Six Short Pieces, July 7, 2010

This installment has six sections:
1. Dean Baker on Inequality, the Best Article in Years, and Inequality in Short, a Quick Guide with sources.
2. One in Three Americans -- Less than $5,000
3. A 1932 Question with a 1931 Answer -- about the federal deficit 2010
4. The Bush Years --- The National Debt and the Annual Federal Deficit, The Tea Party during the Bush Years Saw 16% Over-Budget Spending for Eight Years
5. A comment to a radio station about the extent of ‘the problem’
6. Reliable Information Sources

I hope to offer fairly simple explanations about complicated economic riddles. Naturally, no one agrees about economics, but we should all try to have an informed opinion. “Intelligent people can and often do disagree,” as Warren Brussee often notes.

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Dean Baker on Inequality, the Best Article in Years

This morning I read the best summary article about the economy that I’ve read in months if not years. Dean Baker’s “The Right Prescription for an Ailing Economy” printed in the Nation magazine, and printed at his web site, Center for Economic Policy Research, --- http://www.cepr.net/index.php/op-eds-columns/ ---
offers the best summation I have read. If you read no other article on economics, read this one. Inequality is the problem.

http://www.thenation.com/article/36894/inequality-america
The Nation magazine published six essays about inequality, all good, especially Dean Baker's and Robert Reich's. Jeff Madrick's I found not up to his normal excellence, but still good. Baker summarizes his argument noting the growing mismatch of productivity gains and wage stagnation in this paragraph:


This virtuous circle was broken by Reagan-era policies intended to weaken the power of ordinary workers. Wages no longer kept pace with productivity growth, eliminating the automatic link between productivity growth and demand growth. This led to excess capacity in the economy, which was filled in the 1990s with demand generated by the stock bubble and in the 2000s with demand generated by the housing bubble.

As Robert Pollin pointed out, 1973 to 2005, productivity increased by 90% while median weekly income decreased by 10%. But the economy grew because of what Robert Brenner calls "asset bubble Keynesianism." Demand is then powered not by self-sustaining organic income growth, nor by federal job creation as in the New Deal and World War II era, but by government orchestrated escalation of asset prices by regulatory mismanagement. The word "mismanagement" is a conscious choice here. A market can sell no more than what purchasers can purchase. Cut wages and you cut purchases, which unchains systemic shrinkage. The economy ratchets downward. When the bubble breaks there is a lower "normal." Inequality matters, it is foremost.

Inequality in short:

At least 33.1% of Americans live in households with less than $5,000 to their names. Regrettably 24.1% live without any savings at all, according to Edward Wolff, as I cite below. If you are serious about learning about inequality, you will check these sources of info. More sources I provide at the bottom of this July 7, 2010, installment.

As 33.1% struggle --- and that is more than 100,000,000 citizens in the richest nation in the world whose annual GDP amounts to over $47,000 of output per citizen, and whose workers produce on average more than $100,000 per worker ---
Peter Edelman and Barbara Ehrenreich point out in March, 2010 (http://www.agenceglobal.com/article.asp?Id=2284),

Millions of Americans are in dire need. Six million have no income other than food stamps, which is astonishing, since food stamps by themselves provide help at a level that is just 37 percent of the poverty line. Not surprisingly, extreme poverty -- having an income below half the poverty line, below $9,100 in 2009 terms -- had already skyrocketed before the recession, from 12.6 million people in 2000 to 15.6 million in 2007, well over 40 percent of the poor and more than 5 percent of the entire population. In 2008, with the recession beginning to bite, the number swelled to 17.1 million.

The Commerce Department reported that for the second time in 71 years, personal income dropped by 1.7 percent in 2009. (See:
http://www.wsws.org/articles/2010/mar2010/inco-m27.shtml)

Americans have lost not just income but wealth. The median household net worth dropped from over $102,000 to $65,400, the 1992 level,
a 36.1% drop, while the mean (average) net worth dropped by 17.1%. That means that the nation has 1 in 6 fewer dollars today compared to three years ago. It went up in speculative smoke. One can read Edward Wolff's summation (Working Paper 589) of the effects of the downturn on page 34 of his report at the Levy Economics Institute, (http://www.levyinstitute.org/publications/?docid=1235).

One paper estimates that net worth will shrink by 45% to 55% for ages 45 to 64, as summarized by Rosnick and Baker, The Center for Budget and Policy Research. They estimated this loss in September 2009 in their paper, "The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble." (http://www.cepr.net/index.php/publications/reports/the-wealth-of-the-baby-boom-cohorts-after-the-collapse-of-the-housing-bubble)

"The Income Gaps Between Very Rich and Everyone Else More Than Tripled in the Last Three Decades," reports Chad Stone and Arloc Sherman at the Center on Budget and Policy Priorities. (http://www.cbpp.org/cms/index.cfm?fa=view&id=3220) The after tax income of the top one percent in 1979 was 7.5% of national income, in 2007 it was 17.1%. Between 2001 and 2007, "Households in the bottom fifth of the income spectrum received tax cuts averaging $29, which raised their after-tax incomes by an average of 0.4 percent." "Within the top 1 percent, those with incomes exceeding $1 million received tax cuts averaging $114,000, which raised their after-tax incomes by an average of 5.7 percent."


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Here are some writings I’ve knocked out lately:

One in Three Americans -- less than $5,000

One in three Americans lives in a household with less than $5,000 in savings. It is more accurate to say, one in four live in a household with zero savings, and another nine per cent live in a household or family with less than $5,000. Typical poverty measures only take into account annual income, not savings.

Just how many people are poor in the U.S.? About one in three, at least. Here's how I draw that conclusion.

Income: Almost one in three workers are either unemployed (9.5%), under-employed (8.7%) or working full-time full-year at below poverty wages for a family of four (11.6%). These three groups make up 29.8% of the workforce, June, 2010. But the official measure for poverty covers not workers but households. (See njfac.org for BLS statistics) With workers almost 1 in 3 are out of luck.

