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Tuesday, December 22, 2009

We Must Transfer Wealth, Again
by Ben Leet

I’ll try to explain why the economy crashed and what is needed to repair it.
To understand the greatest economic shock in 80 years one has to look at the systemic problems building up over the past 30 plus years.

According to Professor Robert Pollin,
“Given the immediate calamity, it is easy to neglect that the crisis for U.S. workers began long before the recession. As of 2007 --- prior to the recession --- the average nonsupervisory worker in the U.S. earned $17.42 an hour. This figure is 11 percent below the 1972 peak of $19.34 per hour (in 2007 dollars). And this is only half the story.

The other half is that average labor productivity in the United States rose by more than 90 percent over this 34-year period of declining wages. That is, the total basket of goods and services that average U.S. workers produced in 2007 is 90 percent larger than what they could manage in 1972. The workers’ reward for producing 90 percent more goods and services in 2007 than 1973 is an 11 percent pay cut.” (Pollin, May, 2009: 1)

Over the past three decades, 1973-2007, labor productivity has increased by 90 percent. In the simplest terms an employee was creating $10 of value for every hour of work in 1973, now he creates $19 dollars of value per hour in 2007. He earns 11 percent less.

Data from The State of Working America, 2006/2007 closely tracks this conclusion; between 1973 and 2004 productivity grew by 75.7% while real average weekly earnings for non-supervisory workers went down by 6.5%. (Mishel et al, 2007: 48 and 119) These two changes increased the incomes of the owners of enterprise. As “unit labor cost” dived, profits soared, wealth accumulated at the top, investments spread overseas, and financial markets exhausted real investment opportunities and created phantom investments that eventually self-destructed. The purchasing economy could not keep up with the producing economy; it finally broke by trying.

There is much more than fairness at question in the distribution of income and wealth. Holistic sustainability (not to mention fairness) requires that high wages be maintained. Capitalism has an inherent contradiction: each enterprise requires profits for survival, and profits require sales and purchases. But purchases depend on workers’ incomes, a labor cost to enterprise. When labor costs (wages) across the entire system are reduced, consumption is reduced system-wide. This fall off of purchasers, revenues, and profits leads to systemic contraction. It should be no surprise that when your workers produce 90% more each hour and you pay them 11% less --- you are headed for disaster.

Marriner Eccles, the Chairman of the Federal Reserve Bank during the Great Depression, the position held by Greenspan and now Bernanke, explained the cause of the 1930s depression in his 1951 memoir,
As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.
Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations.
But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants.
In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
(Beckoning Frontiers, by Marriner Eccles, 1951)

Our economy is very active and productive. It generates over $45,000 of value each year per human -- man, woman and child -- with a population of 305 million humans. With an average of 144 million workers working everyday of the year, workers create an annual product (GDP) worth $14.2 trillion. Each worker is producing almost $100,000 per year. Yet 67.2 percent of workers earn less than $38,000 a year, and 40.7% earn less than $24,000 per year. (Mishel, 2007: 126) And furthermore, of that 144 million daily workers only 92 million -- 64% -- are working full time. Some 36% of workers work part-time. So each full time worker can be said to create over $100,000 of value. (See U.S. Census, 1999, Occupations and Earnings)

As Professor Pollin stated, productivity went up 90% and wages fell by 11% between 1973 and 2007. The highest earning one percent of households in 1973 received less than 9% of the national income, while in 2007 they “took home” 23.5%. The top ten percent of households in 1973 received 33% of the national income, in 2007 it was 49.7%. ( Saez, 2009) According the the Brookings/Urban Institute Center for Tax Policy report the incomes of American households broke down in the following distribution, from 1st quintile (20% of households) on up to 5th quintile: 2.5%, 6.4%, 11.4%, 19.8%, 60.3%. So 60% of the households received 20.3% of the national income. (Mishel, 2007: 79) Combining the two studies, Saez and Mishel et al, the top one percent “took home” 23.5%, the bottom 60% “took home” 20.3%.

As for wealth, the top 1% of households owns 33%, the next 9 percentiles own 36.4%, the following 50 to 90th percentiles 28%, the bottom 50% own 2.5%.(Kennickell, 2004: 11)

This is the key to the economy’s troubles, and it is magnified by the credit and financial debacle of the past two years.

Over the past decade the economy has been sustained by three factors, 1) an asset bubble in the stock market, 2) an asset bubble in the housing market, and 3) a trade deficit resulting in foreign national reinvestment in U.S. treasury bonds. The imbalance in income distribution can be compared to your body putting 60% of your blood into just 20% of your vital tissues, and boycotting the rest (80%) of your body’s organs and tissues. It’s like trying to survive on a diet of pure megavitamins or pure profits with no other nourishment, you’re apt to be dead in a month. This serious addiction to profits and accumulation at the expense of wages leads to fatal intoxication. Recovery and “detox” calls for putting income and profits into the hands of the low income (non-supervisory) workers.

Let’s take a comparative look at two U.S. periods, 1947 to 1973 (26 years) compared to 1973 to 2004 (31 years). In the first 26 year period productivity grew by 103.7%, and median family income grew by 103.9%. In the second period, 31 years, productivity grew by 75.7% and median family income by 21.8%. Women and wives joined the workforce in the second period, increasing their participation from 44.7% to 59.3%. (Mishel et al, 2007: 48, 60, 233) That raised the family income. Hours worked per family increased by about 25%, which is greater than the increase in family income.

Now we’ll compare the two periods --- 1947-1973 and 1973-2007 --- in terms of income growth. Taking the dollar income of the 20th percentile income, in 1947 and comparing it with the same percentile in 1973, income grew by 96.8%. From 1973 to 2005 it grew by 10.7%. The 40th percentile: 101.3% growth vs. 17.8%. The 60th percentile: 107.1% vs. 28.2%, and the 80th percentile, 100.7% vs. 40.7%. And finally comparing the 95th percentile in those two periods, 90.7% vs. 61.5%.

Income and productivity growth matched in the 1947 to 1973 period. In the second period, as the lead theme of this essay says, productivity growth and income drop were out of balance. Income was distributed with even growth among all workers in the economy during the first period, sadly it was very uneven during the second.

Les Leopold in his book The Looting of America also concludes with similar findings.
“There are 94 million non-supervisory workers [in a labor force of 159 million] out there who are not getting their fair share of their increased productivity. An estimate for just the most current year --- one year --- of the gap between what workers should have gotten and what they actually received (in wages and benefits) is a staggering $3 trillion [in an economy generating $14.2 trillion of value] --- equivalent to about $32,000 per worker in the United States. Most of that money went instead to the investor class all over the world.” (page 16)
“In 1973 the top one percent of earners took in 8 percent of the nation’s total income. By 2006, the top 1 percent got nearly 23 percent of the pie, the highest proportion since 1929.” (page 16)
By 2007, real wages (in today’s dollars) had slid from their peak of $746 per week in 1973 to $612 per week --- an 18 percent drop. Had wages increased along with productivity, the current average real wage for non-supervisory workers would be $1,171 per week --- $60,892 per year instead of today’s average of $31,824.” (page 15)

This is a staggering fantasy. Imagine the lower earning 80% of the workforce earning $60,892 a year per worker. It sounds like the . . . 1950s? When one worker’s income was sufficient to raise a family and purchase a house. Naturally with incomes of a majority of workers almost doubling we are talking about a vastly improved quality of life for the U.S.A.

The distribution of national income between 1976 and 2007 changed markedly. In ‘76 the top 1% of households received less than 9% of income, and in ‘07 they received 23.5%, a gain of 14%. The top 10% took in 33% in ‘76 and 49.7% in ‘07, a gain of 17%. So, 14 % vs 17%; it is obvious what group made the exorbitant gains. (See Saez, 2009 and If today that 17% were re-allocated or redistributed among Leopold’s 94 million nonsupervisory workers (and that figure is debatable), the gain per worker would be over $25,000, somewhat less than Leopold’s $29,000 increase. The general drift though is absolutely clear.

In my opinion, this downward pressure on wages, this invisible hand or drift of poisonous gas, is squeezing the life out of the U.S. and world economy. If one wants to read more go to Low-Wage Capitalism by Fred Goldstein, Laboring Below the Line by Frank Munger, Gloves-off Economy by A Bernhardt et al, and SuperCapitalism by Robert Reich. .

This leads to an obvious solution: a return to a 90% marginal income tax on extremely high incomes as prevailed during the 1940s and 1950s (when the economy made such a stellar performance).

