My Blog List

Monday, March 16, 2015

All the Puzzle Pieces Together

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


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


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

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

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

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

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

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

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

would drive trading volume down and/or away from 


There is a huge amount of trading occurring on the 

Chicago derivative markets: more than $900 trillion 

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

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

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

useless” type described by Andrew Haldane, the 

leading UK regulator during the Great Recession. 

Further, there is evidence that such misdirection of 

resources hampers growth in the real economy.


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

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

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

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

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

Additional reading: 

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

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

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

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

No comments: