Economic Rights for Two out of Seven
Who Are Not Making It
Two out of seven American workers (28.0%) are not making it --- are working full-time for poverty wages (16.4%) or are unemployed (5.5%) or are part-time workers who want full-time work or have dropped out of looking for work (6.1%). (See njfac.org/inequality). Should they have economic rights? Franklin D. Roosevelt had to think this through during the 1930s. I will show his conclusions. When our economy generates about $87,000 per worker and $40,000 per person, should we tolerate a large core of poor workers. Isn't there something missing in our values? As half the adults over 25 earn less than $32,140 in 2007 (the median income), and to reach a middle class life-style requires about $40,000 income per family of four, the conclusion is that the "system" is broken for two out of seven. Naturally, global corporate business will always try to lower expenses, including wages. But at some point this wage pressure destroys instead of constructs. It destroys wealth at the lowest and least empowered level. Are there economic rights for working people that society should create? The answer is "yes, definitely."
This longish essay deals with these ideas.
The middle class has been shrinking. On page 76 of The State of Working America, 2006/2007 a table “Distribution of families and persons by income level, 1969 - 2004” tells a very interesting story. The middle class is smaller. In 1969 71.2% of families lived in the range of 50% to 200% of the median income. In 2002 only 60.7% fit in this range, roughly between $27,00 and $104,000. Of the 10.5% to leave this range, 6.0% went higher and 4.5% went lower. And the median family income itself grew by 21.8% from $44,381 to $54,061 (between 1973 to 2004 according to the U.S. Census Bureau). This is overall good news.
Another table, 1.8, in this chapter shows a different story. The median family income rose 21.8%, as noted, but for couples with “Wife not in paid labor force” the median income went from $42,049 in 1973 to $42,221 in 2004, an increase of 0.4%, less than one percent. In 1973 the “labor force participation rate” for women was 44.7%, and in 2004 it was 59.3%, a gain of almost 15%, while for men it had dropped from 78.8% to 73.3%, and the overall participation rate increased from 60.8% to 66.0%.
In Jared Bernstein’s book All Together Now he claims that women are working 3 months more each year than they were 30 years ago. That is the key to rising median family incomes. Also, the wage rate for the single male non-supervisorial worker has inched down in these years. Also average annual work hours are up by three weeks since 1969, but statutary minimum vacation time is 0.0 weeks, and actual holiday and vacation time stands at 3.9 weeks compared with Germany’s 5.0 and 7.0, and Japan’s 5.0 and 7.8 weeks off.
In Tijuana, Mexico, just across from San Diego where houses sell routinely for $600,000, you can find people living in cardboard hovels and cement block structures, and they earn less than $10 a day. What Tijuanans produce San Diegans buy. Northern Mexico produces cars, trucks, copper, and electronic assembled goods. Will our neighborhoods start to resemble those of Tijuana, Mexico? Not soon, but the trend is in that direction.
In 2006 the U.S. official poverty rate was 12.6%, one in eight, or 36.9 million people in a population just under 300 million. The unemployment rate is 5.5% in May, 2008. But 11.6% is more accurate, as it the combines workers who are unemployed (5.5%) with involuntary part-time workers and with discouraged workers (6.1%), a total of 18.5 million workers in a workforce of 153 million.
Add to this 11.6% the full-time workers who earn less than poverty rate incomes, 16.4% of the workforce, and the grand total is 28% of the workforce either unemployed, working part-time, discouraged from looking for work, or working for poverty wage rates. (This data comes from The National Jobs for All Coalition (njfac.org)and State of Working America, 2006/2007, and the Bureau of Labor Statistics, May, 2008.)
Another way to tell the story is to say that the rate of full-time workers working below a poverty level wage is 16.4%, almost one in six, or 25 million workers. Add part-time low-paid workers (8.1%) for a total of 24.5% who earn below poverty wages. Just how it is possible for one in six full-time workers to earn poverty wages while only one in eight households live in poverty is not explained. Maybe very long work hours, double income families, and earned income tax credits which reaches 23 million taxpayers explains it. But wages fall below poverty in one in six full-time jobs (16.4%), and full-time jobs are not to be found for one in nine workers (11.6%). Combine these two very distinct groups, and 28% of the workers (42.8 million adults of 153 million, or 2 out of 7) are either unemployed, working part-time involuntarily, discouraged from looking for work, or working for less than poverty wages. This figure is important; we have the world’s largest national economy but a significant minority are not surviving well.
In a report Movin' On Up by the Center for Economic and Policy Research (February, 2008), they conclude that "almost one out of every five Americans in working families, or 41 million people, is 'missing the middle' --- that is, is living below the minimum middle-class living standard for the area in which they live." Typically these families living below the middle "would need to see their income --- from all sources, including the value of work supports --- increase by almost $10,000 to secure a toehold in the middle class." The report factors in the value of government support --- TANF, food stamps, EITC, housing assistance, child care assistance, and Medicaid/SCHIP. Still some 20% fall short of the middle-class bottom rung.
