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Sunday, April 6, 2008

There Are Solutions

If you took the average wealth of the least wealthy half of the U.S. households, and converted their wealth into $100 dollar bills and stacked it neatly, each of the 55 million stacks would rise one inch from the ground.
If you did the same for the most wealthy one percent, each of the 1,140,000 stacks would rise almost 60 feet in the air. If you did it for Bill Gates or Warren Buffett their stacks would each rise 30 miles into outer space. (This is not a quote. The source of the information is the U.S. Federal Reserve, Survey of Consumer Finances , Currents and Undercurrents, Arthur Kennickell, 2006. For a graphic of this description see The $50 trillion of U.S. wealth is distributed accordingly: the top one percent own 33.4%, the next 9% own 36.1%, the percentiles 50 to 90 own 27.9%, the bottom 50% own 2.5%.

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The economic grief we are experiencing began in the early 1970s, and it beseeches solutions. Around the early ‘70s the rate of economic growth slowed, unionized labor declined, wage growth stalled and decoupled from productivity growth after three decades of tandem growth, and the manufacturing base was exported to foreign shores. Furthermore the drop in poverty levels stopped dropping. The poverty rate had dropped from 30% in 1950 down to 11.5% in 1973, but it has not dropped further. Neoliberal economics took hold. Dean Baker’s book
The United States Since 1980 tells much of the story. Many books tell it. Recently a real estate broker testifying before Congress about the housing mortgage crisis told the story of houses forty years ago selling for two times yearly income, and now they sell at four times yearly income. (The median household income is about $46,000, the median house price is $217,000, in 2007) That is the reason for the housing crisis. It took one income to support a family, now it takes two. Wages are lower today than in the 1970s. Imagine that! For the first time in history we have a negative savings’ rate. What to do? What are the solutions?

In the book
All Together Now, Common Sense for a Fair Economy,
Jared Bernstein presents a graph, page 85, depicting compensation and productivity. At 1979 they separate. He says, “Since the mid-1970s, real median family income is up 22 percent, still not as high as the 80 percent rise in productivity, but not as bad as earnings.” Earnings or wages have been flat. So, Joe in 1975 was producing $100 per day, now he produces $180 per day, but his pay is lower. What’s more, “The typical middle-income married-couple family spends 500 more hours per year in the paid labor market, more than three extra months of full-time work.” Or, to put it another way, “Joe, you want more income? Put your wife to work.”
Another graph, page 31, shows the share of the nation’s income that has gone to the top 5 percent of the population, 1917 - 2002. From 1941 to 1983, the best years of economic success, 42 years, that top 5 percent received less than 25% of the national income. After 1983 it rose to 37% of all income in 1999, a more than 50% gain. The top one percent received 18.4% in 2005, while the bottom 60% received 20.3%. Sixty working people were compensated a little more than one working person. (
State of Working America, 2006/2007, page 79)

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I am going to present the solutions of several economic institutes and thinkers. First I’ll review those of Frank Stricker who wrote
Why America Lost the War on Poverty and How to Win It.

Then I’ll look at the plan given by the Center for American Progress called “From Poverty to Prosperity.”

Then I’ll review the plan of the National Jobs for All Coalition called “Decent Work and Public Investment”.

Finally, I mention two ideas from Lawrence Mitchell and Mohammad Yunus, and even my own radical ideas.

In a later essay I hope to review the plans from the Briefing Papers of the Economic Policy Institute called Shared Prosperity, and the ideas of Sam Pizzigati and Jeff Faux, and others.

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Time for a simple idea.
The poorest 20% of households receive 2.5% of the national income.
The wealthiest 1% earn about 18.4% of the national income. The bottom 60% of households earn 20.3% of national income. (See
State of Working America, 2006/2007, page 79) Simply transferring 4% of 18% (reducing their share to 14%) would double the income of the poorest. This would be a spectacular gain for the entire nation.
The transfer would be in the form of government programs designed to improve economic efficiency that eventually pay for themselves. The Bush tax cuts provided $63 per household to the bottom 20% in 2006; the top 1% received $44,700. (page 75) The mortgage interest deduction on income taxes likewise did everything for the top income bracket and provided nothing to those without a mortgage or income.
A simple transfer like this proposal seems reasonable, logical, and practical. Certainly we don’t want poverty and all its attendant ills and waste of human resources. It’s not a great stretch to simply transfer abundance to real human need. This brings into focus the importance of true democratic choice. Our democracy fails to offer this choice. The failure is due to the dominance of big money in our democracy. Both major parties are to blame.

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At the end of his book Frank Stricker offers 17 suggestions under the heading “What Needs to Be Done.”