Savings: The edge of absolute poverty draws closer and sharper when you realize that, beyond annual income, the fall-back savings, wealth, or net worth of about 1 in 3 Americans is also extremely low. The net worth, or savings less debt, of around 1 in 3 American households is less than $5,000 in 2009. So a household of 3 with less than $5,000 has about $1,667 per person in savings. I consider that poor. Households are between 2 and 3 people on average, and 1 in 3 Americans reside in a household where there is less than $5,000 of savings. And, again, 1 in 4 households have zero net worth, with an additional 9 percentage with less than $5,000 to their name.

According to Edward Wolff following the economic downturn between 2007 and 2009 the percentage of U.S. households with zero or negative net worth increased from 18.6 to 24.1 percent (page 33 from Working Paper No. 589, Levy Economics Institute of Bard College, March 2010). According to another report by Wolff ("Recent Trends in Household Wealth in the United States" June 2007), the percentage of Households with net worth less than $5,000 has ranged since 1983 to 2004 from 8.9% to 9.8% above the percentage of households with zero or negative net worth. In his 2010 report he does not mention the percentage with less than $5,000. But it's reasonable to conclude that those with less than $5,000 in 2009 is at least 9% higher than 24.1%, which is to say it stands at 33.1% and probably a little higher.

The conclusion: one in three Americans lives in a home with under $5,000 to their name, and about 3 quarters of these folk have no savings at all. Not all these are single earner households, but some are. And the annual earnings status of about one in three in the workforce is 'without a job', 'with not enough job', or working for less than poverty-level income. If you enlarge your criteria for poverty to a more realistic poverty income, then the percentage of Americans who live in poverty enlarges even more than one in three.

Why cannot our economy, with the aid of or our public policy, generate more jobs? And why can't jobs in general pay more, that is, generate higher wages? Currently our economy generates over $47,000 per citizen each year. Per citizen includes everyone, those who do not work included with those who do work, or generate economic value. With that very high level of economic activity, it’s a wonder that anyone is poor. Maybe our policy is deliberately designed to create poverty? The top one percent of households in 2007 earned 23.5% of pre-tax income, and 17% of post-tax income, both amounts more than what half of America’s households, at the bottom of the income scale, received collectively. Over the past 35 years the average worker’s productivity, that is dollar value produced per hour, has gone up by 90%, yet non-supervisory workers’ average incomes have stayed even or shrunk.

Public policy questions in a democracy should focus on these contradictions, injustices and social suffering. These are the policy questions the nation should ask. We have to find a way to employ virtually everyone who wants to work, and pay each a handsome wage. Each worker generates on average almost $100,000 a year. Half of those workers receive less than $33,000 a year, and often much lower. Maybe we are just trying to create poverty and succeeding.


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A 1932 Question with a 1931 Answer

An article at Roubini.com web-page questions the policy decision of the German government to cut its stimulative spending, asking whether it is time to stimulate the national economies with more government spending or to cut government deficits; it’s a worldwide problem. The Germans are declaring victory from the recession and pushing to restore balanced budgets in European nations. This is called “The Treasury View.” The author calls this into question in his article; “The Treasury View Failed in the 1930s. Why Should It Work Now?” by Roberto Tamborini, July 1, 2010.

This is my response to his article:
What is the basis of sustained aggregate demand? As the author states, no leader or banker or economist will state that "large worldwide displacement of aggregate demand that was caused by the financial crisis is behind us," The pre-crisis demand was founded on financial bubble-economics, not on organic demand. Demand is based on wide-spread distribution of income, making feasible consumer spending. Capitalism has to overcome its contradiction, it has to sustain demand while maintaining profits, and in the process maintain reinvestment to propel productivity. Professor Emmanuel Saez's report Striking It Richer, August, 2009 Update, shows that between 1942 and 1982 the top 10% of households took in no more than 35% of the national income, but today they receive almost 50% of the national income. Most of the increase has gone to the top-most one percent of households. The bottom level households have seen their incomes squeezed; that is the pie grew, but the slices for most did not. The aggregate demand from these households has been stunted. The demand we witnessed pre-crisis was speculation driven, not socially driven. On the other hand, from 1939 to 1945 unemployment dropped from 19% to below 2%, and for 1943, '44, '45, the rate was below 2%. This high employment was a result of high deficits, a full employment program, that effectively transferred both wealth and income into households without the means to stimulate the economy. The Treasury View, as per this article, has relevance during most periods of economic history and normally can contain and overcome recessions.

But for the last decades worldwide economic "growth of private sector real non-residential capital stock" has declined since 1960, dropping from 5.0% per annum in the 1960s, in the 70s to 4.2%, in the 80s to 3.1%, in the 90s to 3.3%, and in the U.S. 2.1% between 2000 and 2005. The failure of investment to replace capital stock is a consequence of crowding out of aggregate demand, also called lowering wages. The data of the last sentences comes from OECD database as reported in Robert Brenner's Book Economics in the Age of Global Turbulence, 2006, page 282. "(T)he Treasury View is a foggy road with many dangerous pitfalls," is most certain. I'm waiting for some world leader to proclaim all those turn-around events that this article mentions. In the U.S. median household wealth has dropped by 36% since 2007 according to Edward Wolff of the Levy Economics Institute. Some 32% of households have less than $5,000 to their name. Where will the sustained aggregate demand come from to sustain economic dynamism? This article makes a strong case that that demand element is still missing. This is not a minor question. We are in a 1932 moment with a 1931 answer. Professor Jack Rasmus' book Epic Recession also draws much the same conclusion.


This is the relevant quote from Tamborini’s article that the world is waiting to hear from it’s political and economic leaders:
“Going through Buiter's list, neo-supporters of the Treasury View should be ready to go on TV and tell people more or less the following:

The large worldwide displacement of aggregate demand that was caused by the financial crisis is behind us. We have largely succeeded in bridging the gap between aggregate demand and potential capacity of our economies. Inventories are thinner, plants are approaching full capacity, job creation is brisk, prices are soaring, credit lines are plentiful. We can now return the main control leverage of the economy to the hands of the central bank; nominal interest rates are sufficiently far from the zero-lower bound, interbank markets are calm, and the transmission mechanisms of ordinary monetary policy ensure prompt effects on credit supply and economic activity.”

It is obvious this is not the case, and as the author concludes,
“Far from being the polar star towards recovery, the Treasury View is a foggy road with many dangerous pitfalls. It is clear that the G8 governments should elaborate a credible exit strategy from extra-ordinary deficit spending in the medium-long run, but what is happening in Deutscheuroland is most probably too much and too early. If this is "imposed" by financial markets and LCFE, it only means that they have not stopped destabilizing the world economy, and we all are in serious trouble.”


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The National Debt, and the Annual Federal Deficit:
The Tea Party during the Bush Years: 16% Over-Budget for Eight Years
I spent some time looking up the (over) spending behavior of the Bush administration, 2001 - 2009. I researched the figures at www.usgovernmentspending.com/ and drew the above conclusion, on average the Bush years saw 16% more out-go than in-come, expenses over revenue. So, imagine, $1,000 is the expense, $840 is the revenue to pay for the expense, $160 is what goes on the credit card. Multiply by eight years and trillions of dollars. Under Bush, the national debt expanded enormously.

Bush years added $6,068 billion to the national debt, according to the above web page. The increase went from $5.807.5 trillion to $11.875.9 trillion, and increase of over $6 trillion. These dollars are not adjusted for inflation. To better understand the increase, one takes the percentage of GDP from both beginning and end years, 2001 and 2009. I have not done that.

The 16% over-budget amount is not even drawing out the Social Security and payroll taxes that are not discretionary spending. When Social Security is withdrawn, the budget over-spending was 20% a year. That means, the Bush people ran up a bill, but for every $1,000 of expenses they only collected $800 to pay for it, and the rest was put on credit. Prudent? Where were the Tea Party folk when we needed them?

About the 2009 Budget Deficit:
The best article I’ve read is by John Miller at Dollars and Sense Magazine, November/December 2009, “How I Learned to Stop Worrying and Love the Deficit.” He states “Even after correcting for inflation, $1.58 trillion is a record federal budget deficit. But this eye-popping number needs to be seen in context. A trillion and a half dollar deficit will equal 11.2% of Gross Domestic Product (GDP) for 2009, according to CBO estimates. That too is a record for “peacetime” deficits. The Reagan deficits in their worst year reached 6% of GDP. During World War II, however, military spending pushed the federal deficit to qualitatively different levels, reaching 31.3% of GDP and never dropping below 14.5% during the war years 1942 to 1945.” The gist of the article draws from a report from the Economic Policy Institute, The 2009Budget Deficit” by John Irons, Kathryn Edwards, and Anna Turner, August 20, 2009.

In summation, he and they say, there are four drivers: 1) 42.3% of the deficit results from the economic downturn (less tax revenue), 2) the Bush tax cuts to the rich (less tax revenue), the unpaid wars in Iraq and Afghanistan, the unfunded addition to Medicare, Plan D, caused another 42% of the drop-off, and 3) the Bank Bailout contributed 7.7%, and 4) the Obama Stimulus Package of April, 2009, another 7.6%.

The downturn was a result of financial system mismanagement under Greenspan. The tax cuts, etc., came under Bush. The bailout and stimulus were a consequence of economic mismanagement under the Bush regime. Clinton and Democrats had their hand in deregulating the financial system, and the Democrats are not exonerated or exempt from severe criticism.

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I sent the following to radio station KPFA after a good session with an economist.

I like Max (the economist interviewed), I might call in.
This is a good question: According to Edward Wolff who studies wealth in the U.S. between 2007 and 2009 the mean (average) household wealth dropped by 17%, but the median household wealth dropped by 36%. If there is about 1/6th less money in our nation, and the typical household has about 1/3 less savings or net worth, how will the economy recover quickly?
Recovery means people buy stuff and services again, generate profits for companies, the companies add workers, it's a positive self-sustaining cycle. The typical family owns about 1/3 less, and income is declining, and fewer people are working. Access to credit is difficult, people are saving to pay off their debts. The mortgage crisis is as bad as ever. How can we bounce back quickly?

I know, you wonder about my sources. I was reading in TooMuch.org an article about the meltdown of wealth.
http://toomuchonline.org/the-meltdown-and-wealths-maldistribution/

That article led to this essay/report by E. Wolff,
http://www.levyinstitute.org/publications/?docid=1235
And this is a quote from page 34 (of the 59 page report):
"A somewhat rough update, based on the change in housing and stock prices, shows a marked deterioration in middle-class wealth. 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!.") (The Stanford University's Center for the Advanced Study of Poverty and Inequality published in fall 2009 a summary article by Wolff, for another look at his findings.)
And a few paragraphs below it says, interestingly:
"There was also a large expansion in the share of households with zero or negative net worth, from 18.6 to 24.1 percent." (that is 2007 to 2009) So, about one in four households own nada, zip, nothing, and that's why one in four children get their food from food stamps. According to the Wealth Inequality Reader, a book by Dollars and Sense magazine, the portion of households with less than $5,000 net worth in 2004 was 27.1%, so let's say it is now 5.5% higher, at least, that's 32.6% of all households, call it one in three -- less than $5,000. And at the bottom of Wolff's report there is a page about income distribution: the top one percent over 21%, the bottom 60% under 21%.

That's why I do not understand Max when he says a hefty income tax would not be a good thing. Between 1940 to 1983 the highest marginal income tax ranged between 70% to 90%. It was Reagan who dropped it to about 35%. (First to 50% then to 28%)

Thanks Brian, I can't take up all your day. Good weather this week-end. Enjoy.
If you want to read more of my writing, http://benL8.blogspot.com
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Reliable Information Sources --------
Here are some sources I find very interesting.

