Could We Double the Median Income?

Could We Double the Typical Income?

The answer is “Yes”, and it’s not magic. We could simply increase the income tax on extremely high incomes and then redistribute it to lower incomes. Let’s suppose one group is earning 28.2% of all the nation’s income, and systematically we transfer to them another 14%, increasing to 42.8% their total income portion. That would increase by 50% their yearly earnings. That is not doubling, but it’s a good start. The lower 80% of families in 2006 received through salaries and wages 28.2% of the nation’s income (according to the Tax Policy Center of the Brookings/Urban Institute, quoted page 79 in State of Working America, 2006/2007). If the one percent of households who received 23.5% of the nation's pre-tax income in 2007 were to receive 9%, a drop of 14%, then they would be back to their 1976 level. Returning back to 1976 does not seem too radical an idea. So realizing this ‘transfer’ is one method of substantially raising non-supervisory workers’ incomes. Though it does not double their incomes.

If the determined reader wants to read a real scholarly report superior to this report I suggest the Chicago Political Economy Group’s paper “Toward a New Political Economy” January 2010. But to continue . . .

The rich will detest the idea, of course, but they are a minority in a democracy. Research shows that the top one percent has captured 56 percent of the economy’s growth in the 20 years leading to the Great Recession. (See "Striking It Richer") It is time they give some of it back. Our U.S. economy generates about $46,000 per person per year, yet strangely many, many families are very insecure. One in seven eat food purchased with food stamps, over 44 million citizens, and one in four children get their food from food stamps. To qualify for stamps one must have less than $2,000 in savings. Obviously there is something awry with the entire economy.

TAX RATES
For 13 years during the 1950s and a little beyond, the top tax rate was 91% on incomes over $3 million (in 2009 dollars); for 45 years, 1936 to 1981, the top rate averaged 78% on incomes ranging between over $750,000 to over $3,500,000 depending on the year. To double the typical worker’s income today, which is $26,261, would require increasing the top marginal income tax rate to 78% on incomes over $450,000.

The typical U.S. worker, including (32%) part-time and (68%) full-time workers, receives $26,261 per year income; typical full-time workers receive $40,000, and households typically receive around $50,000. These typical or median incomes could be 50% higher simply by restoring the income distribution of 1976.

Between 1940 and 1980 the incomes of top ten percent of households never exceeded 35% of the total national income. In 2007 they received 49.7%, according to U.C. Berkeley Professor Emmanuel Saez' report "Striking It Richer". Very likely it is very damaging to the society and the economy to have such one-sided distribution, at least Marriner Eccles, the Chairman of the Federal Reserve from 1934 to 1948, the period of the Great Depression, argued as much in his auto-biography of 1951, Beckoning Horizons.

Productivity vs. Wages
Or, a second way to approach this problem is to conjecture that if workers’ wages had equaled rising productivity rates since 1973 then typical incomes would be double their present day amounts cited above. Our U.S. society would be another world. Could we double the typical income? Maybe, but we could easily restore the previous decades’ distribution ratio, and increase incomes by 50%: to $39,391, $60,000 and $75,000 respectively. Let’s look at doubling it. That would move the “typical” to $52,000 for individuals, $80,000 for full-time workers, and $100,000 for families:
Professor Robert Pollin, writing in the Boston Review, states that
“The drop in average wages since 1973 suggests the seriousness of this problem. In 2009 the average non-supervisory worker in the United States earned $18.62 an hour (in 2009 dollars)—7 percent below the 1972 peak of $20.20 per hour (also in 2009 dollars). But this is only half the story. While wages fell, average labor productivity in the United States rose by 105 percent. In exchange for being twice as productive as they were in 1972, American workers took a 7 percent pay cut.”

In fairness, Lawrence Mishel recently writing somewhere states that the productivity rate increased by 80% not 105%. Do we really care? It all went to a few select people.

Squeezed family incomes
Much of our nation’s social problems derive from squeezed family budgets, some being extremely squeezed. It’s little known that the bottom 40% of households have on average less than $2,200 in savings (see page 33). Their budgets are squeezed. It does not have to be that way. Another, statistic shows that between 1950 and 1984 the personal savings rate averaged around 9%. It sank to below zero in 2007, and has been well below 4% since 1998. (This is a marvelous link to see all the inequality numbers.) After the Great Recession, 2007 - 2009, the median household wealth amount dropped to 1983 levels, to $65,400 from $102,000. (Much of these data come from Edward Wolff’s report of March 2010 writing for the Levy Economics Institute, available on the Internet.)

Less than $3 out of every $10 dollars (28.2%) that we generate, the economy generates, goes into the wages and salaries of the lower earning 80% of households deriving from their work. We could raise wages politically, it does not take the “free market” to do it, and see my previous essay to see “how”. Or see the report by the Chicago Political Economy Group.

I am going to repeat the first paragraph again: In 1976 the top one percent received less than 9% of the nation’s income, in 2007 it received over 23%. This almost 15% shift, if added to the 28.2%, would bring to about 43% the amount going to the bottom 80% due to labor, and to 65% in total national income. The top 20% would receive not 60% but 35% of all income. This shift would jump the typical income from $26,261 to $39,391, and full-time workers would earn $60,000 typically, and households would receive $75,000, not $50,000.

DOUBLING INCOMES ?
But to double incomes, we have to re-configure economic history, and match productivity gains with wages. It is sort of a fantasy, but a productive fantasy, I hope. I don’t think it’s that far-fetched; the average worker generates over $100,000 of value, and that includes the 32% of all workers who are part-time workers. Our GDP is over $14 trillion, and when divided by the labor force’s 140 million active workers, they on average generate $100,000 per worker. Doubling the median worker’s income raises it to $52,500, well under $100,000 and still leaving plenty for owners’ income, capital gains income and “other” which are mostly pension incomes.

This quote comes from Economics for the Rest of Us page 113 by Moshe Adler (2010, thenewpress.com):
“In 2007, U.S. workers produced $95,000 worth of goods and services per worker. [he cites a BEA web page] If each of them, whether CEO or worker on the shop floor, whether in the financial industry or in agriculture, earned this wage, all families could live not only well but also in affluence. But this is, of course, not the case. Nationwide, 25 percent of workers earn wages that with full-time work put them below the poverty line. [He cites State of Working America, 2006/2007] In New York City, 24 percent of retail workers must rely on some form of welfare payments while they are working full-time. What workers do not get, executives do. In 2007, average CEO compensation for S&P 500 CEOs was $10.5 million, 344 times the pay of the average worker.

We have to discover ways to balance our dysfunctional income distribution ratio. I say “dysfunctional” because 9% unemployment is dysfunctional; having over 30% of the workforce either “out of work” or with “not enough work” or “working full-time full-year for below poverty wages” is dysfunctional and wasteful; one in four children eating food bought with charity coupons is dysfunctional; the lower 40% of households owning 0.3% of the nation’s wealth is dysfunctional. This may sound like rhetoric, but I mean it objectively and clinically. It does not work, it’s dysfunctional.

DISTURBING REPORTS
Recently I came across some disturbing reports, and I wrote a comment to someone about it:

I read a report on corporate governance at PERI, http://www.peri.umass.edu — “On Uneven Ground, How Corporate Governance Prioritizes Short-Term Speculative Investment, Impedes Productive Investments, and Jeopardizes Productive Growth”. It shows that corporate net investment since 2008 is at 1% of GDP, much below its normal rate 1950 to 2000 of 3% and above. The report also presents a graph showing corporate reinvestment in stock buybacks and dividends exceeding 100% of after-tax profits since 1980. Before that time the average was around 35%. And to round out this comment, I also read a report from Rutgers University on unemployment (by Hughes and Seneca, their most recent report, Post-Recession America, a New Economic Geography?). They show that since December 2000 the number of private sector jobs has declined by 4.7%, about 5 to 6 million, so that a little more than 10 years after January 2001 the nation has fewer private sector jobs. Between 1990 and 2000 the nation created 20 million jobs in the private sector, and between 1980 and 2000 38 million were created. If the private sector is not creating jobs, who is?

Robert Brenner, in Economics in the Age of Global Turbulence, also studies these economic phenomenon. Are we eating our “seed corn”? Is this a clear indication that our ‘captains of industry’ are selling our ship down river? I’m afraid so.