If we accept Eccles’ explanation for the cause of the Great Depression, what then rescued the Great Depression? So often peope say “The New Deal did not solve the Great Depression.” Robert Kuttner points out that the key to turning around the Great Depression were the federal deficits of the 1940s that went as high as 30% of GDP, which is equivalent to deficits of $4.26 trillion annually in 2009. (Kuttner, 2009) In fact, total 2009 government spending --- federal, states and local government --- do not amount to 30% of GDP.

Unemployment in 1938 rose to 18% and then dropped regularly to less than 2% during the war years of 1943, ‘44, and ‘45. Massive federal job programs for the war effort transfered wealth out of idle accounts into war bonds and then into workers’ paychecks. This was a transfer of wealth. Note: the top one percent held 44.2% of all net worth in 1929, 36.4% in 1939, and 27.1% in 1949. ( the numbers) This reinforces my contention that wealth was transfered to the workers. This was combined with very low consumer debt creation (few families were buying anything) and very low consumer production (as products -- bombs, bombers, battleships, destroyers, submarines, etc. -- were created to destroy property). All the same, income and wealth accumulated in the hands of workers working at full employment who for ten years had survived with 17.4% average unemployment and a drop of 29% of GDP from 1929 to 1933.

This is why today we need a federal jobs program, and an increase in the Earned Income Tax Credit, a living wage for the minimum wage, a labor union Employee Free Choice Act, and Individual Development Accounts to abet savings and asset formation among low income families. We need to reduce expenses also in the areas of health, education, and housing through political policy. That would recapture the misappropriated productivity gain and the wage loss.

Our economy generates over $45,000 of value for every human in the nation, yet one of eight families buy food with food coupons, one in six cannot afford medical treatment, and one in three workers are either unemployed, under-employed or working full time for poverty level wages. (NJFAC)

Since 1983 over half the economic gains of the U.S. economy has gone to the top one percent of households. (Wolff, 2001, 23; and Saez, 2009) Wolff states, “My core results are worth repeating: more than half of the gains in wealth from 1983 to 1998 accrued to the top 1 percent of households, and more than 90 percent went to the top 20 percent. The number of millionaires doubled from 1983 to 1998, and the number of deca-millionaires quadrupled, with most of the growth in their ranks occurring after 1989.” Saez repeats in his 2009 report the same in regards to half the gains going to the top 1 percent, and between 2000-2007 65% of the economy’s gain went to this top one percent of households. The top 400 individuals have about the same net worth as the bottom 150,000,000 individuals, half the population.(

Where does a very rich person invest when there are so few real economy growth opportunities? Finance created a gambling house of cards with labrynthian and infinitely scalable wagers, complete with billion dollar annual salaries taxed at 17% and replete with powerful political lobbying muscle. Trillions of taxpayer dollars have been spent resurrecting a financial system that orchestrated its own self-destruction. We can call it Aid to Banks with Dependent Bankers. Obama’s economic team has wasted its resources, and taxpayer money, trying to raise Lazurus from the dead, the dead financial system, instead of putting the unemployed to work. Obama has dedicated insignificant funds to a jobs program.

The financial system deserves a brief analysis in this essay. The financial system has exploded in size over the past decades. In 1970 the debt of financial corporations relative to GDP was 10 percent. Today it is 123%, or it increased by a factor of 12.3. In the same period the total debt of the country --- including debt of all governments, households, non-financial corporations and financial corporations --- increased by a factor of 2.3. Since 1989 financial corporate profits have exceeded non-financial profits. (Dowd, 2009: 123) In the short 7 years, 2000 to 2007, financial corporation debt increased by 81%. (Foster and Magdoff, 2009: 121) This was the era of CDOs and Credit Default Swaps, the topic of Leopold’s book The Looting of America. Today we have elephantiasus of the financial system. The correct size of the financial system and its debt is an open question, but smaller is most likely the best trend at this point. The idea that an unregulated insurance firm like AIG could make good on debts that exceeded the net worth of the entire country was ludicrous, and a serious dereliction - an intentional abandonment - of regulatory authority. Tax payers bought AIG for $263 billion. I’m not sure if the board of directors was replaced, or if its bondholders escaped financial damage. How many teachers, police, or civil servants would $263 billion employ? (Dowd, 2009:136)

I may have some of my facts off in this essay (but I tried to double check them all and provide detailed source citations), and some ideas may sound screwball, like transferring wealth to the low-income households, but I hope I helped to open your eyes to some of our problems that are on-going.

Currently I am reading a great report by Philip Harvey, professor at Rutgers University, titled “Learning from the New Deal.” I downloaded it from on December 1, 2009. He does a masterful job of explaining the New Deal’s job programs, and outlines a proposal to implement an annual $552 billion jobs program. That is about 4% of GDP. Jeff Madrick in his book The Case for Big Government advocates a program that invests an annual added 3% of GDP. Joe Persky and the Chicago Political Economy Group advocates a program costing annually $877.5 billion program (6% of GDP). These reports (except Madrick’s) are available at the above web site. I plan to research the various proposals and write a summary essay.

Madrick asserts that this 3% of GDP shift to social benefits would restructure the U.S. economy to resemble other developed nations’ economies. For decades only 13% of the U.S. economy has targeted social benefits, while other nations dedicate between 50% to 100% more of their GDP to these concerns. One can only wonder what would happen to our world if the same energy that fought World War II, when resources built destructive tools to destroy people and civilizations, could be redirected to a similarly selfless attack on social poverties.

Advocating for a jobs program Professor James Galbraith says, “And in a larger economic sense, it would be much cheaper. You’d save the cost of the dole. And you’d get three things out of it -- economic goods that the entire country could enjoy, solutions to some of our most pressing problems, and a working population that would be working, acquiring skills, getting on with life -- and no doubt happier, into the bargain.” (Galbraith, 2009)

Dowd, Douglas: Inequality and the Global Economic Crisis,
Pluto Press, 2009, New York, NY, and, and, and

Foster, John Bellamy and Fred Magdoff: The Great Financial Crisis, Causes and Consequences, Monthly Review Press, 2009, New York, NY

Galbraith, James: “Jobs, What Can We Do?” a policy roundtable from the New American Contract Policy Paper, New America Foundation, October 18. 2009)

Kennickell, Arthur: Currents and Undercurrents, 2004, Federal Reserve Bank,
Survey of Consumer Finances

Kuttner, Robert, March 2009, “Surviving the Great Collapse,” International
Herald Tribune, quoted in Dowd, page 262

Leopold, Les, The Looting of America, 2009,Chelsea Green Publishing

Mishel et al: Mishel, Lawrence, Jared Bernstein, Sylvia Allegretto, State of Working America, 2006/2007, Cornell University, 2007,
Cornell University Press, An Economic Policy Institute book,
Ithaca, NY

NJFAC: National Jobs for All Coalition,, see web page for Bureau of
Labor Statistics on unemployment

Pollin, Robert: Standard of Living Must Be Raised, Roll Call (on web)
May 18, 2009, distributed at the Sumner Rosen Memorial Lecture,
Columbia University

Wolff, Edward: “Where Has All the Money Gone,” Milken Institute Report,
3rd Quarter, 2001, page

Library of Congress Photo

Bernanke should not be reappointed

Dear Senators Feinstein and Boxer, December 8, 2009

I recommend a No vote for Chairman Bernanke’s

Did you know that the household wealth in the U.S. has declined by 26% in the
past two years. 2007-2009? It collapsed from $65 trillion to $49 trillion. That involved a lot of retirement accounts and home mortgages. You should know. This comes from a report by the Brookings Insititute derived from the Survey of Consumer Finances, a report of the Federal Reserve Bank. Most of this was financial wealth, fortunately. Millions of families have suffered.

I am drawing from the report “The Wealth of Older Americans and the Subprime Debacle” by Barry Bosworth and Rosanna Smart, Nov. 2009, Brookings Institute, page 33. One can also look to Edward Wolff’s report “The Squeeze Before the Storm” in Pathways, Stanford University Institute on Poverty and Inequality, Fall 2009. Wolff states, “According to my estimates, while mean wealth (in 2007 dollars) fell by 17.3 percent between 2007 and 2009 (to $443,600), median wealth plunged by an astounding 36.1 percent (to $65,400), about the same level as in 1992.” (Page 1) This reduces the private net worth, or the wealth of the nation, from $63 trillion to $52 trillion, in rough numbers. The collapse follows a very rapid asset price bubble resulting from financial corporations’ extremely toxic innovations. Treasury Secretary Paulson and Chairman Bernanke eventually called them “negative frozen assets” --- meaning essentially unsaleable worthless junk. Mean net worth returns to 2002 levels, median returns to 1992 levels which is not much greater than 1983 levels. These two reports differ in markedly, Wolff states 17.3 percent decline, Bosworth and Smart say 26 percent decline.