Use government tools to stimulate job creation.
To quote, “As this book has argued, there is almost always a shortage of jobs in the United States and always a shortage of good jobs.”
Harold Meyerson, testifying before Congress says exactly the same thing,
“We are no longer a nation of good jobs.” (American Prospect, February 13, 2008, The Middle Is Falling Out of the Economy) The tools Stricker urges are monetary and fiscal. Full employment should be our goal, but high employment rates exert inflationary pressure, and the Federal Reserve historically responds with recessionary interest rate hikes that “punish the lower half by raising unemployment and poverty rates.” Inflation can be dealt with by other means. “Real wages for the majority of workers are lower than in the 1970s, despite significant increases in output.”

Create good government jobs.
This is where fiscal policy comes in. “Few Bush supporters admit it, but all net job growth was in government employment from January, 2000 to May, 2005.” Stricker does not offer a detailed plan. Later we will see two detailed plans, especially in the plan “Decent Work and Public Investment.” I think government sponsored jobs will be the greatest factor in creating prosperity and income equality. Economist L. Randall Cray also supports this idea and calls for government to be “the employer of last resort.” (Understanding Modern Money, The Key to Full Employment and Price Stability, 2006)

Lift the low-wage job market.
A wage of $10 an hour is about $20,000 a year, nearly the poverty line, and 37 million workers earned $9.60 an hour or below in 2005, about one of every four workers. The State of Working America, 2006/2007 reports that 24.5% of jobs payed that amount, “roughly a fourth (of the workforce) still earns poverty-level wages.”

Avoid scapegoating immigrants.
Stricker shows that immigration has not lowered wages as much as other factors like off-shoring production. Immigrants raise the poverty rate by about 1 or 2% of total rate, now at 12.7%. Raising farm labor wage rates would have a small impact on total cost of food. Morally, it makes no sense to have our farm laborers living in poverty.

Do more to support the unemployed.
“Unemployment insurance should be expanded in coverage and in duration.” Unemployment insurance reaches about a third of the unemployed. The U.S. falls behind all other nations in this regard. The recent economic “stimulus” that Congress passed in March, 2008, according to Federal Reserve Chairman Ben Bernake, will have greatest effect if targeted at unemployment insurance and low income.

Strengthen Social Security; don’t privatize it.
Recent history of the New Stock Exchange has dampened hopes to privatize the system. Raising the income cap would ensure its solvency.

7. Create a government health insurance program for everyone.
Single payer health insurance would rein-in expenses in our broken system of health care. We spend 15% of GDP for health, while others spend less than 10%, often much less, and get better results.

. Expand Earned Income Tax Credit.
The present EITC provides a tax refund of up to $412 for workers without children and income under $12,120; of up to $2,747 for workers raising one child with income less than $32,001; and up to $4,536 for workers raising two or more children with income less than $36,348 (add $2,000 to the income limit in each case for workers who are married).

Rethink poverty lines.
In 1999 Clinton and his Secretary of Labor tried to revamp the poverty threshold line, but they failed due to Republican opposition. Their improvement would have raised the rate from 13% to about 20%.
“A better approach would be to eliminate poverty lines and emphasize comprehensive efforts to help not just the very poor but middle- to low-income Americans. . . . The poor might seem less different, and we would not congratulate ourselves when families crawl over the poverty line and into semi poverty.”

Enforce equal opportunity for good jobs and income for women and minorities.
“Affirmative action targets are often the only way to assure that there really is equal opportunity rather than just rhetoric about it.”

Protect affordable education.
“And if politicians really believe that education is the road to success, they should do more to make college free. We are moving in the opposite direction.”

Move toward a more progressive tax system.
Between 1943 and 1983 the top marginal income tax rate averaged 80%. Today it is 35%. Citizens for Tax Justice points out that the overall tax rate comprises all taxes, federal, state and local taxes. In 2004 the overall tax rate for the top one percent, who had an average income of $978,000, was 31.4%. The overall rate for the bottom 20%, average cash income of $10,400, was 19.7%. This is barely progressive taxation. Put yourself in the place of someone whose income is $7.50 an hour. His tax rate is higher than the 20 hedge fund directors who each took home more than $675,000,000.00 in 2006. These low-wage workers are not baboons.

Start planning for an American minimum income.
This proposal is radical. The Green Party also advocates a “citizens’ minimum income.” The food stamp program is an example of government charity without time limits. As is the SSI program for medically indigent and elderly. “People deserve income because they are human beings,” says Stricker. I remember that St. Paul and Vladimir Lenin both disagree; they say in effect, “if you don’t work, you don’t eat.” So, this will take some time to resolve. Housing vouchers and food stamps is as far as we go. Cash give-aways are not discussed in political circles.