Warren Brussee (Feb. 1, 2011, WBrussee.wordpress.com) states that the manufacturers of a new battery for electric cars, previously U.S. owned, was just sold to a Chinese company for untold millions.
The exact quote follows:
"The Economic Policy Institute’s report on U.S. jobs lost due to the trade deficit with China shows 2.4 million jobs lost since 2001. That means that an increase of the trade balance with China of $195 billion cost the U.S. 2.4 million jobs. Since the table above shows that by 2016 our balance of trade with China will go up another $222 billion, we can expect to lose another 2.6 million jobs by 2016. It is always risky to extrapolate a trend, but will someone please tell me what we are doing to reverse this?

I had mentioned before a company that makes batteries that completely recharge in less than 10 minutes, work in extreme temperatures, are safe, and last for 25,000 cycles. Well, just last week the U.S. approved the sale of 51% of this company to a Chinese firm. This is despite the fact that this company has worked on many military contracts testing the use of this battery in several military applications, and despite the fact that this battery is used in the stimulus-supported Proterra bus that just last week got all kinds of accolades from the Obama administration for being the type of energy savings project America can be proud of."

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This array of 19 facts came to me in my high school reunion newsletter, and I cannot verify the sources or the facts, but they sound about correct.

Here are 19 stunning facts about the deindustrialization of America:

#1 The United States has lost approximately 42,400 factories since 2001. About 75 percent of those factories employed over 500 people when they were still in operation.

#2 Dell Inc., one of America's largest manufacturers of computers, has announced plans to dramatically expand its operations in China with an investment of over $100 billion over the next decade.

#3 Dell has announced that it will be closing its last large U.S. manufacturing facility in Winston-Salem, North Carolina in November. Approximately 900 jobs will be lost.

#4 In 2008, 1.2 billion cell phones were sold worldwide. So how many of them were manufactured inside the United States? Zero.

#5 According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.

#6 As of the end of July, the U.S. trade deficit with China had risen 18 percent compared to the same time period a year ago.

#7 The United States has lost a total of about 5.5 million manufacturing jobs since October 2000.

#8 According to Tax Notes, between 1999 and 2008 employment at the foreign affiliates of U.S. parent companies increased an astounding 30 percent to 10.1 million. During that exact same time period, U.S. employment at American multinational corporations declined 8 percent to 21.1 million.

#9 In 1959, manufacturing represented 28 percent of U.S. economic output. In 2008, it represented 11.5 percent.

#10 Ford Motor Company recently announced the closure of a factory that produces the Ford Ranger in St. Paul, Minnesota. Approximately 750 good paying middle class jobs are going to be lost because making Ford Rangers in Minnesota does not fit in with Ford's new "global" manufacturing strategy.

#11 As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time less than 12 million Americans were employed in manufacturing was in 1941.

#12 In the United States today, consumption accounts for 70 percent of GDP. Of this 70 percent, over half is spent on services.

#13 The United States has lost a whopping 32 percent of its manufacturing jobs since the year 2000.

#14 In 2001, the United States ranked fourth in the world in per capita broadband Internet use. Today it ranks 15th.

#15 Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975.

#16 Printed circuit boards are used in tens of thousands of different products. Asia now produces 84 percent of them worldwide

#17 The United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States.

#18 One prominent economist is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040.

#19 The U.S. Census Bureau says that 43.6 million Americans are now living in poverty and according to them that is the highest number of poor Americans in the 51 years that records have been kept.

So, how many tens of thousands more factories do we need to lose before we do something about it? How many millions more Americans are going to become unemployed before we all admit that we have a very, very serious problem on our hands? How many more trillions of dollars are going to leave the country before we realize that we are losing wealth at a pace that is killing our economy? How many once great manufacturing cities are going to become rotting war zones like Detroit before we understand that we are committing national economic suicide? The deindustrialization of America is a national crisis. It needs to be treated like one.

And to underscore the above: 11/9/10: The largest private employer in Saginaw, Michigan will soon be the city government of Beijing, as a 104-year-old unit of General Motors will be sold to new owners from China. The $450M purchase received little attention this summer, but it is a landmark deal - the first time Chinese investors have bought a U.S. industrial operation of such scale and history.
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To quote Moshe Adler again, his last sentences: “The economy is us, and we are not doing well. We need to turn economics from a weapon that is being used against us into a science that will show us how we can do better.”

There are some solutions, read the following essay. Read the Chicago Political Economy Group’s essay. Read Josh Holland’s book The 15 Biggest Lies about the Economy. We have our homework to do.

March 2, 2011

A Six Point Solution to Inequality

Seven Policies to Reverse
America's Inequality Story . . . and Beyond

The Inequality Story:
"America's Inequality Story," to give it a name, is copiously documented; State of Working America has web pages that show many graphs that quickly and easily demonstrate rampant inequality; UC Berkeley Professor Emmanuel Saez reports in "Striking It Richer" that the top 1% of households “captured slightly more than half of the overall economic growth over the period 1993-2008. . . in the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth.” The period 1940 to 1980 stands in contrast; the portion going to the top 10% never exceeded 35% of the nation's income, while in 2007 they captured 49.7%, an all-time historical record. Almost all the shift of income went to the top one percent. Another source, Edward Wolff, published a report, March 2010 for the Levy Economics Institute, showing, like the Saez report, the top one percent received more income annually than the bottom 60% and owned more assets than the bottom 90%. Inequality.org also is a rich source of data on, of course, inequality. For instance they note, "In 1979, the average income of the top 5 percent of families was 11.4 times as large as the average income of the bottom 20 percent. In 2005, the ratio was 20.9 times. (EPI, State of Working America 2006-07, Figure 1J )".

Our rich economy annually creates $46,000 of value for every human being in the nation. Yet the distribution of income, according to the Brookings/Urban Institute Tax Policy Center, shows the following distribution by quintile (or 20% of households group) from bottom to top for 2006: 1 - 2.5%, 2 - 6.4%, 3 - 11.4%, 4 - 19.8% (the total for the bottom 80% of households is 40.0% of the nation’s total pre-tax income for 2006) and the fifth quintile, 5 - 60.3%. The bottom 80% receive 40% of the nation’s income; the top 20% receive 60%. The bottom 80% of households’ income from salary and wages is 28.2% of the nation’s total income.

The Citizens for Tax Justice also breaks down income distribution according to quintiles, showing average annual income for the 5 quintiles of tax filers: 1 - $13,000, 2 - $26,100, 3 - $42,000, 4 - $68,800, 5 - $210,375. This ratio roughly duplicates the ratio from the Tax Policy Center. I'll try to make it simpler: The bottom-earning 60% on average receive $27,000 per household, the households in the range of 60% to 80% receive the nation's mean average income, $68,800, and the last to 20% receive over $200,000. These are the average pre-tax incomes for each 20% of households from bottom to top. The average income of the top 20% is five times greater than the average income for the lower 80%. One worker receives $5.61, while four workers’ average income is $1.00. I know I’ve thrown out too many numbers, but I’m trying to make a strong point. It’s hard to believe how skewed our economy’s income distribution is.

The U.S. has the most unequal distribution among industrial nations (the OECD nations), and among all nations in the world we rank at #73 in inequality behind such nations as Morocco, Ethiopia, Pakistan, Bangladesh, India, Russia, Egypt and Romania. The U.S. also has the highest childhood poverty rate among all developed nations. France has about the same child poverty rate as the U.S. before government interventions. France reduces childhood poverty to 7%, we reduce it to 20%.

Searching for solutions, Demos and Campaign for America's Future published a report written by Jeff Madrick on “Jobs, Deficit Reduction and America’s Economic Future.” He presents a very detailed program. I cannot rival Madrick’s erudition, but I will present here a six step program:

The Seven Policies: 
1. create tariffs and quotas on foreign imports combined with new trade treaties designed to bring back manufacturing jobs; the nation has fewer private sector jobs in 2011 (see America'sNew Post-Recession Employment Arithmetic ) than it had in 1999 and we had better stop exporting our jobs’; this proposal comes from William Greider's book Come Home, America, page 103; and since our trade deficit is so high, the World Trade Organization allows the U.S. to impose these tariffs; read this November 2010 article by Greider. The American Prospect devoted the December 2011 issue to US manufacturing. Also view the six proposals from the Campaign for America's Future. And review the proposals and plans by William Lazonick and Jon Rynn at New Deal 2.0. The common theme is to end the trade deficit and restore manufacturing employment which pays about $70,000 per year per job.

2. impose taxes on value-added imports of multi-national corporations who assemble products like Ford trucks at $15 a day labor cost in northern Mexico; this tax again would return manufacturing work to the U.S.; the key focus is to seal our marketplace and our purchasing dollars from low-wage exploitative labor markets and stanch the investment flow of U.S. investment wealth into low-wage countries, the race to the bottom; this idea is elaborated by William Greider in his book, page 104, "Applying a general emergency tariff (or similar devices like import certificates) would put a temporary collar around the size of US trade deficits and then gradually shrink them."