I suppose what should be noted, and underlined, is that most American families now have 36% less savings than they had two years ago.

The Federal Reserve is charged with two missions, price stability and maximum employment. Bernanke played a failing role in both the charges.

Between 1997 and 2007 the median house sales price increased by 84% above the growth of inflation. And the sales volume of mortgages, 1994 to 2005, increased by 6 times, from $200 billion to over $1,200 billion. (See The Looting of America, Les Leopold, page 116, quoting the Case-Shiller Index and the Flow of Funds Account of the U.S.) Bernanke never warned us, and that’s a major bad mark for him.

This coincided with the spectacular ascendency of CDOs (collateralized debt obligations) and their off-spring CDSs (credit default swaps). The amount of CDSs is unknown but estimates run from $40 trillion to $600 trillion worldwide.
AIG insurance company was said to have insured about $48 trillion of CDSs. How could AIG make good on $48 trillion of bad debts when the entire private net worth of the nation stood at about $50 trillion -- is a question Senators should ask Mr. Bernanke. Greenspan and Bernanke advised against regulating these unregulated insurance “credit default swaps.”

The debt of financial corporations grew astronomically since 2000, by $18 trillion. The composite debt for the nation, including consumer, government and corporate debt grew by $22 billion, from $27 trillion to $49 trillion. This rapid growth in financial “assets” was matched by their rapid decline. (See Professor Jack Rasmus’ essay The Obama Stimulus vs. an Alternative Plan, page 4, at, and also in The Great Financial Crisis, Foster and Magdoff, page 121)

Bernanke was at the heart of the Federal Reserve, his record shows bad judgment and regulatory mismanagement is clear. Who else would have and should have known of these unusual anomalous growth figures but the heads of the Federal Reserve? Greenspan gave his “irrational exuberance” speech in 1996, but he failed to act on it. He suppressed interest rates long after the recession of 2001 and asset values went crazy, and look at the result. For one thing today it’s reported that California has 22.5% under- and unemployment. That’s misery for nearly a quarter of the workforce in California, and U6 Unemployment is at 17.5% in the nation. I do not think the worst news has happened yet, we still are hanging by a thread. You know, a record like this does not merit reappointment.

You should run these skeptical facts past some of your economic aids. You should read Les Leopold’s book The Looting of America. It reads like a fascinating dectective novel.

There are economists who saw it all coming. Notably economists who are called neo-Keynsians were sending out reports. The Levy Institute of Bard College, the PERI (Political Economic Research Institute) of University of Massachusetts, Amherst. In California Jack Rasmus, professor of economics at St. Mary’s College in Moraga. At U.C. Berkeley you can find Harvey Shaiken and others. Emmanuel Saez at U.C.B. has reported that the top one percent of households received 23.5% of the national income in 2007, just below the 23.9% they got in 1928. He also reports that the top one percent received 65% of the economic gains 2000-2007. Read that again, and take a deep breath --- 65% went to just one percent of households, the bottom 99% received 35%. (See “Striking It Richer, August, 2009, Update.”) Bernanke’s view of the cause of this recession amounts to a rebuttal to the Keynsian explanation. And he was and is wrong.

Now the Economic Policy Institute in Washington D.C. is advocating for a federal jobs program. The National Jobs for All Coalition has a larger plan to create full employment and eventually a guaranteed job for all. These pro-jobs-program economists are credentialed academics. See,

I’ll end with a quote from Richard Duncan’s book The Dollar Crisis, 2005. In 2002 the Bank of Japan had been following Bernanke’s advise to expand the monetary supply. “Interest rates are zero and the monetary base is growing at 30% a year. It is a situation that goes far beyond a monetarist’s wildest fantasy. The question is IS IT WORKING? and the answer is: CLEARLY NOT! In his speech, Mr. Hayami [Governor of the Bank of Japan] acknowledged that the Japanese economy remains weak and clearly stated the “it is extremely difficult to revitalize Japan’s economy solely by monetary easing when it faces various structural problems.” In light of the Bank of Japan’s “decisive monetry easing . . . unprecendented in the history of central banking,” that statement should be engraved in all future economic history books as the final nail in the coffin of monetarism. . . . But central banks cannot cure deflation in a post-bubble economy regadless of how decisive their monetary easing. Pushing on a string is a waste of time.”

The problem in the U.S. is a wage cut of 11% combined with a 90% rise in productivity over a 34 year period. “Given the immediate calamity, it is easy to neglect that the crisis for U.S. workers began long before the recession. As of 2007 --- prior to the recession --- the average nonsupervisory worker in the U.S. earned $17.42 an hour. This figure is 11 percent below the 1972 peak of $19.34 per hour (in 2007 dollars). And that is only half the story.
The other half is that average labor productivityy in the United States rose by more than 90 percent over this 34-year period of declining wages. . . . The workers’ reward for producing 90 percent more goods and services in 2007 than 1973 is an 11 percent pay cut.”
(See Robert Pollin, professor of economics at University of Massachusetts, “Standard of Living Must Be Raised, published in Roll Call, May 18, 2009.)

I’m going to include a short essay by Steven Roach, a banker for Morgan Stanley, who heads their Asia office. He advises against Bernanke.
(Readers can google this article titled “The Case Against Bernanke” by Stephen Roach, Chairman of Morgan Stanley Asia, Financial Times, August 25, 2009)

That’s all for today. Thank you. I hope you send this on to economic advisors you rely on, and have them weigh some of these arguments.


see my blog,

Tuesday, November 17, 2009

Sparks Lake

Comprehensive Plan, Nov. '09

November 12, 2009

Our economy is in serious trouble. Public officials have to make a case for federal job creation. The National Jobs for All Coalition this weekend sponsored in New York City a jobs conference on this proposal. (See,, or You should contact the sponsors and implement their plans. The economy runs on purchasing power, or aggregate demand, and that has been dangerously injured. I am sorry to bedevil you with implied criticism, but there is a wave of criticism coming, I’m afraid.

The private sector market is not going to rescue the economy. In 1939 unemployment still held at 19%, but due to public employment it dropped to below 2% in 1943, ‘44, ‘45. This is the positive legacy of Keynesian economic policy. Aggregate demand and the U.S. economy was restored by massive public jobs, a transfer of wealth to workers, a suppression of consumer goods manufacture, and a moratorium on household debt financing because of the war effort. This cannot be repeated, but emulated. Aggregate demand drives the economy, as Marriner Eccles, the Chairman of the Federal Reserve, explained in his 1952 memoirs, Beckoning Horizons.

Contents of Letter:
This letter will offer you two astonishing facts you need to know, then a thumbnail sketch of miserable facts you should know, then two authors’ proposals for remedying the status quo, and then an apology for being so glum.
Distressing Economic Facts, November, 2009
Number One:
University of California economics professor Emmanuel Saez reports in “Striking It Richer”, updated August, 2009, that during the period 2001-2007 the top earning 1% of households received 65% of the economic gains that the U.S. economy achieved. The lower 99% received the remaining 35%. Combining the report of Edward Wolff with Emmanuel Saez, the top 1% of households received from 1979 to 2001 50% of the economic growth of the nation. Ask yourself what does this do to purchasing power of the U.S. consumer? It squeezes it to zero.

Number Two:
Rutgers University report, “America’s New Post Recession Employment Arithmetic,” by J. Seneca and J. Hughes. (October, 2009, from the Executive Summary):

**"To put this new millennium experience into perspective, during the final two decades of the twentieth century [1980 - 2000], the nation gained a total of 35.5 million private-sector Jobs. During the current decade, America appears destined to lose more than 1.7 million
private-sector jobs."

**"Erasing this deficit will require substantial and sustained employment growth. Even if the nation could add 2.15 million private-sector jobs per year starting in January 2010, it would need to maintain this pace for more than 7 straight years (7.63 years), or until August 2017, to eliminate the jobs deficit!" [The 2.15 million per year growth would equal the 1992-2000 growth rate.]

