled since 1964, up almost 200%, the average wage income is up 3%, and the share of income going to wages and salaries has dropped from 50% to 42%, a difference of $11,000 or more to each of the 96 million households in the lower-earning 80%, those who are employees. Evenly distributed, this rebalancing would eliminate poverty.

The economy has not shared its prosperity. The Economic Policy Institute reports that in 28 years, 1979 to 2007,  the top one percent increased its income by 200.5% (a tripling) while the average income of the lower-earning 99% increased by 19%. The per capita GDP expanded by 72% in this 28 year period (read the EPI report “The Increasingly Unequal States of America”). Only 5% of households matched the pace of the economy’s growth. There are many scholarly sources supporting this conclusion. 

To right the imbalanced distribution of income and wealth a practical first step would be to tax financial transactions, stocks and bonds, derivatives and futures trading -- (called an FTT). Since 75% of all financial assets are owned by 5% of the population this would not affect 95% of the population. Congressman Chris Van Hollen recently proposed this measure in February 2015 (see link below). Also income from capital and capital gains could be taxed at the nominal personal income tax rate, and the top income tax rate, say on income that exceeds $1 million a year, could be set at the level of all 8 years of the Eisenhower presidency, at 90%. During those Eisenhower years the economy grew rapidly and shared its prosperity. 

Explaining the need for a FTT, the Chicago Political Economy Group recently wrote a reply to an editorial in a local Chicago newspaper. Here's an excerpt: 
The Sun Times endorses the notion that more trading 

is always better, worrying that the LST [the FTT] 

would drive trading volume down and/or away from 

Chicago. 

There is a huge amount of trading occurring on the 

Chicago derivative markets: more than $900 trillion 

in underlying value in 2014. Bear in mind, world GDP 

is $70 trillion and the US GDP is about $17 trillion. It 

is obvious that most of this trading is of the “socially 

useless” type described by Andrew Haldane, the 

leading UK regulator during the Great Recession. 

Further, there is evidence that such misdirection of 

resources hampers growth in the real economy.


Solution

Without increasing the national debt a multifaceted public jobs program could be initiated to end unemployment and under-employment. See the plan "Stimulus Without Debt" by University of Delaware economist Lawrence Seidman. And also see Rutgers University economist Philip Harvey's plan Back to Work to understand how at a price of about $30,000 per job, about 10 million jobs could be created for $300 billion per year. This would employ full-time all the unemployed and about half of those who are involuntarily employed in part-time work. About 20 million jobs are needed, but this $300 billion per year plan coincides with the Congressional Progressive Caucus plan. The Federal Reserve would advise the Congress on the ongoing danger of inflation growth. See the Economic Policy Institute on the the acceptable wage growth and inflation growth target.

Remember, 1 in 4 (or 40 million) American workers are either 1) out of work, 2) working involuntarily at part-time work,  3) dropped out of the labor market, or 4) working full-time and year-round at less than poverty level wage income. This should end. See the National Jobs for All Coalition's report on employment. Just as during the Great Depression, 1933 to 1937, when unemployment dropped from 25% to below 10%, (see the article supporting this finding here) or during the war period 1940 to 1946 when the number employed increased by a near-miraculous 40% and annual output increased by an astounding and record breaking 75%, public employment is effective in spurring an economy. This would tighten the labor market which would raise wage income for over 80% of workers. Presently wage income as a percentage of total income stands at 42%, down 8% from its historical norm between 1950 and 1980. (see Fed. Reserve graph here) This represent an income loss of about $13,000 per year for all employees (non-supervisory workers) in the lower-earning 80% of workers, perhaps $20,000 per household. If this difference were rectified and spread evenly among all households in the lower-earning 80%, 
then poverty would be eliminated

Capitalism must balance the distribution of its economic surplus, which is often called income or profits. Labor cannot receive excess income without destroying necessary corporate profits, and vice versa, excessive corporate profits decreases private purchasing demand, which in turn lowers employment. A balanced distribution is requisite, and presently corporate profits are at a historical high. 

Many sidewalks in San Leandro are clearly marked “WPA, 1937”. Many public bridges, dams, electrical installations, roads, trails, national parks, court houses, airports and seaports, schools and universities that were built in the 1930s are still functioning. Today’s needs are no less than before. We need to convert our transportation system to a renewable energy source, electric or hydrogen. Providing subsidized home energy retrofitting for energy efficiency is needed nationally. Improved childcare, public education, and expanded services to the infirm elderly and disabled are needed. The reestablishment of municipal and local recreational departments would greatly improve the developmental opportunities of the nation’s youth. And if we should find a paucity of work to perform, vacation time could also serve to maintain high employment ratios. Presently the labor force participation ratio is at a 37 year low and the employment to population ratio is at a 31 year low. Today we are about 8 million jobs below the historical 20 year (1989 to 2009) average E/P ratio. The nation needs jobs. And surprisingly, by creating public jobs the demand for products and services increases, and this in turn reduces and removes the need for public jobs. See the Philip Harvey report, below.

These goals are simple, comprehensible and within reach. The national debt need not be increased, either through the FTT or the Stimulus Without Debt approach. All capable adults could find employment, needed public services and infrastructure would be upgraded, financial security for most would cease to be an unobtainable dream, working paycheck to paycheck would disappear, and families would find time for leisure and vacation. This is        the View of the Future.           

Additional reading: 

For public job creation see 
Chicago Political Economy Group, Working Papers, and Reports
“A Better Off  Budget” from the Progressive Caucus of Congress, at EPI.org 
Philip Harvey, Back to Work: A Public Jobs Proposal for Economic Recovery
Nouriel Roubini, et al, The Way Forward

Congressman Chris Van Hollen’s proposal for a Financial Transaction Tax at The Center for American Progress

See also my web page, Economics Without Greed            
Thank you for reading. 

Ben Leet                   
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Here's a recent example of Paul Buchheit's writing, where he states,
1 "138,000 Kids Were Homeless while 115,000 Households Were Each Making $10 Million Per Year.
2. The Average U.S. Household Pays $400 to Feed and Clothe Walmart, McDonalds, and Other Low-Wage Workers
3. As $30 Trillion in New Wealth was being Created, the Number of Kids on Food Stamps Increased 70%
4. Despite the Decline in Food Security, the Food Stamp Program was Cut by $8.6 Billion and the Money Paid to Corporate Agriculture"