3. install a full employment program as presented by Professor Phillip Harvey of Rutgers University, “Learning from the New Deal”; see National Jobs for All Coalition, njfac.org; Philip Harvey, a law professor at Rutgers University, has published through Demos a more recent version of his jobs program, "Back to Work" January 2011. His program touts the creation of 1 million jobs for the price of $28 billion, which comes to $224 billion for 8 million jobs. Think about eliminating the expense for wars in Iraq and Afghanistan, cutting the military by 1/5th, and restoring an economy to the 37.1% of Americans who have less than $12,000 in savings (24.1% who have no savings at all). To be clear, 2 of 8 Americans live in a family with no savings, and another 1 in 8 live in a family with  less than $12,000. The economy creates $47,000 of output per year per human being, and $109,000 per year per worker.  On November 25, 2011, this excellent article on public jobs was posted at Truthout.com.

4. raise the minimum wage to $12.30 an hour and increase by 80% the maximum benefit of the Earned Income Tax Credit according to a plan by two University of Massachusetts professors J. Wicks-Lim and J. Thompson to balance the income distribution ratio (see peri.umass.edu or my summarizing essay of January 2011);

5. authorize Professor Robert Pollin’s program, UMass/Amherst, that suggests a federal government guarantee of private bank loans to local and state governments for local jobs programs, mostly insulation work on government building and then private housing stock; Pollin's program would create 18 million jobs. He also presented a more recent article series in the Boston Review. Banks are sitting on $1 trillion of mostly tax payer money and not making loans; the S and P 500 corporations achieved record profits in the third quarter of 2010 of $1.66 trillion, yet still they are not adding new jobs;

6. create a free childcare policy per the program "Why Obama Should Care about Care" at Levy Economics Institute. This would employ many women in a government jobs program that tends to employ mostly men; it would relieve family budgets of many low-income parents.

These six new policies would restore employment and create a healthy, balanced economic growth.

My essay of September 8, 2011, on the financial system offers
7 proposals to reform finance. Add public banking and finance to the indispensable changes to our economy. Here are two sites devoted to public banking, one and two.
Also see this interview on The Real News Network about the European banking crisis, with University of London economist Costas Lapavitsas advocating public banking. "For the last half-century, as noted above, the financial explosion was behind much of the economic growth. The total debt in the U.S. economy went from around 150 percent of the GDP in the mid-1980s to well over 300 percent by the beginning of the Great Recession in December 2007." states Fred Magdoff in this essay at the Monthly Review. Between 2001 - 2007 aggregate debt increased 5 times faster than GDP growth, $3 trillion per year vs. $600 billion per year, according to Magdoff. There was a rapidly expanding supply of savings or wealth competing for ownership of a stable or slowly growing asset base, and this led to over-valuation and speculation, in essence financial fragility, not to mention unproductive use of resources. How can the financial sector grow at 12% a year while the overall economy grows at only 3% a year?

Unequal and Unstable is a fine article, with excellent graphs, January 2012, making the argument that
"the history of the past century reveals a striking correlation between income inequality and financial crises. Our analysis suggests that this is no coincidence: income inequality generates financial fragility by increasing leverage ratios among lower- and middle-income households, fostering a pool of idle wealth that increases the demand for investment assets and financial innovation, and allocating asymmetrical political power which reduces regulation and threatens financial instability." This from Thaker and Williamson at The New America Foundation.

From the essay by Stephen Dunn in Challenge magazine, November 2011, "Was Galbraith Right?", he states, "According to the McKinsey Global Institute, the ratio of global financial assets to annual world output has tripled from 109 percent in 1980 to 316 percent in 2005 (Wolf, 2007). By 2005, the global stock of core financial assets had reached $140 trillion." In perspective the annual world GDP in 2005 was around 4 times the US GDP of $12.6 trillion, meaning the global GDP stood at under $50 trillion, with financial assets at $140 trillion.

Jack Rasmus in Epic Recession, page 220, using Federal Reserve Bank data, shows that between  1978 and 2008 while financial corporation (banks, hedge funds, etc.) debt increased by 47 times, debt for government, non-financial corporations, and consumers increased by 8.0 to 10.3 times.

In the Great Financial Crisis, page 121, by Magdoff and Foster, they show that financial firm debt grew from 10% of GDP in 1970 to 116% of GDP in 2007. Why did financial assets and debt increase so much? Had incomes, growth rates, and ability to repay loans increased similarly, or was there a surplus of wealth bidding up prices accompanied by unbridled speculation? In my view there was a glut, an excess of wealth hoarding, that produced unproductive wealth distribution benefitting a small minority -- read 1% --  who had no productive outlet for all that capital. At a minimum the Glass Steagall separation of investment and commercial banks is needed.

L. Randall Wray writes in the Cambridge Journal of Economics, 2009, after the wave of mortgage defaults, bank bankruptcies and bailouts, emloyee lay-offs,  declining profits, and government interventions had begun, "Total commitments by the US government (including loans, guarantees, capital injections and fiscal stimulus packages) already approach $9 trillion. Note that securitised subprimes totalled just $2.5 trillion. Clearly the losses are not simply a matter of bad mortgage loans made to low income borrowers to buy unaffordable suburban mansions. Rather, this is a crisis of the money manager system. And because so much of it is unregulated, unreported and off balance sheet, there is no way to guess the ultimate scale of losses. A secret report is rumoured to estimate that Euroland’s banks hold $25 trillion of questionable assets. To repeat, it is a global crisis. . . . It is time to take finance back from the clutches of Wall Street’s casino.

What will replace money manager capitalism? Only time will tell." 

Inequality at the Root
A targeted and calibrated ratio of income and wealth distribution may be the ultimate solution for capitalism. For instance, Sam Pizzigati in his book Good and Greed proposes a maximum income no greater than 10 times the minimum income. For example, every worker earns between $20,000 and $200,000. Other ratios are conceivable. We are apt to be living in a Neo-feudal world at the rate we are going, nationally and internationally. The only lasting solution is an appreciation of the inescapable, ineluctable conclusion that capitalism requires balance between trading parties. Challenge Magazine, September/October issue has an article by Robert Wade pointing to this conclusion, "The Ongoing Costs of Global Inequality." (Not available by Internet) But this Robert Wade article is available.

And, to make it too complicated, I’ll toss in 3 more policy meassures: pass the Employee Free Choice Act for workers who want unions; require corporations to place non-shareholder representatives on their boards of directors; create more legally mandated vacation days for the over-worked U.S. workforce. There is no end to reforms. Everyone has their favorite. My favorite is to outlaw money. But until that time comes, we have to pay for these reforms.

As for paying for these programs, you know the top one percent of U.S. households own 37.1% of all private assets in the nation, and that comes out to $20 trillion. The top 10% own 70%, and that comes to about $38 trillion. These people don’t pay “overall” an effective tax rate that is much higher than most people. The Citizens for Tax Justice shows that the top one percent pay an effective overall tax rate of only 30.9% on incomes averaging $1,445,000 a year and wealth averaging $18,500,000. The average overall effective tax rate for the bottom 80% of income earners is 24.5%. By raising the capital gains tax rate from 15% to the normal income tax rate of 35%, government revenues would grow by an additional $200 billion to $266 billion. A tax on financial speculation could bring in $100s of billions. Closing a tax expenditure to financial corporations’ interest payments brings in another $77 billion. Congresswoman Jan Schakowsky has a plan to cut the deficit by $400 billion and still have $200 billion for a jobs program. Spending $200 billion federal dollars can create 5 million jobs at $40,000 per job. She suggests following the outlines of the Local Jobs for America Act. One can download her program at her web page.
The People's Budget from the Progressive Caucus also includes public jobs and claims to balance the budget by 2021.

To reach the pre-recession, late 2007, rate of unemployment, 5.0%, the economy needs 11 million jobs. The Economic Policy Institute reported that, “This means the labor market is now nearly 11 million jobs below the level needed to restore the pre-recession unemployment rate (5.0% in December 2007). So, despite the job growth of 2010 [of 91,000 new jobs per month], we remain near the bottom of a very large hole. To achieve the pre-recession unemployment rate in five years, the labor market would have to add nearly 300,000 jobs every month for the entire period.” At our present growth rate, 91,000 per month, it will take until 2026 to create the same number of new jobs. Do you believe the economy will triple its 2010 rate of job creation for the next 5 consecutive years?