The Recession beginning in December, 2007, wiped out all the private sector job growth of the past 7 years. That growth was approximately 1 million private sector jobs per year, which was half the rate of the 1992-2001 period, and less than half the rate 1982-1990. Perhaps 40% of new job creation was driven by the exploding housing market, which is now has a 10 month inventory of unsold houses. The Rutgers report is too optimistic, it will take longer than 7 plus years to get back to 5% unemployment. Ask yourself what does this do to the purchasing power of the U.S. consumer?

Eighty-four percent of U.S. jobs are private sector jobs. We end the decade, January, 2010, with fewer private sector jobs than at the beginning, January, 2000. Ask yourself what does this do to purchasing power in our economy?

This is a thumbnail sketch of the weakness of the U.S. economy:

Unemployment -- October, 2009 -- १५.7 million, 10.2% of the workforce. (If it follows past recessions it will not be before July, 2011, that private sector employment hits the bottom of the trough, or highest unemployment. That is 20 months after the official end of the recession, according to the Rutgers report. Unfortunately the recession is probably just on pause. The ARRA contributed most of the recent positive GDP gain, not the private sector. See Dean Baker’s report.)

Under-employment -- १५.3 million, 9.2% of the workforce. 12 job-wanters for every official new job opening! (See for BLS statistics)

Working full-time for below poverty level income, 25 million, 17.1% of workforce. Total of 36.5% of all workers (56 million workers out of 155 million total workforce) either have no job, not enough job, or not enough pay from job! ( lays out these figures drawn from the BLS data)
Ask yourself what effect that has on purchasing power।

Foreclosures on home mortgages --- about 5 million already foreclosed, 10% of total, and predicted to approach 20% of all mortgages or ten million homes.

Underwater with mortgages --- currrently 27 to 30%, approaching 50% of mortgages, 26 million homes.

Household debt vs. Disposable Income --- 127%, which is still near record high of 132% in 2007. Average 1990-2000 was between 80% to 90%.

State of largest 19 banks that do 2/3rds of all loans (too big to fail banks) ---
still technically bankrupt, propped up by taxpayer dollars. Still not lending.
State of other 8,300 smaller banks -- 500 are facing bankruptcy according to the FDIC, but perhaps up to 800 will go bankrupt.

The top earning 1% of households earn annually more than the bottom earning 60% of households -- 23.5% vs. 20.3%. (See E. Saez, and Survey of Consumer Finances, Federal Reserve, and State of Working America, 2006/2007, p. 79)
The wealth of the top 1% of households is greater than the bottom 90% of households --- 34% vs. 31%.

The bottom half own only 2.5% of the nation’s net worth, which averages out to less than $25,000 for 58 million households. Not much to fall back on during a recession. The Forbes 400 own more assets than the Non-Forbes 150 million Americans, half the U.S. population, with the lowest net worth.

Children: According to an article in the AMA Archives of Pediatric and Adolescent Medicine, about 50% of U.S. children will live in families that buy their food with food stamps, and among African-American children the rate rises to 90%. This comes from a 32 year study involving 4,800 families. To qualify for food stamps the family has to have virtually no discernible assets. Another study (Hardships in America by H. Boushey, 2001) states that 28.7% of U.S. children under 12 years old live in families that cannot afford four necessities of food, housing, health care or child care.

Any additional hard shock to the economy, from national or foreign sources, could bring on a Depression.

I have been reading and listening to Professor Jack Rasmus, St. Mary’s College in Moraga, California and contributor to Z Magazine (see
He offers two short term remedies:

1. Put $1 trillion directly into federal jobs creation.
2। Put $1 trillion into nationalizing the dead banks.

His long term remedies are:
1. Health care: create a single payer system, reduce total expenditure on health care from 17% of GDP to 10% by eliminating the insurance companies.
2. Banking: nationalize the banking functions by creating a utility banking system that would localize its function.
3. Create a national retirement pool, replacing the 401(K) system. Average 401(K) savings now is about $20,000 per accountee.
4। Restore unionization. This would transfer income to the non-managerial portion of the workforce, increasing purchasing power.

I have also been reading Jeff Madrick, editor of Challenge Magazine, author of The Case for Big Government. He advocates increasing federal expenditures from 21% of GDP to 24% annually (a 14% increase in federal spending). He proposes spending an additional $432 billion annually for ten years minimum

$150 billion -- on pre-school to Kindergarten,
$120 billion -- restoring solvency to Social Security,
$50 billion -- Infrastructure, highways, bridges, ports, airports, energy conservation, renewable energy sources;
$35 billion -- College subsidies;
$25 billion -- K-12 educational services;
$25 billion -- Caregiver support;
$25 billion -- Unemployment expansion/Trade Assistance job retraining;
$2.5 billion -- Election financing.
He does not include changing to a single payer healthcare system because it will pay for itself in reduced expenses.
Again, ask yourself what these proposals will do for purchasing power or aggregate demand.

Ravi Batra, in The New Golden Age, The Coming Revolution against Political Corruption and Economic Chaos also contributes a list of reforms. David Korten in Agenda for a New Economy contributes a list too. I could make one up. Better for you would be to look to the National Jobs for All Coalition, and follow some of Rasmus’ recommendations.

President Obama should sponsor and attend a large and prominent conference to publicize the need for a new approach. Change the public debate.

I sound a little alarmist with my prose. I tend to think that the imbalances of income and wealth are the last measure of economic health. I discovered by looking at the United Nations Human Development Index, comparisons of Inequality of Household Income and Expenditures, the U.S. ranks 75th among all nations. That’s dismal. Among all nations we are 37th in “Probability at birth to live to age 60.” Functional illiteracy is at 20% also. Even though our GDP/capita rate is above $45,000, we rank 13th in the composite ranking in 2009, and even worse we rank 75th in inequality. Our child poverty is about double other developed nations. I am long on grief, and short on praise. I hope you’ll understand.

Thanks for reading, best of luck to you all, and may you find the courage to do the right thing --- soon.

Ben Leet
San Leandro, California --- I’ve posted this letter at this blog site.

Tuesday, August 11, 2009

Evening after a shower

Forbes १५०,०००,000

The Wealthy Forbes 400 Owns as Much
as the Non-Wealthy Non-Forbes 150,000,000

The net worth of the 400 notables is equal to the net worth of half of the U.S. population. This is the page on wealth posted at


In 1962, the wealth of the richest one percent of U.S. households was roughly 125 times greater than that of the typical household. By 2004, it was 190 times (EPI, State of Working America 2006-07, Figure 5B).
(note: typical means median household)

The richest one percent of U.S. households now owns 34.3 percent of the nation's private wealth, more than the combined wealth of the bottom 90 percent. The top one percent also owns 36.9 percent of all corporate stock. (EPI, State of Working America 2006-07, Table 5.1 and Figure 5F).

The total inflation-adjusted net worth of the Forbes 400 rose from $470 billion in 1995 to $1.25 Trillion in 2006. (Arthur Kennickel, Federal Reserve Board, Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004 (pdf) and Forbes Magazine.)

The U.S. Personal Savings Rate declined from 11.2 percent in 1982 to NEGATIVE 1.1 percent in 2006. (Bureau of Economic Analysis, National Income and Product Accounts, Table 2.1)

I should pre advise that the figures I cite are not strictly precise, but they are approximately precise and the general picture I draw is accurate.

I want to note the $1.25 trillion figure, the amount of wealth held by the Forbes 400, in the third paragraph. This amount,
$1.25 trillion, is equal to 2.5% of the total net worth of the U.S., according to the report cited. In the 2006 report, Currents and Undercurrents, the Federal Reserve authors state that the bottom 50% of U.S. households (half of the 118 million households) own only 2.5% of the total national net worth of just over $50 trillion. Multiplying $50 trillion by 2.5% is $1.25 trillion, the same amount that the report claims that the Forbes 400 owns. Therefore, with a population of 300,000,000 citizens, one can make a case that the richest 400 individuals own the same amount as the poorest half, or 150,000,000 citizens. Pretty amazing. It reminds one of Russia under the Czars, or of the reasons for fighting the Revolutionary War. Thomas Paine where are you? The city of Oakland has over 350,000 people; 400 divided into 150,000,000 is 375,000. One rich Forbes individual owns an amount equal to the population of Oakland, if all of Oakland were in the bottom 50% of wealth holders. Plutocracy lives.