The Nation magazine carried six articles about inequality in America, which is
my continuing thesis --- according to former Chairman of the Federal Reserve,
Marriner Eccles, you have to spread the surplus or you will stunt the entire system.
---- http://www.thenation.com/article/36894/inequality-america

I am continually looking at Too Much (www.toomuch.org) online for its weekly take on inequality.

I read Dean Baker every week at his Center for Economic Policy Research
---- (http://www.cepr.net/).

You can also read the twin, www.cbpp.org, or Center on Budget and Policy Priorities.
---- http://www.cbpp.org/

Robert Pollin writes at the Political and Economic Research Institute
---- http://www.peri.umass.edu/

Levy Economics Institute offers the best in scholarly Keynesian proposals.
---- http://www.levyinstitute.org/

Economic Policy Institute is the grandfather of liberal economics.
---- http://www.epi.org/

I found Hazel Henderson's Amazon web profile a very informative place to browse.
---- http://www.amazon.com/gp/pdp/profile/A3R4LO05LL47Y4/ref=cm_cr_dp_pdp

I read Warren Brussee twice a month to stimulate my mind about the on-going slump.
---- http://wbrussee.wordpress.com/

And all are professional sources of information with scholars who have devoted their lives to
capturing the essence of good public economic policy.

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Now I’m done for the day, July 7, 2010. I hope this expands your understanding of the national and world economies, and the challenges that lie ahead for all of us. Ben Leet
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Short essay about federal jobs

Public Service Employment --- the Time is Now

by Ben Leet, 4/12/2010
This essay was printed at Truth-out.org, in April 24, 2010

One percent of U.S. households received 23.5% of the nation's income in 2007. I think this is blatantly unfair. It amounts to theft from the other workers in the U.S. The contribution of the one percent to the nation's prosperity was significant, but they did not do a quarter of all the work. I see it as a market distortion, just as a monopoly is a market distortion. Today one of every four children in the nation lives in poverty, about one in six adults is out of work or underemployed, and the poverty rate is rising. One in three workers in 2009 experienced unemployment. The nation needs capital resources to employ those whom private employers will not hire. Look at the following facts and numbers to decide whether we should create public jobs for all willing workers.

Income distribution in the U.S. over the past decades has tilted to the wealthy. The top ten percent of households now takes in more than they did thirty years ago in 1980. In 2007 the top ten percent of households received 49.7% of the national income, according to Professor Emmanuel Saez, U.C. Berkeley (see Striking It Richer, Update, August, 2009). In contrast, for forty years, between 1942 to 1982, the top ten percent's share never exceeded 35%. Contrary to logic the income tax rate on highest incomes was cut in half. The top marginal income tax rates between 1942 - 1982 were 90% and 70% for two twenty year periods, but from 1982 to 2010 their rates have averaged around 35%. Of the income shift that went to the top ten percent of households --- a shift from 33% to 50%, 1976 to 2007, a 17% shift --- 14% went to the top one percent. The top one percent dramatically increased their share of the national income from below 9% to 23.5%, as previously mentioned. Our economy performed much better from '42 to '82 when incomes for all households --- low, middle, and high --- doubled in real terms. President Kennedy observed "A rising tide lifts all boats."

This stands in contrasts with "When there is more for me, there is less for you," which describes the performance of 1980 to 2010. All boats have not risen, the tide has selected only a fraction to rise, the others have kept flat incomes. There has been "more for me" and that means in general less for the majority, and the aggregate demand in the economy has suffered. Aggregate consumer demand accounts for 70% of the economy and it drives the economy. So when it slacks off, as it has recently, we have a recession and high unemployment. We need a federal jobs program that would transfer wealth to middle and low income families.

In 2009, for the first time in 51 years (in 1949), and the second time in 78 years (in 1932), personal income dropped according to the Department of Commerce. It dropped by 1.7%. You would not think such a minor drop would create the destruction of a sixth of the nation's wealth. But it did. The financial institutions were so poorly managed that they self destructed. In the wake of their destruction, the net worth of all U.S. households dropped by 17.3% according to Edward Wolff (in the same March 2010 Levy Institute report, page 34). The median (middle family's) household's net worth sank by 36.1% down to its 1992 level. Those families lost 17 years of savings. You could say one in six dollars simply went up in smoke, and go on to say that a third of all housing value for middle income families went right out the window. Another report cites the loss of wealth to baby-boomer generation couples as approaching 45% and 50%.

Right now we pay about 10 million workers to sit unemployed receiving benefits. The payments amount to a little over $300 a week. Doing the math, you can easily calculate that $160 billion dollars is spent yearly, and no work is produced as a result. That sounds really crazy. But the ideologues that are opposed to government creation of public jobs would prefer just to keep those workers at home. And then complain about how expensive it is. The following essay on this site shows six plans to put them to work that would prove useful to the nation.

The nation in 1938 was in its ninth year of Depression and unemployment was at 19% when FDR accelerated the federal jobs programs, the PWA and the WPA. Between 1938 to 1946 idle wealth was poured into federal bonds and transferred to working families. During the war years we had under 2% unemployment for three years, 1943, 1944, 1945, due primarily to government sponsored job creation. If you check inequality.org you can find details that show the top one percent's share of wealth fell from 44% in 1929 to 27% in 1949. We won the war, World War II, and now we should win another. We can create public service employment, put low income workers back to work, provide services our nation needs, and restore a lost balance to our income and wealth divided nation. There are several proposals; Rutgers University Professor Phillip Harvey calls for spending $666 billion dollars annually to create 18 million jobs paying $14 an hour with benefits. Such a powerful plan would create full employment, and spark private sector re-employment. A much higher tax affecting just one percent of the nation's households, would easily finance the expense of this plan. See the web page Drive for Decent Work, http://fullemployment.blogspot.com, and National Jobs for All Coalition for other detailed proposals to constructively carry forth this proposal.