Creating federal jobs would get the economy cooking again, and the other policy changes in regards to imports would help balance the income distribution ratios.

Robert Reich, a professor at U.C. Berkeley, has published his multi-point plan, as of July 15, 2011. See this article.

The Nation Magazine presented an issue devoted to Reimagining Capitalism, where you'll find twelve proposals that would reform our system substantially. The German nation after all has approximately the same per capita national income, but their distribution rates 25 on the Gini Index, ours rates 41 or 46, depending, and workers work nine weeks less, 45 fewer days, each year than U.S. workers on average. They have prosperity, leisure, and economic justice. Potential improvement is vast for the U.S.A.

There are many solutions, and the best ones begin with adjusting how the nation's income is distributed. We have to understand our condition and find broadly based support for fair change. Ben Leet

see http://benL8.blogspot.com, toomuchonline.org, epi.org, njfac.org, cbpp.org, newdeal20.org, inequality.org, cebr.org, Campaign for America's Future.
kyklosproductions.com

Increase the Minimum Wage and EITC

A Proposal to Raise Minimum Wage to $12.30 an Hour
and to Double the Earned Income Tax Credit

For each and every human in the U.S. our economy each year generates about $46,000. For each and every worker, full-time and part-time, the economy generates over $100,000 a year. Should any worker receive a below poverty income in this wealthy nation? Should any worker receive an inadequate income? The official poverty level and the “basic budget” adequacy level are two separate levels. The adequacy level is about twice the poverty level. Should economic insecurity be the persistent curse and nemesis of all low-income workers in an economy so rich? This report by the two scholars at University of Massachusetts, Amherst, articulates a solution to these problems that plague the families of low-income workers in the U.S.A.

The report: Combining Minimum Wage and Earned Income Tax Credit Policies to Guarantee a Decent Living Standard to All U.S. Workers, by Jeannett Wicks-Lim and Jeffrey Thompson, PERI, Political Economy Research Institute, University of Massachusetts, Amherst, October 2010

Jeannette Wicks-Lim and Jeffrey Thompson propose to raise the incomes of all working low-income families by two methods. “Specifically, we begin by proposing a 70 percent increase in current minimum wage rates. This would raise the federal minimum from today’s rate of $7.25 to $12.30 per hour. We also propose two expansions of the EITC [Earned income Tax Credit], the federal program that provides tax relief and cash benefits for low-income working families. These include raising the maximum EITC benefits by 80 percent and the income eligibility threshold to three times the federal poverty line. The maximum EITC benefit would rise from $5,028 to $9,040 and households with incomes up to $57,000 could receive benefits.”



This chart comes from Center on Budget and Policy Priorities, a report from 2011.

It is important to note at the outset that this program would raise the incomes of only 4 percent of the nation’s families, out of 26 percent whose incomes are below adequacy. Incomes would rise sufficiently to provide a “basic budget” for their living expenses. Twenty-six percent of the nation’s families live below the “basic budget” adequacy level, and owing to the fact that part-time work is typical of these households, raising their incomes based primarily on their work participation only raises one in six of these families’ incomes to the adequate level. The authors claim if full-time employment were available to all families and workers then not 4 percent but 15 percent of the nation’s low income households would be benefit enough to raise their incomes to the adequate level, leaving 11 percent still below adequacy.

The current minimum wage income of $7.25 an hour provides an annual income of $15,080 to full-time full-year workers. Wicks-Lim’s plan would raise that base income to $25,584, a 70 percent increase. Coupled with a maximum $9,040 EITC benefit, certain eligible families would achieve a $34,624 base annual income. Currently the maximum minimum wage annual income with benefits is $20,108. This present $20,108 maximum is still $2,000 below the official poverty level for a family of four. And it is far below, about half, an adequate level. A $14,500 boost to low incomes to $34,624 would effect a large sector of American families. But “poverty level” and “adequacy” level are two different levels.

The Citizens for Tax Justice provides this break down of incomes according to income tax filers in 2009:

A Tale of Two Payroll Tax Breaks
Making Work Pay 2% payroll tax rate cut
(I apologize that his chart is difficult to reproduce. Read the five income groups, their range of income and their average income.)
Lowest 20% Less than $20,000 --- $ 13,000
Second 20% $20,000 – 33,000 --- 26,100
Middle 20% $33,000 – 53,000 --- 42,000
Fourth 20% $53,000 – 88,000 --- 68,800
Next 10% $88,000 – 127,000 --- 104,800
Next 5% $127,000 – 177,000 --- 147,300
Next 4% $177,000 – 458,000 --- 256,500
Top 1% $458,000 or more --- 1,397,100

Source: All tax cut figures are from the ITEP Tax Model, Dec. 7, 2010
Citizens for Tax Justice, Dec. 7, 2010

The effect of this plan would raise income for all full-time workers into the middle quintile of the nation’s income bracket. But most below poverty level wage earners do not work full-time year-round. “In 2009, the U.S. Census Bureau reported that 42 percent of nearly 21 million poor households [18 percent of all U.S. households] had at least one member working full-time year-round.” Restated: of the 21 million below poverty households, 42 percent had someone working full-time. Raising them to above poverty does not raise them to “income adequacy.” Only 4 percent are raised to adequacy by this W-L and T proposal. (footnote: “U.S.Census Bureau, 2009 Detailed Poverty Tables http:/www.census.gov/hhes/www/poverty/detailedpovtabs.html; accessed March 19, 2010. We use the Census Bureau’s tabulation of households below 200 percent of the federal poverty income threshold for this figure.”)

This deserves another look. About 1 in 6 households are poor, about half have someone working full-time. That indicates 1 in 12 (8.3%) of U.S. households with someone working full-time are still living in official poverty. There is some data here complicating my interpretation. If 8.33%, or 1 in 12, have their incomes raised by a doubling of EITC and a 70% increase in the minimum wage, yet still Wicks-Lim and Thompson state that only 4% of households will be raised to an adequate level? Perhaps the increase in wages and EITC is still not sufficient to rise to adequacy.

I went to the Economic Policy Institute and looked at their Basic Family Budget Calculator to find that across the nation different incomes are needed to achieve adequacy. For instance, in Pine Bluff, Arkansas, a four member household needs just $25,933 for adequacy, and the official U.S. poverty level is a little above $22,000 in 2009. Other locations naturally differ: Madera, CA $31,177; Salt Lake City, UT, $31,898; Asheville, NC, $33,673; Akron, OH, $34,290; Philadelphia, PA, $36,810; Los Angeles, CA, $40,770; Oakland, CA, $53,590; NYC, NY, $56,257; the same family in Washington, D.C. needs $58,942. (The EPI’s Basic Family Budget amount is very close to 200% of the federal poverty level.)

In all, 24.8 million families receive the EITC benefit, about one in five of all families in the U.S.. All these families would benefit from the Wicks-Lim and Thompson plan. Presently EITC benefits are lowest for the lowest income earners --- and if you have no earned income, you receive no EITC benefit. Beginning from one earned dollar, the benefits reach a maximum plateau at $12,000 to $16,000 a year income, the benefit adds about $5,000. After $16,000 the benefits are reduced, they then taper down to zero benefits at $40,000 a year.

The larger picture is drawn clearer in the conclusion that states only 4 percent of the 26 percent of households with inadequate income will be raised above inadequacy.
From the conclusion:
“Our policy proposals address one of the crucial elements of an economic policy framework that aggressively pursues the goal of raising all U.S. households to a decent living standard: decent pay. . . . [T]he degree to which these policies can move families toward a decent living standard hinges on the number of hours they actually work.” As to the question of how great an improvement this proposal would make, “We estimate that our proposed expansion will reduce the percentage of low income families with inadequate incomes from 26 percent to 22 percent.”
And if full-time year-round employment were available? “If all household heads and their spouses (if present) in low income households worked full-time year-round, we would expect a drop off of close to 15 percentage points, so that the percent of low-income households would fall from 26 percent to 11 percent. Inadequate employment is clearly a significant barrier to families achieving a decent living standard.”

Two concepts are important here: There are not enough jobs, and many workers have too few hours of work. It would take both parents working to achieve adequacy. This is why policy advocates for full-employment through federal government job creation programs have long fought for full-employment laws. The effect of World War II government employment programs brought the unemployment rate to below 2 percent for the years 1943, 1944, and 1945. Full employment is achievable, though it is not popular with “free market” capitalists and the advocates of high inequality.

The Wicks-Lim and Thompson plan devotes analysis to the tipping point maximum increase in the minimum wage before it creates harmful effects on hiring. Much of the report details the effect on business. “The overall body of empirical evidence suggests that past minimum wage and living wage increase have not lead to significant job losses. In fact, Doucouliagos and Stanley (2007) concluded after analyzing over 64 separate studies on this question published between 1970 and 2007 that there is 'little or no evidence of a negative association between minimum wages and employment...’ Their conclusion is consistent with Harvard economist Richard Freeman’s assessment of the state of knowledge on this question 15 years earlier, ‘The debate is over whether modest minimum wage increases have ‘no’ employment effect, modest positive effects, or small negative effects. It is not about whether or not there are large negative effects.’”

By raising the minimum wage level, a two income family could earn up to $51,168 if both workers held full-year full-time employment. But in some high-expense localities this income would not achieve the basic income level. In single adult families, 1 adult with either one or two children, the minimum wage income alone would not achieve the basic budget level. For these exceptions the EITC is the policy method for lifting incomes to the basic level in certain geographical localities.

(The maximum EITC benefit for childless workers is currently less than $500 a year. A shortcoming of the report is its failure to address this minor issue. Millions of single, unmarried workers are paying child support payments without the benefit of the EITC, and even if not paying child support, their incomes are not commensurate with their work value. This is to say, the market wage rates are artificially low and do not adequately provide. There is no reason the nation could not systematically raise the minimum wage to $20 an hour or higher after two decades of system-wide wage increase. It is simply a political decision of our democracy. I should remind the reader, each of the 140 million workers who work each day of the year, including the 36% who are part-time workers, on average generate over $100,000 of value per year. But politically low-wage, low-income workers do not have political supporters.)

Currently, even in a family with two full-time full-year working adults with one child, their combined income is still $10,000 below the necessary basic budget amount --- $30,000 when they need $40,000. If they have two children they are short $16,000. Single parent families with one or two children fall short by $18,000 and $25,000, respectively. The top EITC benefit of $5,028 does not bridge that gap.

In today’s economy 36 percent of workers, about 50 million, are part-time workers. Not all want full-time work, only about 10 million state that preference.

The cost to the government of an increase in the EITC would equal $51 billion, and would about double the current expense to about $100 billion a year. In perspective, according to the report, about 45 percent of the Bush tax cuts were received by the top income 5 percent of households. If one fifth of the Bush era tax cuts were repealed, the taxes raised would fund this program. Therefore, just cutting the top 5 percent’s tax cut by half would fund the program.

Another perspective: The recession beginning in December of 2007 resulted in a total of over $1 trillion of lost income accrued to the families who lost work due to the recession. Eight million jobs were lost. The employment drop-off since the beginning of the recession, January, 2008, will effect a family income drop-off of approximately $1 trillion over a five year period, January 2008 to January 2013, about $200 billion a year. Raising the EITC by $51 billion would help the still employed, but not the unemployed. With $200 billion a year we could fund a federal jobs program costing $150 billion a year, employing 3.75 million unemployed workers at $40,000 a year, and double the EITC benefit and still see a net savings. This September, 2009, report,by Dean Baker and John Schmitt, “A Trillion Dollar Wage Deficit”, from the Center for Budget and Policy Research, draws its data from CBO income and employment projections. Corporations are said to be sitting on $2 trillion of savings, and the wealthiest 1 percent of households hold over $20 trillion in assets, most of which is stuck in unproductive speculative financial markets. The nation can chose, if it wishes, it is not a matter of not enough funds, it is a matter of lack of political will.

Achieving full employment is a more powerful method of poverty reduction than the EITC increase coupled with the minimum wage increase. But in 1968 the minimum wage stood at $9.86 an hour in present day dollars, so increasing it to $12.30 an hour is just a 27 percent increase. And the increase in the EITC program amounts to a 1.8% increase in the federal budget.

This plan makes a powerful impact on American lives, it is money well spent. In 2006 the bottom 80% of households earned in wages and salaries only 28.2% of the entire national income. This is not wise nor is it fair. It is arbitrary.

The bottom 20% of households received only 2.5% of the nation’s income, the next 20% received 6.4 percent, and the middle 20 percent received 11.4 percent, for a total of 20.3 percent going to the bottom 60 percent of households (the income of the top one percent of households nearly equaled the income of the bottom 60%, they received 18.4% of the nation's total income versus 20.3% going to the bottom 60% of households)(See Table 1.17, stateofWorkingAmerica.com, chapter one, 2006-2007, Mishel, Bernstein and Allegretto, from Tax Policy Center Microsimulation Model, page 79 in the book State of Working America, 2006/2007). Moreover, this same bottom 60 percent of households owns only 2.3 percent of the nation’s household wealth (Edward Wolff, see Levy Economics Institute, March 2010). The average net worth of families in the bottom 40%, according to Wolff, per household in 2007 was $2,200. That was before the recession.

We may be the chintziest nation on earth and in recorded history. Low income workers need a pay raise and a savings plan. This plan by Wicks-Lim and Thompson importantly advances the discussion and at last provides some economic justice. As they point out, “In 2009, the U.S. Gross Domestic Product per capita was $45,918 (www.bea.gov).” Multiply $45,918 by 310 million Americans to reach a Gross Domestic Product of $14.2 trillion. Each day 140 million Americans go to work, each year each worker (including part-time workers) produces over $100,000 in value. We can afford to pay every full-time full-year working man or woman a higher income than $15,080 a year (the minimum wage) or $20,108 with the maximum EITC benefit (if they qualify). And then, we can afford to provide every willing adult a full-time job that pays a decent income. And then we can afford to provide incentives so that all families can have wealth, not the measly average of $2,200 of savings that the bottom 40% of families (comprised of 124 million Americans) now has. ("Moreover, the average wealth of the poorest 40 percent declined by 63 percent between 1983 and 2007 and, by 2007, had fallen to only $2,200.” From Edward Wolff's report, Levy Economics Institute, March 2010, page 33.) As an adjunct, see this report, Why President Obama Should Care About “Care”: An Effective and Equitable Investment Strategy for Job Creation
In his State of the Union address President Obama acknowledged that “our most urgent task is job creation”—that a move toward full employment will lay the foundation for long-term economic growth and ensure that the federal government creates the necessary conditions for businesses to expand and hire more workers. According to a new study by Levy scholars Rania Antonopoulos, Kijong Kim, Thomas Masterson, and Ajit Zacharias, the government needs to identify and invest in projects that have the potential for massive, and immediate, public job creation. They conclude that social sector investment, such as early childhood education and home-based care, would generate twice as many jobs as infrastructure spending and nearly 1.5 times the number created by investment in green energy, while catering to the most vulnerable segments of the workforce.

Eighty percent of workers receive twenty-eight point two percent of the nation's income

Dear Congressman Stark, December 10, 2010

Until wealth and income inequality are fixed, the economy is broken. The lower earning 80% of American families earn 28.2% of the annual income and own 12.3% of the private wealth of the nation. 24.1% of the nation’s families own nothing.

I try not to waste your time, Congressman. I’ve written before about economics.
Today I have a specific plan I’d like your help with. I think we need better information about the economy than what we have. I have recommendations, but you will have to read my story.

Twenty-eight point two percent, 28.2%, is the portion of the nation’s entire income that the lowest earning 80% earned in salary and wages in 2006. I know this because of a table printed in State of Working America, 2006-2007, published by the Economic Policy Institute. They took the table from the Tax Policy Center which is run by the Brookings/Urban Institute. The table is called the Microsimulation Model Version 0305-3A, and if you e-mail them they will send you a copy. *
The bottom 80% received 40.0% of all income, but about 12% was "other income", mostly pension income from Social Security. Readers can view the document from the Tax Policy Center at this address, Table 1.17, http://www.stateofworkingamerica.org/tabfig_2008_01.html

I had no idea my computer could do that, but there is the table; page 79 of the book State of Working America. How much income is total Salary and Wages?
64.5%. (Look at the bottom of the far column at the left) How much of that do the lower 80% of households get? 43.7%. (Look at the top column in the middle labeled “Wages & Salaries”) If you multiply the two, then the lower 80% of households receive 28.19% as their portion due to their labor. The top 20% receive 60.3% of all income.

Most people would say that the condition of 80% of the workers receiving only 28% of all income was inadequate, unfair, and maybe immoral. Few economists know these figures much less report the details of income distribution, and most citizens are basing their judgment on bad information. I had to use some imagination to multiply the 64.5% with the 43.7%. No one else has ever reported this data. This is why I’m writing.