Increase pay rates so that people can work less.
This sounds like defying the law of gravity. There are 2 billion people in the world living on $2 a day. You want to increase pay rates for those working at $55 a day? Pay will increase when labor markets are tight and jobs abundant. Government can help to create that condition. It is a political decision, and people have to get behind it, even including all the politicians who take unending cash from corporations who want wages kept low. Ergo: it ain’t going to happen until we get serious about economic forces, and also create decent government jobs. Later we’ll see that Nobel Prize winner Mohammad Yunus will make an interesting contribution with his idea of “social enterprises.”

Scrap our current welfare system.
“Even before we get a minimum income for all, our current welfare program, Temporary Assistance for Needy Families, should be scrapped. It has been a flop as an antipoverty program. In many states, monthly payments are under $200, and authorities strive to keep people off the rolls.”

Do more to support affordable housing.
“Government should do more to subsidize and stimulate nonprofit builders of low-income housing, especially where the average wage is not enough to afford decent housing. For the homeless, placing people in real housing, with social services nearby, has been found to be the best solution.”

Challenge conservatives on unions and the working poor.
Raising fines against businesses that violate labor laws, and creating card check unionization rights for joining and creating a union would go a long ways to raise incomes, which is defying gravity, our goal. When that top 1% own more than the bottom 90%, and each year their incomes surpass the combined incomes of the bottom 50%, it’s time to defy gravity. It will require a social and political movement. By decreasing profit rates and increasing worker incomes, some businesses will go out of business. But Jeff Madrick, in Why Economies Grow, argues that demand-led growth (or wage-led growth) is the main driving force among many forces that cause economies to flourish. When all workers are sharing in the gains of their productivity, the economy grows.

Stricker’s last sentence in his book reads as follows, “In the end people may find that this world view is truly conservative, not only in its respect for positive government and for communities and relationships that work and endure but also in its faith that our natural resources, our labor force, our economic output, and our governments are public goods that should belong to us all.”

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Second simple idea.
The bottom half of households own 2.5% of the national wealth. (Federal Reserve report, Survey of Consumer Finances, Currents and Undercurrents, A. Kennickell, 2006) That averages to $25,000 per household for 55 million least wealthy households, or 150 million people. The wealthy top one percent on average own about 700 times the average of the bottom half. If the top one percent would give up 7.7% or 1/13th of their net worth, the bottom half could be twice as wealthy. The top one percent would then be only 270 times wealthier than half of the nation. But 150 million people would own double what they have now. Transfer is what taxes do. Wage competition is what free markets do. What does democracy do? How many times more wealthy do you want to be? What is wealth?

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Next I wish to examine the report from The Center for American Progress titled “From Poverty to Prosperity”. They present a 12 point program. (Available on the Internet) Essentially the same as Stricker’s recommendations they add a few points he does not.

1. Housing vouchers to move two million out of inner city neighborhoods into economically thriving neighborhoods.

2. By reinvigorating the Youth Opportunity Grants and a program called Upward Pathway, some 1.7 million young people between 16 to 24 years old would find employment, service and training.

3. Pell Grants for higher education would reach 70 percent of the average costs of attending a four-year public institution.

4. Former prisoners should be assisted with employment bridges as unemployment is a leading factor in recidivism. In 26 years the prison population has increased by 3.6 times, 1980 to 2006; over 2,220,000 inmates today are in state and federal prisons.

5. Streamline the work support system, meaning TANF, food stamps, housing vouchers, childcare assistance, so that applicants would receive comprehensive assistance quickly.

6. Expand mortgage assistance programs to lower-income families in chronically poor neighborhoods.

7. They advocate a “Saver’s Credit” program that would reward saving for low-income earners whose savings would be matched by the federal and state governments and ultimately applied to education, small business creation, or home ownership. This includes the Individual Development Account proposal, but expanded.

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All these documents are worthy of being downloaded and read thoroughly. The next is from two leading voices from the organization National Jobs for All Coalition, to which Frank Stricker is affiliated.

Now, we move on to Decent Work and Public Investment, a proposal by Helen Lachs Ginsburg and Gertrude Schaffner Goldberg, both of the National Jobs for All Coalition, published in the New Labor Forum, Spring, 2008. (Available on the Internet) Their website,, is a source of information necessary for a knowledge of the true state of unemployment, underemployment and employment that pays below the poverty line. Combined these three categories claim about 20% of the labor force, 33 million workers. In the U.S.A. one in five can’t find work that pays more than poverty wages.