This nation should tax those extremely wealthy individuals and use that money to create millions of jobs for the unemployed and underemployed, it should create subsidies for employers to hire additional workers, and it should increase the wages of poorly paid workers, increase the Earned Income Tax Credit, and so on. We have done this before.

On page 255 of State of Working America, 2006/2007, the table “Changes in average wealth by wealth class, 1962 - 2004 (thousands of 2004 dollars)” the average wealth per household is listed at $430.5 (thousand). With 118 million households, the total net worth or wealth of the nation comes to over $50 Trillion. (118 xs 430.5 = 50,799). From 1962 to 2004 the
median net worth of household wealth has increased by 73% while the average net worth has increased by 157%, an indication of the one-sided growth that advantaged the wealthiest sector of our society. The recent decrease in the housing market values will take down both median and average net worth values. In 1989 the household median net worth was $67,700. It had climbed to $77,900 by 2004, but much of that was unrealized gains in the housing values that increased, inflation adjusted, by 84% in ten years, 1995 to 2005. That bubble has popped. In any case, the health of the nation would be greatly improved by a public jobs program. As noted before, 35.6% of the workers are unemployed, underemployed or working for below poverty wages (see for reference to BLS current figures).

Some readers may be unconvinced of my data, so I offer these additional supports. Here is a selection of quotes, a few from the Federal Reserve report, and another from Les Leopold reporting in the Huffington Post, August 19, 2009.

"For example, from 1992 to 2004 the wealth share of the least wealthy half of the population fell significantly to 2.5 percent of total wealth."
from the Abstract, page one, of Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004, Arthur B. Kennickell, Senior Economist and Project Director, Survey of Consumer Finances.

Total net worth of nation, All Families, $50,250.6 billions. Total assets of 0 -50 percentile group, $1.278.6 billions (page 29). (2004)

same report, page 7, "following the pattern of growth in the top rank of the Forbes group, the proportion jumped to 2.5 percent in 1998, before falling off a bit in both 2001 and 2004. In 2005 the fraction was 2.0 percent." --- not the same amount as reported by

same report, page 7, "For example, in 1989, 26.5 percent of families had net worth of less than $10,000; by 2004 the figure was 22.7 percent. Over the same period, the share of families with at least $500,000 in net worth rose from 10.8 percent to 17.7 percent." --- very positive news, but does it counter-weigh the fact of half owning 2.5%???
Why Warren Buffett Must Take Aim on Our Obscene Distribution of Wealth
August 19, 2009, Huffington Post, Les Leopold

This is the perfect time to call for a new progressive tax schemes on the superrich. In fact, if we had in place a fair system, there would be no deficit problem at all. Consider the fact that by 2008, the top 400 billionaires in the U.S. averaged $3.4 billion in assets each! Their total net worth was a whopping $1.56 trillion. That capital accumulated because, as a matter of policy, we encouraged income and wealth to concentrate at the very top of the income ladder. If we had kept in place the Eisenhower era tax system, the deficit Buffett worries so much about would nearly vanish.
The top marginal tax in 1980 when Reagan won the election was 70% on income over $400,000. Effectively the tax was much lower. Leopold has access to very current wealth data that I do not know about.

There is surprisingly little academic information about wealth and its effects. I have not read these books, but I’ll recommend them anyway. Top Heavy: The Increasing Inequality of Wealth in America and What Can Be Done About It, Second Edition, 2002, by Edward N. Wolff. Two books by Lisa A Keister, Wealth in America: Trends in Wealth Inequality, 2000, and Getting Rich: America’s New Rich and How They Got That Way, 2005. And the last unread recommendation is Who Rules America? Challenges to Corporate and Class Dominance by G. William Domhoff, 2009. --- August 11, 2009

Saturday, August 8, 2009

Oregon Lake

Wages Must Rise

Wages Must Rise
Wages must rise. Public employment is a solution.
The wealthiest 1% of U.S. households own more wealth than the lower 91% of households. They earn each year almost as much as the lower 60% of households. This is why our economy does not work well.
(Sources: Federal Reserve report, Survey of Consumer Finances, Currents and Undercurrents, 2006; and Tax Policy Center, Brookings and Urban Institutes, quoted in State of Working America, 2006/2007, page 79, by Mishel, Bernstein, Allegretto)

Any economy is limited by the wage rate for most workers.
When workers as a group cannot afford to purchase what they produce as a group because their wages are depressed as a group, then the economy must constrict. This is an inviolable law, just like supply and demand. That is why wages must be kept high. As anyone can see, capitalism tends to suppress wages; inherently capitalism’s competitive nature constantly forces a reduction in production costs, but in doing so this inescapable depressing force deprives the economy of purchasers. The economy then plummets to the level of available income and savings. This should be recognized as an inviolable law of economics. Marriner Eccles, the Chairman of the Federal Reserve during the Great Depression, cited this shrinkage of aggregate demand as the cause of the economic depression. Economist Ravi Batra says that wages are demand and productivity is supply, and they must be in balance.

In 2009 we have 35.6% of the workforce, or 55 million workers in a workforce of 155 million, who either have no job (9.4%), not enough job (involuntary part-time workers and discouraged workers --- 10%) or they are working for below poverty wages (16.2%). (See for BLS statistics to confirm.) One out of three of workers are not buying much. As a result we have one in nine buying food with food stamps, one in six without health care, and over one in four children living in poverty. Among developed nations we have the highest inequality and the highest child poverty rate. We need to raise wages, but it requires a concerted strategy.

In 1939, ten very long years after the commencement of the Great Depression, the rate of unemployment still stood at 19%. Four years later, in 1943, ‘44, ‘45, it was below 2%. How this was done should be question number one for the general public. Simply put, public jobs were created. This transferred idle wealth into paychecks of working people. The same principle will work today, but we do not need a world war to prod us into a good policy. Wealth was idle because no one had money to buy additional products (called aggregate demand); very many people were very poor while very few people were very wealthy. Wealth was transferred, and massive public employment changed business expectations as more buyers entered the marketplace through this transfer of wealth. This activated the latent energy in America.

When government hires workers, it transfers idle money into paychecks of formerly non-working people. The most recent stimulus of $787 billion dollars promises to save -- or create -- 3.5 million jobs. Yet there are 15 million workers without jobs. Creating new jobs helps in two ways, it shrinks the job market which forces private employers to pay higher wages, and it transfers wealth to non-purchasing unemployed workers. Those newly employed government workers begin purchasing, and eventually enough traction creates demand in the private market so that employers hire again. (Economist E. James Welsh has a good essay about this phenomenon, available at, April 9, 2009.) Furthermore, we can increase the Earned Income Tax Credit, we can provide subsidies for food, child care, housing, health care, and education. And we can make it simpler for workers to form unions. All these create added demand in the economy, at the cost of future loan repayments or higher taxes to the top one percent who own more than 91% of the U.S. households combined.

One demerit of public job creation is that productivity rates fall, but that is not a permanent effect. Another is that interest rates rise because of government borrowing, and this brakes private investment because their expansion credit costs rise. This also is temporary.

From 1942 to 1960 -- Roosevelt, Truman and Eisenhower -- the maximum marginal income tax was 91% on incomes over $3.4 million. You may call this “confiscatory” but keep in mind it saved the overall economy. Over the past decades only a few boats have risen with the rising tide, in the 50s and 60s all boats were rising. Another benefit would be that the insanity of billion dollar hedge fund operators being taxed at lower rates than their secretaries would be put to an end. Today, a reinstated high marginal income tax would finance economic recovery quickly.

I recommend Jack Rasmus's solutions. He is an economics professor, see, or see Dean Baker, or my own blog, Jeff Madrick, the editor of Challenge Magazine and author of Why Economies Grow says much the same thing. John Mauldin’s Investors’ Insights has contributors from many sides, especially the skeptical side. Also Ravi Batra agrees with raising wages. He says that productivity equals supply and wages equal demand and the two must balance for growth and widespread prosperity. It's pretty obvious. But since 1980 that logic has been reversed.

In 2008 the annual GDP was $14.3 trillion and the number of active workers equaled 141 million. That means that almost $100,000 of value was produced by each worker in 2008, on average. Yet half the workers earned less than $40,000 a year, the median income for individual workers was below $40,000. (This from U.S. Census, 2007) The bottom half earned about 15% of the total national income, the top half earned 85%. The top one percent of households in 2006 earned 18.3% of the national income, while the bottom 60% earned only 20.3%. (See State of Working America, 2006/2007, page 79) The figures for wealth are even more egregious. The top one percent of households owns more wealth than the combined wealth of the lower 91% of households. Half the households own 2.5% of the national wealth, the other half own 97.5% of the national wealth. (See Currents and Undercurrents, 2006, Arthur Kennickel, U.S. Department of Treasury, Federal Reserve, Survey of Consumer Finances) Time for readjustment through higher wages?