Some 80% of the workforce are non-supervisory workers --- not managers, not owners, not professionals or self-employed. The post-tax picture looks much like the pre-tax picture.

Is it immoral? Just as invading Iraq on bad information and causing one million civilian deaths (see Wikipedia article Casualties in Iraq) can be ascribed to moral torpitude of the invading nation, there is a moral dimension to such one-sided income distribution. This is an important distinction. Voters may base their judgments on the supposed laziness and unworthiness of recipients of “entitlements” and other government provided social benefits. Much of the right-wing media presents this picture. Many Americans think that success is simply a matter of work-effort, not of opportunity. The following should be a part of everyone’s working assumptions: about 10% of the workforce are involuntarily out of work and actively looking for work, about 10% are underemployed and want full-time employment, or have given up on active job searches but still want to work, and a last 10% are employed full-time and full-year at wages that pay less than the poverty level for a family of four. That’s 30% of workers for whom work opportunity is very unpromising. That is 46.5 million adult working Americans, not counting their dependent children, almost a third of the nation, for whom the American Dream is out of reach. There is, in December, 2010, about 1 full-time job opening for every nine job seekers. (Go to njfac.org and search the unemployment numbers from BLS data to confirm those figures.)

Immoral? Our economy generated in 2009 over $46,000 per citizen per year (multiply 310 million Americans by $46,000 to get a GDP of over $14 trillion). With such a rich economy, how can any worker be “working poor”? We generate over $100,000 per worker per year, and that includes the 36% who work part-time. Yet 16.3 million workers in 2009 worked full-time and full-year for less than the annual income needed to raise a family of four above the government’s poverty line (See njfac.org). How can the poverty rate be 15%? Why is it that Italy has an average wealth per adult of $115,000, Japan $102,000, Canada $94,000, and the U.S. has a wealth/adult rate of $44,000? Maybe our economic system is lacking, not the moral fiber of the population. (See the Credit Suisse Bank Research Institute Global Wealth Report, October 2010)

The 28.2% income distribution fact is very important for several reasons, and in your office as Congressman I think you can create legislation to make figures about the economy easier for the average citizen to access. Voters need accurate and relevant information, and the source should be from the government, not the Brookings or Urban Institute. I do not know where this information could be found in government documents. I wrote the U.S. Census for a simplified version of the federal budget, and they had nothing. I’ve looked at the President’s budget, the CBO, the BEA, Wikipedia, and other non-profits and foundations. The Tax Policy Center is the best I’ve found, but even they are inaccurate and inadequate. The average person, concerned citizen, does not have time for this search. The media is helpless at best.

One friend of mine thought that half the government’s expenditures went to welfare. What was I to tell him? That was not too difficult, but ask yourself, how much goes to education? And I don’t mean just federal dollars. You have to go to Wikipedia to find out. What is the “overall” tax rate (federal, state and local) for those who earn less than $20,000? You have to go to Citizens for Tax Justice, because they compile a roster of “overall” tax rates for all incomes in all states. What about Medicaid expenses, or public health? The military, does it spend $1.5 trillion like I heard on the news, and Chalmers Johnson said $1.1 trillion, and officially it’s $873 billion or something like that.

I’d like to spend a minute on the latest tax compromise deal, the Obama Republican tax compromise. 84% of the national income is subject to Social Security taxes, and that income will have a 2% drop in taxation, down to 4.2%. This will add spending power to the economy. Since 2007 much consumer spending power has been lost, about 1.5% of what was there in 2007, arguably. What was wrong with just increasing the Earned Income Tax Credit? Or just printing the money and mailing the checks? Same outcome except you don’t spend down retirement savings accounts for workers who can’t afford to spend their retirement today and have little tomorrow.

The Citizens for Tax Justice has a pdf. file article that shows, state by state, who gets the benefit of the tax cut. Overall 64% goes to the top 20% of families who receive 60% of all income. In California, the 20% receive 70% of tax cuts. Thought you should know.

Most of what I’m saying you know, in part. But I’ll continue. My point is that the public should not have to buy a book, they should be able to e-mail the Bureau of Economic Analysis, Department of Commerce, and find their information.

One professor of economics at U.C. Berkeley, Emmanuel Saez, recently received the MacArthur “Genius” Award. He has been analyzing IRS data from 1913 to the present, disaggregating it into income percentiles. His report “Striking It Richer” the August 2010 Update, shows a graph that shows the income portion of the top earning ten percent of households from 1913 to 2007. During the period 1940 to 1980 the top ten percent never received more than 35% of the nation’s total income. In 2007 they had 49.7%. You might know this. It is becoming well known, especially the top one percent receiving 23.5% of all in 2007. Between 1946 and 1972 all income groups, quintiles, doubled their incomes in real terms. Between 1983 and 2007 the median family increased their income by 7.7%, even though the nation’s economy had expanded GDP per capita by 64%, and the worker’s productivity went up by 90%.

You may know that the Chairman of the Federal Reserve Bank during the Great Depression, Marriner Eccles, laid the blame for the Great Depression on income inequality. You may know that U.C. Berkeley professor Robert Reich also now claims, in his blog and his book After Shock, the 2008 recession was brought on by inequality. Now you know, exactly, that 28.2% of all income is what the non-supervisory workers got for their labor. I don’t think many people know this. They would conclude this is immoral, as I believe. It is not a fair reward. And it’s not just wrong, it’s really bad for the economy.

The 28.2% figure and the 49.7% figure came not from government but from an academic or a non-profit source. There should be a people friendly authoritative government source of information. There is not. Maybe you can direct me to someone who can talk to me about these issues. The White House now has a White Board video web page that explains different economic issues. That’s a step in the right direction. How about a simplified explanation of all government spending and revenue? A visit to the data.gov site does not provide a simple picture and answer to my questions. For instance, I never knew that 8% of ALL government revenues is federal revenue shared with states and localities, but then I went to the Tax Policy Center web page. Federal revenue amounts to 49% of all government revenue. How much does welfare amount to? I’ll tell my friend about 4% of GDP. Close enough.

I have a blog page, http://benL8.blogspot.com, and it has an essay about eight different proposals to create federal jobs. I recommend it to you (see April 2010, second essay). We need federal jobs. Marshall Auerback wrote a good article that shows between 1933 and 1937 the unemployment rate descended from 25% to 9.6% (See “The Real Lesson from the Great Depression”). And several other reliable authors have picked up this figure, so I imagine it must be accurate. It’s new data that shows a revision in the metric for unemployment before 1940. James Galbraith says we need an active deficit, that is a jobs program.

I was an elementary teacher, Oakland and Richmond, for 16 years. Now I’ve been reading economics for the past four years. I hope as more of my age cohort retire they will spend their energy sorting out our problems and making your job less frustrating. I disagree with you plenty. We should have creamed the banks in 2008, we should have fought for a 90% top marginal income tax rate, and so on. But I would never wish to have your job, and you deserve a big thank you, from my heart. Bernie Sanders finished his talk this evening, and I’m not going to type for 8.5 hours tonight. Thanks, best wishes.

Ben Leet, San Leandro, California.


For additional information:
Go to the Citizens’ Commission on Jobs, Deficit Reduction and America’s Economic future at ourfuture.org for a plan for economic recovery. See also Representative Jan Schakowky’s plan for deficit reduction. See the report “Battered by the Storm” from the Institute for Policy Studies. See toomuchonline.org for additional information on inequality.
I’m enclosing four charts। The third is the one I talked about from the table in this letter. I have not fixed it, the figures are not perfect, but for now close enough.

_________________________________________________________________
Addendum:
About half of the U.S. workforce (47% to 52%) are working full-time full-year at income above the poverty level income. Many people wrongly believe that everyone can find full-time work in a good paying job. They are wrong. This is the logic: There are 155 million in the workforce, subtract the 15.2 million unemployed, leaving 139.8 million working each day. Subtract 36% or 50.3 million who work part-time, leaving 89.5 million. Subtract 16.3 million who work full-time full-year for below poverty level wages, leaving 73.2 million. This number of workers, 73.2 million, is either 47% of all who work each day or 52% of the total workforce. Therefore, about half who work are full-time full-year workers receiving more than poverty level wages.

We should note though that about 80% of part-time workers do not want full-time work. None-the-less, finding that “good job” is not simply a matter of stepping up and applying your talents. As Professor Frank Stricker noted in his book Why America Lost the War on Poverty, there are never enough good jobs.