I recommend the reader download and read the report, but here I’ll signal the parts most relevant to the “solution.” They note that “officially unemployed workers outnumbered job openings by nearly two to one in 2006.” That is to say, there were 3.5 million job openings for 7 million officially unemployed. Unofficially, there were 9 million more underemployed or dropped out of the labor market, and another 17 million working at sub-poverty jobs. That makes up the “one in five who can’t find work that pays more than poverty wages.” Just as Frank Stricker points out, capitalism does not produce enough jobs, much less decent jobs.

About the deficit in public investment they point to a report by the American Society of Civil Engineers that claims the nation’s infrastructure, ports, highways, bridges, dams, etc., would require $1.3 trillion to restore to an acceptable standard. Notably, $1.3 trillion is “exactly equal to the $1.3 trillion cumulative loss to the Treasury due to the Bush tax cuts.”

They put forth a four step program.
One, attack the public investment deficit, and they cite measures before Congress to do this. Public and private investment is what pumps life into an economy, and they stimulate each other. Two, Attack the chronic jobs deficit, and they cite more acts before Congress. Three, Move the minimum wage closer to a living wage, claiming that the combination of the new minimum wage level and the EITC together fall below the 1968 level of the minimum wage alone. And Four, Reduce military spending to a level equal to genuine defense needs and rescind the Bush tax cuts.

I recommend that the reader download an essay by Chalmers Johnson on the true military budget for 2008, titled “Going Bankrupt.” ( Johnson claims that the $481 billion defense budget is smoke and mirrors, the actual cost of the military is $1.1 trillion out of a total $3 trillion budget federal budget, and he documents his argument. This is more than 50% of the federal government’s discretionary expenditures, that is after excluding Social Security and Medicare expenses. Of note also is that the military budget passed the Congress with overwhelming majorities from both political parties in January, 2008. In the House only 13 of 415 Representatives voted against it. Sacred cows are more sacred than ever when soldiers are fighting and dying. The former Attorney General, Ramsey Clark, has claimed that the defense budget could be cut by 90%. This cutting will be part of the “solution.”

Ginsburg and Goldberg argue that their program increases employment, which is their major goal, and thereby reduces expenses for food stamps, unemployment, incarceration, and general assistance. They state that “restoring the pre-Reagan era marginal income and corporate tax rates would net the Treasury at least 20 percent more in annual revenues.” (This surpasses $600 billion in revenues.) The pre-Reagan top rates were at 70% of income over $400,000 (1970 dollars). They support bills that would add 100,000 more teachers to public schools, and others that would create after school programs. In a shift only an economist would note, they claim that the public cost of after school programs would be offset by a decrease in the private cost of childcare.

The details of their job growth proposal include a Public Works Authority, a Public Investment Fund, a Public Service Employment Program, and a National Employment Accounting Office.

I would wager that more Americans know more about Iraqi politics than they do about domestic program proposals in the U.S.A. There has been a news blackout by the media. The media is more concerned about Iraq, Iran, Bosnia, Cuba, Venezuela, or anywhere but news about the domestic U.S.A. Occasionally we hear about the Child Medical Insurance program, or the financial and housing crisis. But the fact that one in six people in West Virginia buy their food with food stamps is not allowed on the news. The drooping economy will soon force its way onto the air waves.

As a test for the reader, determine if you know about or have ever heard about these proposals: the National Affordable Housing Trust Act, the America’s Better Classroom Act, the Andrew Carnegie Public Libraries Act, the Apollo Project, the Rebuilding America’s Infrastructure Act, the Fair Wage, Competition and Investment Act, the Right Time to Invest in America’s Competitiveness and Knowledge Act promoting more R and D for renewable energy, and two youth programs, Youth Build and the Youth Conservation Corps.

They conclude, “The Drive for Decent Work can raise public consciousness of new and better possibilities and of a nation that shares its prosperity. Its broad vision and moral imperative can inspire a more generous spirit and help overcome the ideology of selfishness. As Michael Moore said in Sicko, nothing will happen unless we start thinking of ’we’ not ‘me.’”

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Now, I do not have time to go into other solutions in depth. I’ll just mention two more items. Lawrence Mitchell, author of
The Speculative Economy, a history of the creation of present corporate law, advocates altering the capital gains tax. Since corporate enterprise is the dominant work arrangement of our time, he says, pragmatically, that better long-term planning would result by rewarding long-term planning. Rewards are affected by the capital gains tax; therefore, there should be a time-stepped tax that rewards those who hold their investments for a duration. This would reward true investment and penalize the casino-like game that much of the financial world is caught up in, to the detriment of our society.

Mohammad Yunus, winner of the Nobel Prize in Economics, and creator of the Grameen Bank and micro loan banking in Bangladesh advocates “social enterprises.” His example is a yogurt enterprise that sells nutritionally enriched yogurt in Bangladesh, and the profits of the enterprise are recycled into social programs that benefit the whole society.
This is a very radical proposal. Profits are the raison d’etre of capitalism.
Wealth is the be-all-and-end-all of personal effort in capitalist society, the mark of success. Here he is drop-kicking profit out of the stadium, he is tying profit onto the kite and cutting the string. Social enterprises are capable of attracting clientele who believe in spending their money for good products and social improvement; who assent to allowing profits be applied to social improvement not personal wealth.

Slavery was abolished in England in 1813 because the housewives organized a boycott of slave plantation grown sugar. After decades of boycotts and agitation, elected members of the House of Parliament got the message that slavery was not morally conscionable, and they agreed to abolish the slave trade. This is the theme of Adam Hochchild’s book
Bury the Chains. I think a similar dynamic will occur in the near future as society tries to deal with wealth, income, enterprise and morality. We will burst the shackles of profit-or-die, lower-wages-or-perish, race-to-the-bottom which is central to global business. Libertarian socialism will become a fascinating method of social arrangement. Consumer councils coordinating with production councils could supersede profit capitalism and achieve greater fairness, efficiency and social satisfaction. The book Economic Justice and Democracy by Robin Hahnel delves deeply into these possibilities. The collective enterprises of the Mandragon of Spain where some half a million people created their own socialist-collective community in the 1930s will be studied and emulated. Money and cash may be someday abolished, as in the utopian world of artist William Morris in his short novel News from Nowhere. But this is idle speculation and today’s pressing needs demand practical solutions now.

It is complicated to assess the right and moral distribution of the rewards of labor in a capitalist economy. Labor income in 2005 amounted to 74.2% of the total “market-based personal income” according to the IRS and State of Working America, 2006/2007, page 81. Ownership of profit-making capital was 16.0%, and proprietor’s income was 9.8%. The wealthiest 1% received 57.5% of the capital income. In the past thirty years the top 1 percent has increased its share of the national income pie from 8.9% in 1976 to over 21.8% in 2005 (see

To quote the web site
”In 1979, the average income of the top 5 percent of families was 11.4 times as large as the average income of the bottom 20 percent. In 2005, the ratio was 20.9 times. (EPI, State of Working America 2006-07, Figure 1J)
“Unprecedented levels of capital income are fueling inequality in the current business cycle. In the third quarter of 2006, the share of corporate income going to capital (profits and interest) hit an all-time high of 23 percent, with the remaining 77 percent going to employee compensation. Since capital income disproportionately goes to the top of the income scale, this shift towards capital income increases the income gap. (EPI Snapshot, Jan. 17, 2007)”

Likewise, if you are a parent with children under 12 your chance of facing hardship is 29.8% --- meaning you have to choose between rent, food, medical care, and childcare. (
Hardships in America, Heather Boushey, page 2)

“Opening paths to a moral economy,” is the subtitle to William Greider’s book
The Soul of Capitalism. That is what the search for solutions is all about.

To end, I present you with a quote from
Labor’s Untold Story (page 287), about the 1934 General Strike that paralyzed San Francisco for a week (from Mike Quin’s history of the strike, The Big Strike, 1949):
“The paralysis was effective beyond all expectation. To all intents and purposes industry was at a complete standstill. The great factories were empty and deserted. No streetcars were running. Virtually all stores were closed. The giant apparatus of commerce was a lifeless hulk.
“Labor had withdrawn its hand. The workers had drained out of the shops and plants like lifeblood, leaving only a silent framework embodying millions of dollars worth of invested capital. In the absence of labor, the giant machinery loomed as so much idle junk. . .
“Everything was there, all intact as the workers had left it ---instruments, equipment, tools, machinery, raw materials and the buildings themselves. When the men walked out they took only what belonged to them --- their labor. And when they took that they might as well have taken everything, because all the elaborate apparatus they left behind was worthless and meaningless without their hand. The machinery was a mere extension of labor, created by and dependent upon labor.
“Labor held the lifeblood and energy. The owners remained in possession of the corpse.
“Highways leading into the city bristled with picket lines. Nothing moved except by permission of the strike committee. Labor was in control. Employers, however, controlled an important factor. Through the ‘conservative wing’ they held the balance of power within the General Strike Committee. But this ‘conservative wing’ had to buck a strong progressive minority, and dared not move too obviously contrary to the will of the masses.”

1 comment:

Anonymous said...

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