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Rarely mentioned facts:

The 400 wealthiest Americans own as much as the 150,000,000 least wealthy Americans --- half the U.S. population; both groups own approximately 2.5% of the national household net worth, according to the Federal Reserve report Survey of Consumer Finances. One in four households in the U.S. have no appreciable assets. Some 32.1% have less than $5,000. (Wealth Inequality Reader, p.10, and a new report by Edward Wolff, March 2010, Levy Economics Institute. page34)

The U.S. ranks 78th out of 125 nations in inequality. Seventy-seven nations distribute their national income in a more equal manner. Among industrial, advanced nations we are last in equality, first in inequality. (Source: United Nations Human Development Index, Gini Measurement, also see NationMaster.com 'gini', where the U.S. ranks #72)

One in four U.S. children live in poverty in 2010. This is double the rate compared to other advanced nations. One in four children were eating food purchased with food stamps in December, 2009. One in two U.S. children experience poverty in some part of their childhood.

Recessions are not natural disasters, they are man-made. Similarly they are man-prevented. See kyklosproductions.com (March 31, 2010) for essays by professor Jack Rasmus for a working theory on the “fundamental forces,” the lesser “contributing causes,” and the still lesser “enabling causes” of the global crisis.

Globally, the wealth of 1,011 billionaires exceeds by two times the wealth of half of humanity. (see toomuch.org, March 11, 2010)

We need public jobs because private enterprises are unable to hire. About 29.6% of the U.S. workforce are unemployed or underemployed (18.1%), or working “full time and full year” for less than poverty wages (11.5%), --- total 29.6% or 46 million out of 155 million workers. (see njfac.org/employment/ March, 2010)

These numbers may be just too, too, TOO MUCH to handle, so just take the last one. About 30% of our neighbors are with 'no job' or 'not enough job' or 'a job that pays below poverty level.' Nice work if you can get it. As stated before, 32.1% have less than $5,000 to their names or live in such families, almost 100,000,000 Americans. I think it is obvious what needs to be done. We need to do everything to raise wages and create jobs through public employment and incentives to hire. It is not time to cut back on government spending, unless you want to add years to the discomfort of millions.

Hone your arguments for creating public service employment. See toomuch.org, jobscampaign.org., njfac.org, http://benL8.blogspot.com, justicewithjobs.org, bailoutthepeople.org, epi.org, cepr.org, cebp.org, and the American Prospect Magazine.

Public Service Employment

Dear President Obama, and others, April 2, 2010

Needed: A Federal Jobs Program

To President Obama and others, April, 2010

Since December of 2007 we have lost 8.4 million jobs. I am sending a mix of plans to create federal jobs.

The Jobs Future: But first let me quote from a Rutgers University report, “Erasing this [jobs] 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 Executive Summary also notes, “To put this new millennium 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 [2000 - 2010], America appears destined to lose more than 1.7 million private-sector jobs.” (Sources at end of essay) The proposed rate of growth, 2.15 million new private-sector jobs per year, would be 80 percent faster than the growth rate from 2000 to 2007, and 10 percent slower than the growth rate 1992 to 2000.

So I offer these different plans to chose from:

1. The plan by the Levy Institute of Economics, “Why President Obama Should Care about ‘Care’” would employ 2।4 million mostly women and low-income, less educated workers at a cost of $100 billion, or about $42,000 per job. The focus of their employment would be childcare, pre-school education and in-home health care.

2. Providing work to mostly men is the plan by Robert Pollin, published in The Nation magazine, February 18, 2010, that would push $500 billion into the economy by guaranteeing to banks the loans they make to local and state governments to retrofit and insulate public buildings, and subsequently expand the loan guarantee to projects that would insulate private residences.

3. Rutgers University Professor Phillip Harvey provides a program that spends a net $666 billion to create 18 million jobs paying $14 an hour with benefits। In “Learning from the New Deal” the costs are broken down, and I’ve included the last page. Professor Harvey has been writing about full employment for over 20 years. (available for download at www.jobsconference.org) His program is my first choice for your administration.

४. The brief plan by Princeton University Professor Martin Shubik outlines a plan for a permanent “Employment Reserve Authority” headquartered in the Federal Reserve. This would establish a permanent WPA-like job repository of public works projects in all 50 states, so the nation would not have to wait for Congress and the states to slowly respond to a crisis in unemployment.

5. The plan by Jeff Madrick, outlined in his book The Case for Big Government, would bring our economy more in line with other advanced economies by increasing federal government expenditures from 21% to 24% of GDP। It would cost $432 billion annually.

6. Joe Persky of the University of Illinois at Chicago offers a 5 year program to ramp up to a $975 billion expense to create about 18 million jobs paying over $18 an hour, funded mostly by a financial transaction tax. See “A Permanent Jobs Program for the U.S.” at jobsconference.org.

I was planing to include pages from these reports, but I think brevity is better. All these are available on the www net.

7. Professor Emmanuel Saez of the University of California, Berkeley, has shown that the top one percent of households received 23.5% of the national income in 2007. The bottom 60 percent of households took in less, only 20.3%. (This datum comes from State of Working America, 2006/2007, page 779 from a report by the Tax Policy Center, Brookings/Urban Institute) Moreover the one percent group received 65% of the economic gains the economy generated 2000 to 2007, as well as receiving about 35% of the tax cuts that in turn added over $800 billion to the national debt.. The top ten percent of households took in almost 50% of the national income, which amount is about 17% higher than its average income during the forty year period 1942 to 1982 when the economy flourished as never before or since. His report is on the www net.

The sum of 1) the U3 unemployment, 2) the U6 under-employment and 3) full-time workers earning below poverty wages --- is 1 in 3 workers (35.9% in March, 2010) who are not meeting their needs. They are poor, or becoming poor. We need a bottom-up stimulus. One in three workers in 2009 experienced unemployment. The next election will be fought over a new stimulus.