We suffer from chronic low wages and a slavery mentality. In theory (only) Capitalism could actually seize up and die if corrections are not made. We have lots of room to increase wages in a systematic way. Only the richest, 3% at the top, would feel any loss, and their gain will be to live in a much happier world, a saner world, a safer world, and a world more just and productive.

I feel like ranting a little, so here goes:
Food stamps feed 11% of the population, one in nine Americans, in June of 2009, the number has nearly doubled from 17 million in 2000 to 33 million in 2009. (See for an interesting news article on food stamps) You must have less than $2000 in assets to receive them, but 70% of food stamp recipients (that’s 23 million Americans) have “no countable resources”. Half the recipients are children. (Our child poverty rate is double the average for developed nations.) That’s almost 20% of the nation’s children. $95 a month is the median benefit, when the typical (median) American household spends $184 a month per person on food. In November, 2008, approximately 67% of those eligible were receiving the food stamp benefit. If all who are eligible applied, over 40 million would qualify, more than one in every eight Americans. The economic multiplier for every dollar of food stamps is about $2 of added economic activity. The same applies for creating public jobs.

The article features a retired postal worker, Adell Davis age 63, who declined the $20 a month food stamp benefit when she moved into subsidized senior housing. She lives on a $672 Social Security check, and has about $200 a month left over after paying her bills. “I thought someone else could use it better than me,” she says. She never eats bacon and eggs nor fresh fruit and vegetables. Davis probably would qualify for work as a public school auxiliary classroom assistant, or many other valid work activities that public jobs could create. If we would let the banks go bankrupt, and transfer the $700 billion we kicked in to keep them solvent, and the $23 trillion in guarantees, we could easily employ the unemployed and create economic security for all citizens. No, instead we shovel taxpayer money to failed business men so they can continue their get-rich-at-all-cost schemes--- even collective bankruptcy --- before we employ those who cannot find full-time, decent paying work, the 55 million Americans whom I mentioned in the first paragraphs of this essay. We shovel $1.1 trillion a year in the military, double all other nations combined (See Chalmers Johnson, "Going Bankrupt" ZMagazine, and, January 24, 2008), even though there is no significant threat to our security, the most significant being the global economic depression that we created ourselves through non-regulation of the financial sector and low wages to 80% of the workforce over the past 30 years.

We should try to raise wages. In the U.N. Human Development Index we rank 15th now, despite the fact that our economy generates $41,890 per capita, more money per capita than all but one other nation. The median personal income (for 141 million workers) is less (about $40,000 per worker) than the per capita income for over 300 million citizens. Go figure.
How can anyone be poor in such a wealthy nation?

Ben Leet, see

Wednesday, July 22, 2009

Elk Lake, Oregon

Comments and Suggestions

My suggestion to a local radio show,

Your Call Radio,
July 19, 2009

This is my Agenda for a New Economy.
We must raise wages for the lower 80% of workers.
To do this we need public education. That’s where your show comes in.
Then a program to create about 7 million public jobs, plus a more generous Earned Income Tax Credit, and lastly and somewhat later a higher minimum wage rate. In 1939 the country’s unemployment rate, after 10 years of depression, was 19%. In 1943, 44, 45, it was below 2%. Massive public job creation caused the change. (I think I got the unemployment figures out of Wikipedia.) It ended the Great Depression as well. About 15 million are unemployed today, another 15 are stuck in part-time work, and another 25 million work full time for less than poverty wages. That comes to 55 million workers in a workforce of 155 million, or 35.6% who are with no job, not enough job, or lousy pay. (Go to and find the Bureau of Labor Statistics data to confirm.)

One percent of the society, known as U.S. households, owns more wealth than
91% of households. That translates out to a population of a little over 300 million,
and about 3 million who have more net worth than the bottom 273 million. Three million own more than 273 million. 1 % own more than 91%. That’s wealth, the end result, the outcome, of how our economy works. Naturally they don’t do 91 times more work, but their reward is 91 times greater. (These figures come from the 2006 report of the Federal Reserve’s Survey of Consumer Finances, titled Currents and Undercurrents, by Arthur Kennickel. It’s on the web.)

Why public jobs? It will tighten the job market, and in effect it transfers wealth from wealthy and idle accounts into paychecks to working Americans. The tightened job market will raise the price of labor, meaning wages, and the transfer will increase aggregate demand to stimulate the economy, and the actual work done will enrich the country. The EITC does the last two mentioned goals. The minimum wage hike also accomplishes those two goals, but it is damaging to small businesses and should be gradual. The Economic Policy Institute reported that 27.3% of the children in the country are living in poverty in 2009, I suspect they take their figures from the U.S. Census. Those parents need a higher wage. In 2001 the book Hardships in America stated that 28.7% of children under 12 lived in families who could not afford all four necessities, housing, health care, childcare, and food. Those parents need a higher wage.
In fact, 143 million workers are working in our economy, and each produces about $100,000 of value each year.
Here’s a little math that proves that half of the workers are receiving 85% of the total national income, the other half receive 15%.
The median income for 143 million individual workers, in 2007, was below $40,000 a year (the median for men was $44,240 and for women $34,240 --- U.S. Census, 2007, Income, Earnings, and Poverty Data From the 2007 American Community Survey). Our economy produces more than $40,000 per person for over 300 million people, but the typical (median) worker earns less than $40,000. Why are not the median income (less than $40,000) and the average income (almost $100,000) closer? Do the math. We have 100 people working in a community, we pay them a combined amount of $100,000, on average $1,000 to each worker. But half of them earn less than $400, more like about $300 on average for the lower half, for a total of $15,000 combined ($300 times 50 workers is $15,000). The other $85,000 goes to the workers in the upper half. Conclusion: wages need to be raised for the bottom half.
This is confirmed by looking at State of Working America, 2006/2007, page 79, that says that the U.S. households broken into quintiles (20% groups) of earnings per household earn, from lowest quintile to highest, accordingly: 2.5%, 6.4%, 11.4%, 19.8%, and 60.3%. The bottom 60% of households receive a combined 20.3%. (2.5% plus 6.4% plus 11.4% equals 20.3%) The top one percent receives 18.4% of the total national income, in 2006.
Conclusion: wages need to be raised for the bottom half.
I know math is tiresome, but this is not too difficult.
We produce over $40,000 per capita in our economy, and we do, how can anyone remain poor? Answer: really bad distribution of income, which in short means Low Wages।

I’m reading William Quigley’s book An End to Poverty as We Know It (2003, Temple University Press). He has a page on job creation ideas, page 152, and he mentions Robert Haveman of University of Wisconsin who talks about a wage subsidy for employers, a $10,000 a year subsidy that reduces employers wage expense by almost a half for new employees hired over the year before. That could create a lot of new jobs, not government jobs. Those subsidies could be auctioned off to employers.

L. Randall Wray, University of Missouri, Kansas City, wrote Understanding Modern Money, and presents arguments for full employment. One of his graduate students had an article about Argentina’s experiment with government created jobs after their 2001 financial and economic crash. It was published in Dollars and Sense magazine, sorry, I don’t have the date, but it was last year.

I’d like Your Call to schedule a program along these lines. That’s my Agenda. Dean Baker and Robert Pollin co-authored a book about it. You could find someone. By the way, if the nation created 7 million new jobs that would equal to 9,100 new jobs in Oakland, California, to keep it in perspective. Just what agencies or businesses would increase their workforce I have not figured out yet. Maybe you know someone would could answer that question.