Only 23% of U.S. jobs pay above $17 an hour and provide both health insurance and pension plans. By their calculation 29% are "bad jobs" paying less than $17 an hour with no benefits.
The percentage of those families earning less than 50% of the median family income increased from 18% to 22.5% from 1969 to 2002. And many experts claim the official poverty rate is an unrealistically low assessment of real poverty. In 1999 Clinton’s Secretary of Labor tried to raise it by 6% points, but Congress rejected the proposal.
For every five job seekers there was one job opening in May, 2008, according to the Bureau of Labor Statistics (3.7 million job openings, 18.5 non-full-time workers willing to work) (see njfac.org for details). Full employment without government assistance will be difficult to achieve.
The book Hardships in America states that 28.9% of families with children under 12 cannot afford all four essentials of food, shelter, medical care and child care. This book surveyed 600 localities and compared 4 different family sizes for 2,400 variables.
Our economy produces over $40,000 per citizen, which is also over $87,000 for every worker, yet the median income for workers over 25 is $32.140. To state another version, the average income for workers is almost three times the median income. Distribution of the economy’s income is amazingly tilted towards the top. The top one percent earn more than the bottom 50%. The top one percent receive 18.4% of the national income while the bottom 60% receive 20.3% (see inequality.org or State of Working America, 2006/2007 page 79).
In wealth, the top one percent own more than the bottom 91%, 33.4% vs. 30.4%. Comparing the top one percent to the bottom 50 percent (who own 2.5% of the national wealth), the average net worth is nearly 700 times greater ($16,675,000 average wealth vs. $25,000, see U.S. Federal Reserve, Report of Consumer Finances, Currents and Undercurrents, 2006, page 11).
Roosevelt and Economic Rights
In San Francisco on September 23, 1932 at the Commonwealth Club Roosevelt, not yet president, gave a speech calling first and foremost for a ---
“redefinition of rights in terms of a changing and growing social order.” He proposed “the development of an economic declaration of rights, an economic constitutional order” that would recognize that “every man has a right to live,” which also entailed “a right to make a comfortable living.” A person “may by sloth or crime decline to exercise that right; but it may not be denied to him.” Roosevelt complained that under modern conditions, equality of opportunity had become a myth. He argued that the economic declaration of rights was necessary to ensure a system that would be “more permanently safe” and contended that a new conception of government was necessary to promote the values of American individualism, properly understood. (quote from C. Sunstein, page 68)
In January, 1944, Roosevelt gave his State of the Union message to Congress in which he laid out a set of economic rights:
>The right to a useful and remunerative job in the industries or shops or farms or mines of the Nation;
>The right to earn enough to provide adequate food and clothing and recreation;
>The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
>The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
>The right of every family to a decent home;
>The right to adequate medical care and the opportunity to achieve and enjoy good health;
>The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
>The right to a good education.
All these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.
The “right to a useful and remunerative job” is the foundation for full employment and security. But how will this work? How does free enterprise guarantee full employment? Private employers cannot be forced to hire unwanted employees. And, as in the Tijuana example, “free enterprise” in the U.S.A. is being undermined by virtual slavery conditions or “too free enterprise” in other poorer nations. Wage rates in central Mexico are 12% of U.S. rates, in the maquiladoras they are 6%, and in China they are 3%. Under modern conditions the “equality of opportunity has become a myth” and free enterprise never has and probably never can provide full employment. Government must intervene to secure economic rights. Government will be the “employer of last resort,” argues L. Randall Wray in his book Understanding Modern Money. The market will be altered by a socially determined exogenous force called national will to achieve a non-market goal, full employment and security for all from hardship. Will that destroy the market? Or will it achieve both security for all citizens from hardship and preserve the incentive for individuals to excel and gain wealth? Will the trade-off between freedom and security destroy freedom? Do we settle for security for most but not all?
What is an economy for? Why do we need Roosevelt’s economic rights? How do we achieve a moral standard of security without destroying market freedom? If people work in slave-like conditions do we want their products on our shelves? Are we inconsistent to allow two labor standards to compete together? Don’t we undermine and eventually destroy our higher standards? For what purpose? So that everyone can labor under the lower standards and achieve the same level of penury and insecurity? Of the world’s 6 billion inhabitants, our workers compete now with many who earn less than $5 a day.
In her book The Forgotten Man Amity Shlaes argues that Roosevelt’s New Deal programs got in the way, impeded recovery. Business executives and the wealthy class refused to invest because Roosevelt made them insecure, she claims. I came across a statement that sounded familiar. During the Depression almost everyone had a theory of what to do to end it: the grocer, the barber, the bus driver, your waitress, your neighbor. For more than a decade unemployment was very high. The book ably points out it was at 3.3% in 1927, --- at 5% in 1929, --- at 17.4% in 1931, --- at 23.2% in 1933, --- 21.3% in 1935, --- 13.5% in 1937, --- but up again to 17.4% in January, 1938, --- 14.6% two years later, 1940. There were 9.5 million unemployed in 1940, and in 1943 there were 500,000 unemployed. Eleven bad years of 13% to 23% unemployment.