According to my reading of The State of Working America 2006/2007, page 79, the bottom 60% of households received 20.3% of the national income, while the top 1% took in 23.5% (this last datum from the Saez report). That is to say, about 70 families with the average income of the lower 60% would equal one family income of the top one percent. In regards to wealth, the bottom half of U.S. households owns 2.5% of the national household net worth, while the top 1% owns over 34%. That is about $23,000 vs. $14 million. That indicates that 609 average families in the bottom 50 percentiles are equal in savings to one family at the top.(see Federal Reserve report Survey of Consumer Finances).

I currently read the twice monthly blog by Warren Brussee. In 2004 he wrote the book The Second Great Depression, Beginning in 2007, Ending in 2020. He was ahead of almost everyone else, and he still is. I recommend you read his reports at WordPress blog, and you will be more wary of the economy’s putative good news.

Vice President Biden’s economic advisor is Jared Bernstein. In 2007 he wrote, “Finally, there is a role for direct public-sector employment to create employment opportunities for the least advantage in society.” (See EPI.org, Briefing Paper #200) He knows a lot about this, he also co-authored a book with Dean Baker. The Economic Policy Institute, where he once published, offers a plan amounting to a $400 billion one-time stimulus.

The nation is in a teachable moment. The November election will revolve around a Democratic stimulus and a Republican rejection. You will have to carry the argument.

I hope everyone in the nation writes you a similar letter, and then watches closely.

Best wishes and Take care,

Ben Leet

--- in San Leandro, Calif.
see my blog at http://benL8.benL8.blogspot.com
see the blog http://fullemployment.blogspot.com for additional ideas.

Sources: see my blog, the three previous essays for full resource notation.

How to Double Incomes for Millions of Workers

Raising Living Standards in America
by Ben Leet, March 2010

In my last essay I claimed to have found a way to double the incomes of 94 million out of 155 million workers. Like pouring water from a very full glass into a partially full glass, my plan is essentially an adjustment of water levels, not a creation or destruction of new income or wealth. I claimed that 1) a reinstatement of the 90% marginal income tax rate on very high yearly incomes over $400,000 combined with 2) a federal jobs program creating 18 million new jobs would be enough to double the incomes of 60% of the workforce. I claimed that just these two measures would be sufficient. (See my essay “We Can Double Incomes . . .” at this blog, or http://benL8.blogspot.com) This was simplistic. This essay will try to fill out a more comprehensive strategy for raising the incomes of the lower income earning majority.

Presently 60% of households receive just 20.3% of the national income, and that means that 40% at the top receive about 80%. The top 1% of households receives 23.5% of pre-tax national income, more than the bottom 60%. These are the two metaphorical water glasses I’m dealing with. The average yearly income for the bottom 60% of households was around $36,000 in 2005, and for the top 1% the average income was over $1,000,000. As for wealth, not yearly income, the imbalance is even greater: the bottom 50% of U.S. households own 2.5% of the national household net worth, the top 10% holds approximately 70% of wealth, with the top one percent holding 33.4%. The average wealth of the bottom 50% (60 million households) is below $23,000 per household, the average for the top ten percent (12 million households) is over $3,000,000, and for the top 1% the average household wealth is over $14,500,000.
(Most of this data is referenced at the end of “We Can Double . . .” essay)

Apparently something breaks down in the distribution of income at the very top level. Our unconscious assumption is that markets determine automatically and fairly the prices for labor, goods and services. A $800 dollar hammer will be bought only by the Pentagon. A $400 dollar an hour plumber will not find work. And the gradual sloping curve of rising incomes holds true for most jobs and professions, but at the highest level the curve breaks down, reason and logic no longer apply. I submit that the income distribution system is broken at the highest end, and it will take an exogenous force such as taxation to bring the highest incomes into line with fairness. Naturally fairness is in the eye of the beholder, so this level will be endlessly debatable. See www.lcurve.org for a graphic of wealth distribution.

How to Lift Wages
The obvious economic challenge for the nation is to create a sea change in wages; but this is like defying gravity. To counter the downward pressure on wages we have already enacted minimum wage laws, and the Earned Income Tax Credit. One boosts wages, the other boosts income. Other methods include: a tight labor market such as at the end of the 1990s, a federal jobs program such as in the 1930s and ‘40s, federal subsidies to employers to hire new employees, an Employee Free Choice Act facilitating employee unions, a legislative fix of the National Labor Relations Board enabling unions, a restructuring of corporate charters that empower workers on corporate boards as prevails in Europe, more cooperatives and joint ownership enterprises. A national manufacturing strategy, and trade agreements that insist on higher income growth among foreign export workers would recapture lost manufacturing employment. Increasing wages is an international problem. Increasing research and development credits to business would propel new technologies. There is a long list of options that would create jobs and increase wages.

The changes in corporate charters enacted in Germany allow German workers to create a GDP/capita of $44,600 a year vs. the U.S.’s $47,500 a year, while the German worker works 360 hours (or 9 weeks or 2 months) less every year. (See Germany’s Economic Engine, Eamonn Fingleton, American Prospect magazine, March, 2010) Most economists know that U.S. household income has increased by 15% over the past 30 years only because women in households are working 3 months more every year. Where the wife has not entered the workforce household income has not grown at all over 30 years.

For 40 very positive years, 1942 to 1983, the top marginal income tax rate held at 90% and 70% for two twenty year periods. The top ten percent of households never earned more than 35% of the national income. Today they earn almost 50%. This shift of 17% (1976 to 2007) could be reversed through taxation (the metaphorical glasses of water) combined with a jobs program and other measures to reduce necessary expenses, towards the goal of raising living standards for the majority of low-earning workers. That’s the basic program. If wage gains from 1976 to the present had matched the gains in worker productivity, then incomes of 94 million non-supervisory workers would be double what they are today. (See Les Leopold’s argument in The Looting of America, page 16, or my previous essay “We Must Transfer Wealth, Again.”)