Thanks a million, not dollars, just thanks, for your shows.
You’ve got interesting speakers as guests.
Yours, Ben Leet

Find someone who will make a movie, One Percent Own More than 91 Percent, Another Inconvenient Truth।

This is a comment to an article in AlternetJuly २१, २००९, about Phil Angelides new job

From 2000 to 2007 the combined debt of the nation, meaning government, consumer, and corporate debt, increased from $27 trillion to $49 trillion, an added $22 trillion of new debt, of which $18 trillion came from financial corporations (according to professor Jack Rasmus who publishes with Z Magazine. He takes the figures from the Flow of Funds report of the Federal Reserve.) Since the private net worth of the entire nation was valued at $50 trillion (Survey of Consumer Finances, 2006, Currents and Undercurrents) this amounted to the creation of phantom wealth, almost all new wealth being financial. The story is not well reported in the media, but it has to do with the explosion of financial engineering products, and unsustainable lending. They leveraged themselves into inevitable collapse. We should create public finance services, see professor Peter Dorman or Ralph Nader's plan, and dump the bankrupt banks into the abyss where they belong. Angelides should also note that the inequality generated since Reagan is the core problem that created excess footloose capital in an environment of dropping consumer demand, aggregate demand. Credit expansion took the place of wage increases, hence the financial meltdown, and a systemic economic problem that Obama is not dealing with. We need public jobs and tighter labor markets that force higher wages, more Earned Income Tax Credits funding, and higher minimum wages. See my blog, See The Trillion Dollar Meltdown by Charles Morris and David Korten's Agenda for a New Economy.
Posted July २१, 2009
Another comment appeared after the article. This is not my comment:
(p.s. -- the GDP in 2008 = $14.3 trillion, national assets = $51 trillion)

Americans better hope and pray that Angelides and the Financial Crisis Inquiry Commission get to the roots of our economic crisis. Given the predisposition of Congress and the White House to ignore, obfuscate, deny and lie about the causes and even the current state of our economy.

The sheer magnitude of taxpayer involvement was laid bare in Congressional testimony.

From Bloomberg: "U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program."
Tax Payers on the Hook for $23.7 trillion!

Wednesday, June 24, 2009

Myrtle Beach, S.C.

3rd Letter to Congressman Stark

Greetings to Congressman Stark, June 21, 2009

--- from Ben Leet, resident of San Leandro

Re: What if the economy slips into a Depression, have you a plan?

The Recession may not end on January 1, 2010, as many predict. It may get worse. The only author I know of who actually predicted the downturn, Warren Brussee, predicts a worsening of the economy. His book The Second Great Depression, Beginning 2007, Ending 2020, was published in 2005. He has a monthly blog at which I recommend. Almost all economists failed to see this tidal wave coming, I know of a few: Dean Baker, Jeff Faux, Richard Duncan, Nouriel Roubini, and Robert Schiller, but none of them wrote a detailed book two years prior to the onset. If you know of some other, let me know. Out the tens of thousands of professional economists, Brussee is unique. Naturally I have had his book for several years.

Now, in June, 2009, if the economy continues to shed jobs at half its rate for the last six months, that is at 300,000 jobs a month, we will be above 11% unemployed nationwide by January 2010. The highest unemployment in the 1980s was 9.6%, so we will be in 1930s territory soon for comparison. More women are working than men, and that’s a first. Foreclosures also run at about the same pace, over 300,000 a month.

You can see that we are tracking the Great Depression, see this article, A Tale of Two Depressions at web page:

I suggest that the Progressive Caucus prepare a response that includes (one) a greatly expanded public jobs program; (two) a tax increase on high incomes, either a 2% tax on wealth for only 5 years, or a Eisenhower era income tax rate of 90% on income above $3.2 million; and (three) a Clean Election campaign funding plan. When the bottom 50% of U.S. households own only 2.5% of the national wealth, according to the Federal Reserve report Currents and Undercurrents, 2006, how can real reform compete against all the campaign donations from the wealthy few? (Shame on the Democrats!)

The Democratic Party should recreate their New Deal credentials or pedigree. How bad is the economy today? Consider that 9.4% are unemployed, another 10% are either involuntary part-time workers or are discouraged workers, and 16.2% are working for wages that pay less than the poverty threshold. Add it up, 35.6% --- more than a third of the labor force, over 55 million workers in a workforce of 155 million --- are out of work, working too little, or working for too little. In all, that’s about 1/3 who can’t buy very much stuff, whose low purchasing power is crippling “the economy.” Purchasing power is also called aggregate demand, and it is the driving force of a working economy. (See for details on BLS statistics, and see Jeff Madrick’s book Why Economies Grow for an understanding of aggregate demand).

I’ve studied the U.N. Human Development Index and the U.S. ranks down at 75th place among 126 reporting nations in “Inequality of Income and Expenditure” and other inequality measures such as the Gini coefficient. We rank number 15 on the overall composite index, but we are last among developed nations in inequality. This is why I am pessimistic about recovery. “Where will the jobs come from?” ask many economists, without a good answer. Without purchasing power widely distributed there will be no rationale for rehiring workers. It’s not over-production, it’s under-consumption that is dragging down the economy today. I read that one in nine buy their food with food stamps, nationwide, so those are the people who are “under-consuming.” Children in poverty is at 27.3%, up from 17% in just one year; those parents are underconsuming. (data from People don’t have income as before, and they have “blown” their credit. As Marriner Eccles, the Chairman of the Federal Reserve from 1934 to 1948, said, it’s like a poker game, when the losers run out of credit, the game is over. “Game over,” as our Governator likes to say.

My blog is at --- I have cogent and concise essays about economics that argue these points. If you are really interested.

This is my one quote from my latest essay:
For instance, if you were to convert the wealth of Warren Buffett or Bill Gates into $100 dollar bills and make two stacks, the two stacks would rise up 30 miles high, at least they did before the stock market collapse. If you stack the wealth of the wealthiest 1% of households, 1.16 million households, their stacks would reach almost 60 feet high, on average. One percent own 33.4% of all the nation’s wealth. If you stack the average savings of the poorer half of the U.S. households then you would see 58 million stacks that reach one inch high. So imagine a circle of 116,000,000 stacks, half are one inch high and in the middle are those towers going up 30 miles into the stratosphere. This graphically describes a large disparity of savings, and the moral question, “Is this fair?” immediately arises.(1)
One percent own 33.4%, the next 9 percent own 36%, the percentiles 50 to 90 own 28% and the lower 50% of households owns only 2.5% of the net worth or savings of the nation. --- Currents and Undercurrents, Federal Reserve, 2006. This end result of our economic system should be conclusive that something “is rotten in Denmark.”

In 1938 the unemployment held at 19%, and in 1943, ‘44, ‘45, it held below 2%
--- the net result of massive “public jobs.” The effect was the resurgence of widespread purchasing power, aggregate demand, after a transfer of wealth from the rich to the unemployed poor. The lasting effect was several decades of economic vitality instead of a repeat of the 1930s. Our future in 2009 depends on a similar transfer of wealth. You might find that hard to believe. I don’t think it will happen until a certain collective change of heart takes place.

I predict a different reality than recovery. Probably the inertia of ignorance and greed, sorry to say, and political timidity will perpetuate a pitiful economic picture for quite some time. I hate to say. In about 12 months we’ll know, we’ll be able to tell from the unemployment figures.

This is what the Progressive Caucus and Pete Stark might do:
I read Dollars and Sense Magazine, and many contributors are professors at University of Massachusetts, Amherst. I think if you were to request from them a plan, they would create one. The Economic Policy Institute also has a list of public jobs that the nation needs to accomplish. Then the Progressive Caucus could show the world a well thought-out, detailed and persuasive alternative. You might then have the pleasure of an “I-told-you-so” moment.

Here are some details I carry around in my head: 7 million jobs have been lost since January, 2008, durable goods orders in the U.S. are down 35% from one year ago, housing prices have fallen 31% and have another 12% more to fall, children’s poverty rate jumped from 17% to 27.3%; international stocks dropped in value 46% in 12 month period, international trade is off by about 17% and industrial output down 12%, tracking the Great Depression. Economists do not agree about “green shoots” in the economy.

I applaud all your efforts, especially the health care reforms. But I think that we, the public, need to hear a realistic alternative to the bland and even obnoxious proposals that centrist Democrats put forth. For instance, there was no excuse for pouring $700 billion into bankrupt banks, and guaranteeing $12 trillion in their absolutely miscalculated loans. There were far cheaper alternatives that Americans by and large, conservative and liberal, did endorse. If you listen to Air America, you can hear people complain, as today I heard, after 55 years of registering Democrat one lady is switching to “Independent.” With over 70% of the population asking for a “single payer” health system, and the Dems are refusing to talk about it --- what do you expect? It’s like the late ‘60s when people just won’t take it any longer. That’s positive.

Finally, I am a believer in God. When I hear you derided for your agnosticism I am amused. You might tell the critics, “By their fruits ye shall know them.”
Keep up your good works.