Potentially we could improve our nation by: providing child care for all parents, improve public education, make energy efficient all public buildings, and then private residences, repair and upgrade all roads, parks, bridges, ports and water systems, evolve our energy system into a non-fossil-fuel clean energy system, create a majority of clean electric vehicles, and allow for additional vacation time for all workers. To accomplish this would require intelligent policy, not just the invisible and blind hand of the market that has created a grossly out-of-balance and unfair distribution of income and wealth.

There are policies that would increase total employment and compensation for non-supervisory workers. These policies would make for both a healthier economy and a healthier society. Full employment for all who want to work may not be a realizable inalienable right, but it is an admirable goal, probably attainable.

Contents from the Beginning

Contents to Economic Reform 2008

I have not updated this Contents in a year. Click "Economic Reform" at the top to go to current essays.

How Inequality is Strangling the Nation
8/18/10 by Ben Leet

An Essay in Six Sections
7/7/10 by Ben Leet

Short essay about federal jobs
4/13/10 by Ben Leet

Public Service Employment
4/13/10 by Ben Leet

How to Double Incomes for Millions of Workers
3/18/10 by Ben Leet

We Should Learn from the New Deal
1 comment 2/10/10 by Ben Leet

We Must Transfer Wealth, Again ...
3 comments 12/22/09 by Ben Leet

Bernanke should not be reappointed --- No to Bernanke
12/22/09 by Ben Leet

Comprehensive Plan for a Jobs Program, Nationalize the banks
11/17/09 by Ben Leet


The Forbes 400 Equals the American 150 Million
8/11/09 by Ben Leet

Wages Must Rise
8/8/09 by Ben Leet

Comments and Suggestions to Your Call Radio
2 comments 7/22/09 by Ben Leet


3rd Letter to Congressman Stark June 2009, to Stark
6/24/09 by Ben Leet


U.S. Ranks 75th in Inequality U.S. 75th
6/24/09 by Ben Leet

Cause of Recession Is Low Wages
3 comments 4/21/09 by Ben Leet

Blog Contents
4/5/09 by Ben Leet

Why Obama should nationalize the banks
4/4/09 by Ben Leet

Blog Contents, December, 2008 2009, Brussee comment, March 22
3/22/09 by Ben Leet

A Man A Plan Jack Rasmus' Recovery Plan
3/18/09 by Ben Leet

Tax Wealth, Create Public Jobs --- U.S. Ranks 75th
1 comment 3/5/09 by Ben Leet

Blog Contents Blog Contents
1 comment 12/29/08 by Ben Leet

Why Full Employment
12/29/08 by Ben Leet

Case for a Full Employment Policy
12/5/08 by Ben Leet

Full Employment Leads to World w/o Poverty
10/10/08 by Ben Leet

Suggestions for the Meltdown/Bailout
10/10/08 by Ben Leet

Nationalize or Bailout? not Public Private Banks
9/28/08 by Ben Leet

Understanding the Crisis --- Once I built a tower ...
1 comment 9/20/08 by Ben Leet

Justice Revolution in Economics
1 comment 8/21/08 by Ben Leet

Bottom Half of U.S. Owns 2.5% of Wealth, Earn 15% Yearly
8/17/08 by Ben Leet

$100,000 per Year per Worker --- Celebrate!
8/13/08 by Ben Leet

Infectious Greed Overwhelms the U.S. Economy July 2008, Letter to Liam
7/31/08 by Ben Leet

Contents of this Blog Blog Contents
7/21/08 by Ben Leet

Are Economic Rights Human Rights?
7/21/08 by Ben Leet

Three Short Articles
1 comment 6/17/08 by Ben Leet

What Government Can Do --- A Ten Point Plan to Raise Incomes
1 comment 5/1/08 by Ben Leet

Another Letter to Congressman Pete Stark 2nd letter, Cong. Pete Stark
5/1/08 by Ben Leet

There Are Solutions
1 comment 4/6/08 by Ben Leet

A Wealth Tax to Eliminate Poverty
2 comments 4/6/08 by Ben Leet

Poem -- White Birds
4/6/08 by Ben Leet

The Twilight Zone takes over my mind
3/14/08 by Ben Leet

Letter to Congressman Pete Stark, February 5, 2008...
3/14/08 by Ben Leet

Economic Justice and Democracy by Robin Hahnel
3 comments 3/14/08 by Ben Leet

Odd, Very Odd
3/5/08 by Ben Leet

Is There a Middle Class?
2/21/08 by Ben Leet

Eleven Economic Failures, Seven Solutions
1/24/08 by Ben Leet

How Inequality is Strangling the Nation
--- National Wealth and Income Distribution, and the need for a Government Work Program

Examining Edward Wolff's Wealth Report, March 2010

Extreme inequality is counter-productive.
Forty percent of U.S. households hold on average $2,200 in savings while the economy generates over $47,000 per capita per year in 2007, and the wealthiest 1 percent of households garner more income than the bottom 60 percent. These are the principal findings of a study of wealth and income distribution by Edward Wolff, eminent scholar of wealth distribution.

Social inequality at an extreme is destructive and unproductive. It squanders human potential and diminishes the quality of life for all as the recent book The Spirit Level argues. This essay draws on the recent March 2010 study by Edward Wolff that illuminates quantitatively the extent of U.S. inequality 1983 to 2009. I then propose a solution in the Conclusion, a path out of inequality towards greater productivity and social justice. One in three U.S. workers today is either out of work, has dropped out of the workforce, is working part-time when he wants full-time, or is working for poverty level wages. This is wasteful. Extreme inequality is counter-productive.

____________________________________________________________________

In March, 2010, Edward N. Wolff released an updated report on household wealth and income in America. Wolff, the author of Top Heavy, and professor at N.Y.U. and researcher for the Levy Economics Institute, is a widely respected scholar of the economics of wealth distribution.

Summary
In a report such as Wolff’s the abundance of numbers and numerical relationships are central, but the overall effect is daunting and overwhelming at times. My report of Wolff’s report is also excessively numerical, and I am afraid that readers are apt to lose the main picture of the “forest” for all the “trees”. I think that if the reader can hold any three data points from Wolff’s report they should be:

1) The average household savings of the bottom 40 percent of American households is $2,200 --- this in an economy that generated over $47,000 per capita per year in 2007. 2) The top one percent of U.S. households owns more than 90 percent of households at the bottom of the wealth scale, and 3) earned in 2007 more income than 60 percent of households at the bottom of the earnings scale. 4) The fourth data point that I think is very important to consider comes from another study, by Emmanuel Saez, (See Striking It Richer, Update July 2010)professor of economics at U.C. Berkeley, who found that from 1942 to 1982 the top ten percent of households never received more than 35 percent of the national income, while in 2007 their portion had grown to 49.7 percent of it. The distribution of both income and wealth have not always been so skewed in favor of the wealthy; when the fruits of the economy have been more fairly spread around, i.e., 1940 to 1980, the economy worked far better for all income sectors --- the poor, the middle income earners and the very topmost earners. 5) --- the Conclusion --- Politically we can change this distribution trend.

Once the reader begins to stall in his comprehension due to an overload of too many numbers, I recommend that he or she skip down to the Conclusion. It will be better for his overall comprehension.
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I am venturing a report of Edward Wolff's paper "Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze --- An Update to 2007", published March 2010 by the Levy Economics Institute of Bard College, titled Working Paper 589; available at www.levyinstitute.org. In addition, Wolff summarizes the changes in wealth and income in the U.S. between 2007 and 2009 in his report on page 33. I have placed in quotations his report, and added my own commentary.

Concerning disappearing wealth between 2007 and 2009, on page 33:

"According to my estimates, while mean [average] wealth (in 2007 dollars) fell by 17.3 percent between 2007 and 2009 to $443,600, median [middle or typical household] wealth plunged by an astounding 36.1 percent to $65,400 (about the same level as in 1992!)."

This indicates that the total wealth of the nation's households plunged from $64 trillion to $53 trillion, an $11 trillion drop or 17% in two years. That means, of course, one in six dollars of savings disappeared in two years! This is why the word "meltdown" is used to describe the financial institutions’ --- banks’, hedge funds’, insurance companies’ --- implosion.
Though Wolff said that median household (or the middle household out of 116 million, or household #58 million in a bottom to top scale, often called the ‘typical’ household) wealth was at the level of 1992, $65,400, a drop from $102,000 in 2007, he might also have said that the median wealth was 6% lower than the 1983 level of $69,500. The middle household, #58 million, in 2009 had about $4,000 less savings 26 years after 1983, in spite of the economy’s expansion of 115 percent.