Measures of Social Health
In short, all measures of social health --- the rate of poverty, of childhood poverty, of homelessness, of households living in sub-standard housing, of the population not owning assets, of inequality, of population not receiving regular health care, of functional illiteracy, of high school dropouts, of not attending nor graduating from college, of drug abuse, of incarceration, of teen-pregnancy, of non-marital birth, of divorce, --- would improve across the board with higher incomes and lower expenses for workers at the bottom of the income slope. The national happiness quotient would also jump. This proposal is based on an economics of cooperation that curtails competition. Competition is fine for sports, but for the exigencies of life and death, intelligent cooperation is superior. To think otherwise is to be a pessimist and perhaps a Scrooge.

The real question is not is it doable, because it has been done before. Nor is the question, “Is it a good idea?” The question is how do we effect a sea change in wages and income? How do we double the incomes of 94 million workers? I’ve listed briefly above the various means to address the problem.

Today’s Great Recession is ongoing, there are signs that it will double-dip into a full-blown Depression. Many economists in March, 2010, are viewing darkening clouds on the horizon. Many business men and women, as well as economists and politicians, investors and financial advisors are waiting for the “self-sustaining expansion,” the expansion that “gains traction” that causes employers to hire and consumers to spend. It’s like waiting for Godot. Towards the end of the Great Depression and during the World War II mobilization we did transfer wealth to workers’ paychecks, and we should do so again.

We do need a federal jobs program creating 18 million jobs (see Rutgers University professor Phillip Harvey's essay “Learning from the New Deal” at www.jobsconference.org). Last year about 140 million workers worked each day creating a product worth $14 trillion a year; each worker produces on average $100,000 a year. But half the workers earn less than $33,500, no where near the average $100,000 each worker produces. It is time to bring up the median worker income from below $33,500 a year. From the book State of Working America, 2006/2007, page 121, we see that average hourly wages for the the following percentiles: 10th = $7.20, 20th = $8.84, 30th = $10.21, 40th = $12.12, 50th percentile worker $14.29 an hour. The average of those percentiles is $10.53 an hour, which is less than $22,000 a year for half of America’s non-supervisory workers who make up 80% of the workforce.

The U.S. ranks 78th among 140 reporting nations on the United Nations’ index of income inequality. Seventy-seven nations distribute their incomes more equally. The U.S. also ranks #37 in probability of living to age 60. You, your family, your children and your neighbors are entitled as citizens to a fairer system. We can literally double the incomes of millions।

These are sources I use and recommend:

Drive for Decent Work, http://fullemployment।blogspot.com/
National Jobs for All Coalition at http://www.njfac.org/
Warren Brussee’s blog, www.wbrussee.wordpress.com/
Brussee is the author of The Second Great Depression
Robert Kuttner’s articles in The American Prospect magazine
Robert Pollin’s essays in The Nation or at http://www.peri.umass.edu
The Levy Economics Institute, http://www.levy.org
The Economic Policy Institute, http://www।epi.org/

See previous essay or essays for complete source documentation

We should Learn from the New Deal

We Can Double the Income
of 94 Million Workers,
from $30,000 to $60,000

by Ben Leet, January, 2010

Nearly one quarter, 23.5%, of the annual national income went to just 1% of the nation’s households in 2007. This is a crucial fact; it is the cause of most of our economy’s ills. It indicates that the rewards for work are way out of balance, and we need to rectify this imbalance to restore viability and health. The solution, a federal jobs program, would allow us to double the income of over 60% of households, roughly from $30,000 a year to $60,000. For a majority of Americans this would revolutionize the quality of life.

The top one percent received 23.5% of the nation’s income, and the top ten percent received 49.7% in 2007. (Saez, 2009) Looking at the earnings of the top decile (10%) of households, for 40 years, from 1942 to 1982, their share of annual national income never exceeded 35%. (Saez. 2009) In 1976 it was 33%. But since 1982 the share of the top decile has inched upwards, and now the top 10% receives 49.7%. This is an increase of 17%. (14% of the 17% went to the top 1% whose share increased from below 9% to 23.5%.) If we were to transfer that 17%, in effect restore the ratio of 1976, we would restore economic health. (See endnotes for additional source data)

A federal employment program is the method of transferring that income. More importantly, it would employ millions of idle people. The phrase “if we were to” in the previous sentence indicates something I feel will be very unlikely. All the same, “if we were to” would have the desired effect I propose. In essence, my argument derives from the argument of Marriner Eccles, former Chairman of the Federal Reserve, and his statements about the economy being like a poker game, when the losers’ credit gives out the game is over, and his statements about the distribution of national income. (See my most previous essay, “We Must Transfer Wealth, Again”, where I quote Eccles.)

Readers can review my essay on this blog of November, 2009, a letter to Obama, to find at the bottom a brief outline of Jeff Madrick’s proposal of a jobs program. He proposes a yearly investment of about $275 billion for jobs: in pre-kindergarten ($150 bn); in infrastructure ($50 bn for highways, bridges, ports, airports, energy conservation, renewable energy sources); in K-12 educational services ($25 bn); in caregiver support ($25 bn); and in unemployment expansion/trade assistance job retraining ($25 bn). The rest of his program involves $120 billion to restore solvency to Social Security, and $35 billion in college subsidies, and $2.5 billion in election finance reform. The entire program totals $432 billion. This would increase federal spending from 21% of GDP to 24% of GDP, still lower than most European economies. The jobs program would resemble the U.S. Postal Service. It would create several agencies, permanent ubiquitous government institutions, located in all communities, coordinating various employment services and projects. It would be managed locally and nationally similar to the WPA of the 1930s. Philip Harvey’s essay “Learning from the New Deal” is the most thorough description of a working program. (See jobsconference.org to download)

The bottom 60% of households received 20.3% of the national income in 2004. (Mishel. 2007) This is less than 23.5% received by the top 1%. By transferring the 17% gained by the top ten percent to the lower 60% of households, we would increase to 37% (20.3% plus 17%) the income share of the bottom 60%. This would nearly double their incomes. The income ratio of 1942 to 1982 would be restored, and the economic health of that period would return. This would vastly improve the quality of life for all Americans. Not only would the distribution ratio change, the economic pie would grow. Furthermore, the growth would not be the freakish sort that occurred over the 7 year period, 2000 to 2007,when 1% of the households received 65% of the economic gains (and ९९% received ३५%). Nor would it be the strange fruit where the top 1% received 50% of all gains, as occurred between 1983 to 2007. (Wolff, 2001 and Saez, 2009)

If the nation were to enact a 90% marginal income tax rate on incomes over $400,000 a year (the top 1%) --- the same rate we had from 1943 to 1963 --- and a 70% rate on incomes over $200,000 --- the rate we had from 1963 to 1983 --- we could easily pay for this program. And 25% of our children would not live in poverty as will happen in 2010, and one in four children will not eat food purchased with food stamps as happened in December, 2009. Just the shame and waste of this last data should cause heightened concern.

There are others who call for a federal employment program: the Economic Policy Institute, economists Jeff Madrick, Robert Pollin, L. Randall Wray, James Galbraith, Philip Harvey, Joe Persky, the National Jobs for All Coalition, and many others. I recommend especiallyProfessor Harvey's "Learning from the New Deal." To read details of the jobs program you may download some at www.jobsconferernce.org, http://fullemployment.blogspot.com, or see Madrick’s book The Case for Big Government. Madrick asserts that by augmenting federal expenditures by 3% of GDP (an additional $420 billion), and dedicating those funds to social services, we would bring the U.S. economy more closely in line with the other advanced nations of the world.

We have transferred wealth before through federal job creation, during the period 1940 to 1946, the War Mobilization effort. The federal government ran deficits between 14.5% to 31.3% of GDP during the war years 1942 to 1945, moving private savings out of idle wealthy accounts into war bonds, and then into workers’ paychecks. (Miller.2009) This transfer of wealth broke the lock of the Great Depression, and set the foundation for an economy that doubled incomes of all households, not just 60% as I am suggesting, in 26 years, 1946 to 1973 --- when the 90% marginal income tax rate was in force.

This is not socialism, it is American history. Unemployment peaked at 25% in 1933 and averaged over 18% for ten years. Capitalism needed changing or our society would have revolted. During the past decade, 2000 to 2010, a net 1.7 million private sector jobs were lost to the U.S. economy. This after two decades, 1980 to 2000, when 35 million private sector jobs were created. (Hughes. 2009) The future portends even greater job loss with off-shoring manufacturing and out-sourcing tele-communication services. Perhaps a quarter of all U.S. jobs will leave to other nations. Our nation will have to come to grips with disappearing job opportunities.

In the world some 475 rich individuals own more property than half of humanity, and in the U.S. some 400 of the richest own more than half the U.S. population. (see extremeinequality.org and inequality.org) The central problem is the huge imbalance of rewards for work. Many people are underpaid and underemployed: more than one in three workers (37.1%) are (1) out of work, (2) can’t find enough work, or (3) are working for below poverty wages. (see njfac.org/unemployment for January, 2010) While a small fraction, the top-most fraction of households, are grossly over-compensated. The depressing effect radiates onto the entire workforce and provokes the current recession we experience.

These proposals will be enacted in time, but the corrupting influence of wealth on politics will delay enactment. Many European nations have moved in this direction due to the influence of labor unions, and the cooperative enterprise movement also seeks to ensure a juster distribution of rewards for labor.

This short essay is meant to serve as an introduction to my longer essay “We Must Transfer Wealth, Again.” (see http://benL8.blogspot.com) The title of this essay derived from an idea I found in the book The Looting of America by Les Leopold.

Sources:

Hughes, James, and Joseph Seneca, “America’s New Post-Recession Employment Arithmetic”, Rutgers University, September, 2009

Miller, John “How I Learned to Stop Worrying and Love the Deficit”, Dollars and Sense magazine, November, 2010.

Mishel, Lawrence, Jared Bernstein, Sylvia Allegretto, State of Working America, 2006-2007, page 79, , Economic Policy Institute, Cornell University Press, 2007

Saez, Emmanuel, “Striking It Richer” August 2009 Update, University of California, Berkeley

Wolff, Edward, “Where Has All the Money Gone”, Milken Institute Review, Fall 2001

Readers interested in the “94 Million Workers” number can go to these web sites
to “guess-timate” how close my title is to the truth. The 94 million comes by subtracting the professional and managerial workers from the total workforce, as reported in the Statistical Abrstract of the U.S., and it comes from Les Leopold’s book, where he uses this number (page 16, see most previous essay on this blog). See Urban Institute, Brookings Institute Tax Policy Center, Table T09-0344, that shows that 52.2% of tax filers (78 million workers/filers) receive 14.9% of national income, and 0.9% receive 16.5% for 2009. See http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=2419

Also see Congressional Joint Committe on Taxation, pdf JCX-1-10, January 13, 2010, “Individual Income and Social Insurance Taxes . . .2010 and 2011.” page 29, that shows that 58% of tax filers/workers (92 million workers) receive 18.1% of the reported national income for 2010, while 0.6% (or 1.05 million filers) receive 14.9% of national income. Let’s simplify: six tenths of one percent of tax filers earn 15% of national income in 2010, while almost 60% of filers earn 18%.
You may argue with the “94 million” number, but use recognized data sources.

Senator Kent Conrad argues that the national debt is too large, and the type of federal jobs program I and many others propose cannot be afforded. See Dean Baker, Feb. 10, 2010, Center for Economic and Policy Research for a rebuttal argument, “The Budget Deficit Crisis Crisis.”

Oregon Lake

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 inequality.org) 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. (inequality.org/by 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.(extremeinequality.org)

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 http://fullemployment.blogspot.com 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)
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NOTES:

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

extremeinequality.org, and inequality.org, and toomuch.org, and njfac.org

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, njfac.org, 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