What ended the Depression? If you say, “The war,” you are only partly correct. Say anything but that. It’s an important question. The answer is the government intervened. People agreed to sacrifice their freedom for security, wealth for survival, lives for preservation. All out war calls for all out sacrifice. But having made the immediate war sacrifice they also destroyed the persistent economic hard times. The 1950s did not resemble the 1930s. By redistributing money to working people during a period of full-employment caused by the war effort, aggregate demand or consumer purchasing power was restored. The New York Times’s economic web section (The American Way of Debt, July 20, 2008) shows a graphic of U.S. household’s average savings compared to indebtedness (basically savings vs. mortgages). Data comes from the Federal Reserve. From 1920 to 2008, in only four years did the savings rate exceed the indebtedness rate. Those years? 1942, 1943, 1944, 1945. In the 50s the savings-to-debt ratio was between 1 to 4 and 1 to 7. In 2007 the ratio was 1 to 271. The question hangs for us now, if we slip into a prolonged, very slow or negative economic growth period, how will we restore employment and economic health short of taxing wealth and redistributing it?
To call Roosevelt’s subsequent increase in federal spending an “intervention” is not accurate. More accurate would be to call it a mobilization or transformation. To quote from John Garraty’s book, The Great Depression,
“The United States responded more slowly to the threat of war, but by 1938 national security expenditures were twice what they had been in 1934. Total federal spending rose from $6.8 billion in 1938 to $8.9 billion in 1939. (The big proportional increase came in 1941, when federal spending rose from $13 to $34 billion.)
These huge expenditures necessitated heavy borrowing and stimulated economic activity. Whether one argues that government spending per se ended the depression or whether the war is given the credit depends on how far back in the causal chain one wishes to go. Keynes’s theory ‘explained’ why spending was necessary in the 1930s.
If these details are correct, total public spending increased from 5 to 10 times between 1932 and 1941.
From 1938 to 1941 federal spending increased five fold, from $6.8 billion to $34 billion. According to The United States Public Debt, 1861 to 1975, an article by Franklin Noll, PhD. (EconomicHistory.org) the national debt increased in the years from 1932 to 1945 from $17 billion to $270 billion, a sum 16 times greater. What actually happened? Capital resources were transferred out of banks into savings and war bonds by both wealthy and non-wealthy citizens . This is what society does to thrive and maintain progress. It shares resources. This transfer of capital resources ended the depression. This applies to the entire world and all humanity. This brings up the question I mentioned about taxing and redistributing wealth. How else do you get a market economy going when the winner of the poker game has all the chips? As Marriner Eccles, the head of the Federal Reserve under F. D. Roosevelt once said, the winner of the poker game has to give back some of his chips to the losers for the game (capitalism) to go on.
There are many ways today beside taxing wealth. But equitable distribution is needed for a vibrant economy. This is the theme of Jeff Madrick’s book Why Economies Grow. The Individual Development Account, the Earned Income Tax Credit, raising and indexing the minimum wage, and subsidizing government work projects --- aside from the military budget --- are some policy choices. Taxes under Eisenhower were kept at the top rate of 91% for his term in office. Today's top income tax rate is 35%, and effectively it is 25%. Toomuch.org reports that the effective tax rate for incomes over $5 million was around 51% compared to today’s 25%. The rich might reject the sacrifice of their “property” but they may be out-voted by a majority who see the light of a more just economy and the cause of greater widespread prosperity. The interests of economic royalists and plutocrats may not accord with the general interest. Democracy implies an economic dimension to it.
I don’t believe I’ve made an iron-clad case for this plan, but the general outlines are there. Such government intervention may be a blessing towards security and happiness that includes 7 out of 7, not just 5 out of 7.
This essay takes its inspiration from these books:
1. The Second Bill of Rights, FDR’s Unfinished Revolution and Why We Need It More Than Ever by Cass Sunstein
2. The Ownership Solution, Toward a Shared Capitalism for the 21st Century by Jeff Gates
3. Understanding Modern Money by L. Randall Wray
4. Why Economies Grow by Jeff Madrick
5. The Squandering of America by Robert Kuttner
6. The End of Economic Warfare, a book I don’t plan to write.
Those books are magnificent books. They probably point to the way to spread and maintain prosperity. I wish I had time to read them and report on them. I don’t have time. Madrick’s book points to the benefits of broadly dispersed purchasing power. Wray’s book proposes that the government become the “employer of last resort,” thereby providing full employment and, for a real bonus, maintaining a permanent check on inflation. Gates’ book wants to reengineer capitalism so that more people are intimately connected to economic decisions of corporations. Sunstein’s book, as already noted, provides a basis for insuring economic rights as a corollary to the original human rights of the Bill of Rights. And Kuttner’s book shows how the three decade-long experimentation with neutered, deregulated, laissez-faire economics has destroyed or “squandered” our common wealth. And the book I won’t write would have portrayed a profound social morality that would abolish poverty and economic warfare.
This blog will have to wait. I hope you’ll comment on this essay.
Any of my essays are available on pdf. Send me a note, email@example.com