During the 2007 to 2009 period,
"The [wealth] share of the top 1 percent advanced from 34.6 to 37.1 percent, that of the top 5 percent from 61.8 to 65 percent, and that of the top quintile [20 percent of households] from 85 to 87.7 percent, while that of the second quintile fell from 10.9 to 10 percent, that of the middle quintile from 4 to 3.1 percent and that of the bottom two quintiles from 0.2 to -0.8 percent. There was also a large expansion in the share of households with zero or negative net worth, from 18.6 to 24.1 percent."

Another way to state this is, the bottom 80 percent of households own about 12.3 percent of all the nation’s wealth, or savings. Or that 60 percent own only 2.3 percent.

The households with zero or negative worth grew to 24.1 percent, a big jump from 18.6 percent, and by extrapolation from earlier reports by Wolff, the portion of households with less than $5,000 in savings probably today, in 2010, approximates 33.1 percent, and those with less than $10,000 amount to nearly 40 percent of the U.S. population, though this data is not shown in the report. That is, 40 percent of the U.S. population lives in households with less than $10,000 in savings, and 33 percent live in households with less than $5,000, and one in four Americans live in households with no savings. This is why one in four children in the U.S. now eat food bought by food stamps, December 2009, because in order to qualify for food stamps one can have no more than $200 in assets.

In 1983 15.5 percent of households, as opposed to 24.1 percent today, had zero or negative net worth. From 1983 to 2007 median household annual income grew from $43,500 to $50,200. (page 35). But, of that growth, 76 percent happened between 1983 to 1989. Household median income growth has been virtually flat since 1989.

"Moreover, the average wealth of the poorest 40 percent declined by 63 percent between 1983 and 2007 and, by 2007, had fallen to only $2,200.”

If the poorest 40 percent had on average $2,200 in 2007, how much did they have in 2009 after the meltdown? Wolff offers no estimation. (page 36)

“All in all, the greatest gains in wealth and income were enjoyed by the upper 20 percent, particularly the top 1 percent, of the respective distributions. Between 1983 and 2007, the top 1 percent received 35 percent of the total growth in net worth, 43 percent of the total growth in non-home wealth, and 44 percent of the total increase in income. The figures for the top 20 percent are 89 percent, 94 percent, and 87 percent, respectively.”

Restated: 11 percent of savings’ growth went to the lower 80 percent of households, 1983 to 2007. This is while the net worth of all households, on average, increased by 64 percent, 1983 to 2009.

“The biggest story for the early and mid-2000s is the sharply rising debt-to-income ratio, reaching its highest level in almost 25 years, at 119 percent in 2007. [Up from 68 percent in 1983, page 48] Also the debt-equity ratio (ratio of debt-to-net-worth) was way up, from 14.3 percent in 2001 to 18.1 percent in 2007."

Combining the data on page 44 (to 2007) with the data on page 33 (to 2009), the trends show that during the period 1983 to 2009 the median household wealth shrunk by 6 percent from $69,500 to $65,400. In the same period the average mean wealth of all households grew by 64 percent, from $270,000 to $443,600. The income growth (not wealth) between 1983 to 2007 (not 2009) shows that median income grew by 15.5% while average mean income growth grew by 27.9%. This can be restated: the average income grew 80% faster than the median (middle) income. And as stated above, over three quarters of the median household income growth, 1983 to 2007, occurred between 1983 and 1989. So, while median income virtually stayed flat, 1989 to 2007, the average income grew by around 80 percent. This is the evidence of stagnant wages and income in a growing economy. And while wages were stagnant, the net asset worth of the median household declined 6 percent, 1983 to 2009.

The majority of American families have been left out. In 2007 the top one percent of households earned more income (21.3 percent of the national total income) than the bottom 60 percent (who earned only 20.7 percent in 2007) (see page 45). The top one percent, owning 37.1 percent of all assets, owns more wealth than the bottom 90 percent of U.S. households. Again, the bottom 40 percent of households own less than $2,200 on average. For every one dollar in savings among the lower 40 percent of households (or 48 million households or 120 million citizens out of 309 million total population), the top one percent holds $9,000 in savings. ($18.5 million divided by $2,200)

Conclusion

This imbalance of wealth and income bodes ill for economic recovery. This is why I, and others (see previous essays here), argue for a 1939 style government sponsored work program that would directly hire the un- and underemployed, at least 17% of the workforce or 26 million workers, in work paying between $14 to $18 an hour over a period of five years or more to shift the income and wealth distribution of the nation. This is what the nation did between 1939 and 1946.

Capitalism flourished after WWII because aggregate demand was restored. Wealth distribution had become more balanced by 1949. Between 1929 and 1949 the the top one percent of households' portion of the nation's wealth decreased from 44 to 27 percent (See inequality.org), indicating more savings and more purchasing power to the middle class. Idle and unproductive wealth in the 1940s was invested in war bonds, this transferred into workers' paychecks, and then into workers' savings accounts --- a transfer of wealth. In 1939, ten years into the Great Depression, unemployment held stubbornly at 19 percent. That rate dropped steadily for four years due to government jobs creation in the war industries. Finally, during 1943,
1944 and 1945 the unemployment rate sank below 2 percent. Concurrently national household savings exceeded household debt creation for the only time on record, 1913 to 2010. For instance, in 1944 the average family savings was $12,807, and debt creation was $7,475. This in contrast to 2007 when savings was $449 and debt creation was $121,650 (according to The Debt Trap, New York Times interactive article; link to "series index" and then to "Interactive, The American Way of Debt" by Amy Schoenfeld and Matthew Bloch. http://www.nytimes.com/interactive/2008/07/20/business/20debt-trap.html.) --- when you get to the page, look at the bottom right for
"series index" and clicking that will pull up a row of images, look for the third to the left,
click that and you'll see the chronological portrait of debt creation vs. savings). During much of this seven year period, 1939 to 1946, consumer goods were not in production. For instance, "between 1943 and 1945, the American automobile industry produced exactly thirty-seven automobiles," according to John Steele Gordon (An Empire of Wealth, page 357). With the rationing of thirteen commodities and the wholesale conversion of industry to wartime production, a wartime austerity hit the American family. Mostly war armaments and equipment were produced, and because young men were away at war, household debt creation was suspended for the duration of the war.Full employment -- that is, everyone working -- and nothing to buy built the bank account savings of American families. In 1946 the nation was prepared and ready to spend. Even though the national debt hung over 120 percent of GDP, gradually the economy grew through the national debt and it was reduced to 35 percent of GDP by 1965, where it held for 15 years until the Reagan era. After WWII the popular labor union mentality was strong, aggregate demand was restored, and importantly

the 90 percent income tax on only the topmost incomes held the tide on inequality. The economy was prepared for a 30 year unprecedented run. The real incomes of all American families -- poor, middle, and upper income -- all doubled in real terms during the 1947 to 1973 period. The economy grew and all families shared the growth, unlike the past 30 years.

Today the nation still has an immense amount of important work to do such as child care and educational services, highway repair and infrastructure construction, green energy conversion projects that run the gamut. The imperative of allocating capital and resources only into profit creating enterprises is strangling the nation. The inequality that has been the hallmark of the past three decades has crippled aggregate demand, so that purchasers and consumers have not enough purchasing power to revive corporate expansion which would drive, and historically has driven, economic growth. Capitalism must harmonize its competing cross purposes; the national surplus (annual profits) must be distributed to both consumers and owners of corporations. Without consumer purchasing that powers corporate expansion, jobs will not be created, incomes will languish, and purchasing power will be absent. As the King, Yul Bryner in The King and I, said: “Et cetera, et cetera.” It’s a downward spiral.

Politically we must demand a shift in our practices and thinking.

On August 14, 2010, Robert Reich, former Secretary of Labor, published an article outlining the same strategy. (See “Forget a Double Dip. We’re Still in One Long Big Dipper.” www.truthout.com) See Marshall Auerback's essay "The Real Lesson from the Great Depression -- Fiscal Policy Works" at New Deal 2.0 where
he states, "the Roosevelt administration reduced unemployment from 25 per cent in 1933 to 9.6% per cent in 1936", and claims,
"It also built or renovated 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, and a thousand airfields. And it employed 50,000 teachers, rebuilt the country’s entire rural school system, and hired 3,000 writers, musicians, sculptors and painters, including Willem de Kooning and Jackson Pollock. So much for the notion that government jobs are not “real jobs”, as we hear persistently from critics of the New Deal!"Furthermore, the web pages Drive for Decent Work -- Full Employment Now and www.jobscampaign.org have many federal jobs creation proposals to peruse.

August 17, 2010