Yours, Ben Leet

U.S. Ranks 75th in Inequality

The U.S. Ranks 75th out of 126 Nations in Inequality

Does inequality within a nation matter to its economic health? is the question. In the U.S.A. the top one percent of households earns more each year than the bottom 60% of households, and that wealthy one percent owns more wealth (has a greater net worth) than 91% of the households. Does this effect the workers in the U.S.? Does it lower their incomes and the quality of their lives? In June of 2009, 27.3% of the nation's children live in poverty. How is this possible when the annual sum of our productive labor (GDP) is valued at more than $40,000 per human being? How could anyone live in poverty in such a wealthy country? This is a question that too many are willing to evade.
The United Nations’ Human Development Index ranks the United States at 15th place, in 2009, out of 177 nations in its composite of rankings for human development, but in the category of “Income or Expenditure Inequality” the U.S. ranks down at 75th place. The inequality measure compares the incomes of the top 20% of households with the bottom 20% of households. All of the advanced economies rank higher than the U.S. In the top 50 nations only Hong Kong, Singapore, Argentina, Chile, Uruguay, and Costa Rica rank below the U.S. When the comparison is the top 10% vs. the bottom 10% the U.S. ranks at 81st place among 126 nations.

Using the Gini index, used by economists to determine inequality, the U.S. also ranks high on the inequality scale, 40.8, compared to western Europe and Japan, nations that score in the mid 20s. Here is a select listing of scores among a wide group of nations to compare inequality.

Nation --- Gini --- 20% vs 20% --10% vs 10% --GDP/capita
Japan------- २४.9 ------३.4 -----------------६.1 ----------------35,484
Norway -----२५.८----- ३.9 -----------------४.5 -----------------63,918
France ------३२.7 -----५.6 ------------------९.1 -----------------34,936
Germany ----२८.3 ----४.3 ------------------६.9 -----------------26,893
U.S. ---------४०.8 -----.4 ----------------१५.9 -----------------41,890
Hong Kong -४३.4 -----९.7 ----------------१७.8 -----------------25,592
Singapore --४२.8 -----९.7 ----------------१७.7 -----------------26,893
Mexico ------४६.1 ----१२.8 ---------------२४.6 -------------------7,454
Brazil --------५७.0 ----२१.8 --------------५१.3 -------------------4,271
China --------४६.7 -----१२.2 --------------२१.6 -------------------1,713
Bolivia -------६०.1 -----४२.3 ------------१६८.1 -------------------1,017

Naturally Japan scores high in the HDI, 8th in quality of life score, because it is an advanced economy and the wealth and income are shared more so than all other countries. Comparing Denmark (14th) with Singapore (25th), while their GDP per capita is roughly the same, their Gini scores and inequality scores are widely different. The benefit of high income is not shared in Singapore, it is sequestered by the ownership class and quality of life lags behind Denmark. Perhaps Singapore’s long-term strategy will change that, but perhaps not. (See Robert Kuttner’s article in Foreign Affairs, October 2008 for a review of the Danish economy as an example of economic justice and progress.)

The U.S. also ranks 2nd in GDP per capita but 13 places lower in overall HDI. In contrast Cuba ranks at 93rd in GDP per capita but 42 places higher in HDI, indicating that Cuba does a lot with a little.

Aggregate Demand --------------------------------------------

Turgor pressure we learn in school biology is the opposite of the word “wilting.” In a metaphor, aggregate demand is to an economy what turgor pressure is to a plant. That is the crux of my argument here. An economy with high inequality has low turgor pressure and will not respond quickly to slumps or wilting since a major portion of its population base is bereft, short, and lacking in economic pressure or purchasing power, and the entire system has to depend on the purchasing demand of the small wealthiest portion to keep the least wealthy section employed.

For example, the income of the "typical" worker is about one third the amount of the "average" worker. The U.S. GDP, July 2008, was $14.2 trillion, with 141 million workers actually working each day of the year; each produced on average $100,000 per worker per year. That covers "average." But the median worker or "typical" worker is in the middle of the income gradient. That is, half of the workers were earning less than $33,000 (the median income), and a good portion of the lower half much less than $33,000. This is inequality of income.

Wealth distribution is even more out of balance. The wealth of the bottom 50% of U.S. households, about 58 million households with real people living therein, is a paltry 2.5% of the total national wealth (See 2006 report of the Federal Reserve, Currents and Undercurrents). The wealth of the top one percent is over 33% of the total national wealth. The ratio of the average wealth or net worth of a household below the 50th percentile line is about one 700th of the wealth of a household in the top one percent. The average wealth for that household below the 50th percentile is less than $25,000, while the wealth of the top one percent averages around $15,000,000. That is wealth inequality.

The major portion of the U.S. population that is lacking in purchasing demand is the lower 60% whose combined annual earnings amounts to 20% of the GDP, and whose combined wealth is, approximately, less than 5% of the national wealth. The article “Striking It Richer” by Emmanuel Saez, professor of economics at U.C. Berkeley, indicates that the top ten percent of annual earners now receive about 50% of the total earnings, compared to 28 years ago when they received only 35%. The top 10% also own about 70% of everything that has a price tag.

Consider this:
16.2% of the labor force earns less than the poverty threshold for a four person family (see, employment analysis from Bureau of Labor Statistics ),

17.7% of workers will be under-employed (involuntary part-time workers) by 2010 -- predicted by the Economic Policy Institute,

10.2% will be unemployed (predicted by EPI).
Depending on the overlap of low-income and part-time workers, in a matter of months between 28% to 44% (call it 33% for convenience) of the labor force will earn very little. The turgor pressure for the economy will be low, to say the least. Let’s see, out of work, not working enough, earning lousy wages --- what does that equal for 28% to 44% of the population and the U.S. economy? That's between 45 million to 70 million workers in a workforce of 160 million.

I’ve recently read (March 2009) the predictions of Warren Brussee about the stock market, how it depends on the ratio of dividends to prices, and the conclusion is that the value of stocks will continue to languish. (Brussee wrote the book The Second Great Depression, Beginning in 2007, Ending in 2020, published in 2005.) The economic commentator John Mauldin also predicts the same in his newsletter of March 4, 2009, titled “While Rome Burns.” And, also consider that the European banks are facing a blow-up owing to the collapse of the economy in eastern Europe. Multiple signs of a very weak and slow world economy. A few years ago I read in a Charles Schwab Company report that about 53% of China’s economy was devoted to export production, and now massive layoffs are occurring in China. Their export market has stopped buying.

Wealth Tax and Public Jobs -- a solution of sorts
A 2% tax on the wealth of the top 1% of U.S. households would yield (.02 X $17 trillion) $340 billion a year. This could be a temporary tax for five years or until the current recession/depression subsides. The tax could be graduated from 0.5% to 2.5%, meaning it would take from 200 years to 40 years to significantly reduce the total wealth of those taxed. We need to create approximately 15 million jobs, and at $30,000 per job, the total annual expense would be $450 billion yearly. Therefore we could not afford to create all those jobs immediately, but would have to do it in steps as the private economy rehires its unemployed workers.

I believe that capitalism functions this way: aggregate demand --- the wages and savings of consumers that give rise to their expenditures --- determines the number employed and their wage rate. Often news commentators announce that 70% of the economy is "consumer driven." That means that 30% is driven by government (public) demand, and the remainder by private demand. In times of sagging private demand, government has a responsibility to revive consumer demand by maintaining high employment. In World War II the government war bond financed employment. In 1939 the unemployment rate held at 20%, and in 1942 it dropped to 2%. Either the government sells bonds to the wealthy households or it must tax away wealth at the top so that workers at the bottom can stay employed, and in times of recession/depression this is an emphatic demand. We have schools, ports, rivers, sewage systems, water quality systems, energy efficiency work and road improvements. The list is very long.

It's time to use the money that is now idle in private accounts --- through a tax on wealth or by raising the income tax to where it was under President Eisenhower (91% tax on income over $3.2 million) --- to improve the country and rebuild aggregate demand in the economy. This is the intelligent use of our human, natural, and capital resources. Whose picture is shown on the dollar bills? Is my picture, your picture, Bill Gates' picture, or some wealthy person's image gracing the currency? No, the money belongs, ultimately, to the ones who printed it --- that is, to the people. It time to engage that wealth in productive enterprise and labor, and avoid having millions of people sitting idle as they watch their lives break into irreparable pieces.