Dear Reader,
Contents of this web site:
I write essays on economics.
The most recent essays are at the top, oldest at the bottom.
If you read only one essay, choose
August, 2008, Half Own 2.5%, Half Earn 15%.
That will get you going.
December, 2008, has me writing The Case for Full Employment.
Click the ? in the Contents area to open the month and see the essays for any month.
23. Why We Need Full Employment
This is my shortest, a one page effort full of facts well documented.
December 29, 2008
22. The Case for Full Employment
Both a historical overview of previous government actions, and a review
two scholars’ approach to solving paucity of jobs in our economy.
I think this is sound policy and a good, brief look at the employment problem.
21. Full Employment
Basic logic on full employment.
20. Meltdown/Bailout Suggestions
Two suggestions about nationalizing banks and reworking underwater
home mortgages.
19. Nationalize the Banks or Bail Them Out
I quote a professor, Peter Dorman, and a financial consultant, John Hussman. Both offer plans radically different than Treasury Secretary Paulson’s. I review radio program This American Life, to explain the subprime mess. I wrote it for my sister.
18. Understanding the Financial Crisis
William Springer, head of the economics department at Howard University
made the same comments on the radio the week after I wrote this.
I claim that the financial part of the crisis is phase one. Much more bad news will unfold.
17. Justice Revolution
A longer essay with a little more documentation, but basically the same essay as the last.
It is better in some ways. I trace international methods to create global economic justice.
16. Half Own 2.5%, Half Earn 15%
Read this one if you read no other.
15. Celebrate $100,000 a year as the average U.S. income
Hard to believe, but that’s correct. Read it to believe it.
14. Infectious Greed Overwhelms the U.S. Economy
I quote Marriner Eccles about the Great Depression. I tried to simplify
the previous essay for a friend who has no background.
13. Economic Rights for the Two Out of Seven Who Are Not Making It
July 22, 2008
Inequality, weak purchasing power, Roosevelt’s State of the Union, ‘44,
and much more. Not too pessimistic. About 3,000 words.
Really interesting says the author.
12. What the Government Can Do
May 1, 2008
A two page reduction of the essay There Are Solutions. A quick read on
ways to increase employment and incomes without stalling the economy.
Maybe my ‘Best.’ Short, to the point.
11. Three Short Pieces
June 15, 2008. To the KPFA Morning Show, The Next Wave of Political Reform, and another review of Robin Hahnel’s book Economic Justice and Democracy.
10. My Second Letter to Pete Stark, Congressman
A little note about shrinking aggregate demand, how to grow an economy,
and why worldwide depression is possible. I had just read Jeff Madrick’s
Why Economies Grow.
9. There Are Solutions
This 4,000 word essay details and reviews three plans for revitalizing the American economy.
First, I take a look at Frank Stricker’s book Why America Lost the War on Poverty --- and How to Win It, and his 17 point plan called What Needs to Be Done.
Second I look at the Center for American Progress’ plan “From Poverty to
Prosperity.”
Finally, I review “Decent Work and Public Investment,” a plan authored by members of the National Jobs for All Coalition, Helen Lachs Ginsburg and Gertrude Shaffner Goldberg.
8. White Birds --- a poem not about economics. About love.
7. A Wealth Tax to Eliminate Poverty
This may be my best effort. It is a reduction of my original essay A Modest Proposal to Tax Wealth Annually in the U.S.A.
6. The Art of Living Together
A short vagrancy, a fissure, an errant meander, a lunacy. Something burst.
5. A Letter to My Congressman, Pete Stark. February 5, 2008
I break down wealth and income distribution, and suggest sources for
the Congressman to pursue.
4. A book review of Robin Hahnel’s Economic Justice and Democracy
This essay was published in the Alameda County Green Party News in
October, 2007.
3. Odd, Very Odd. March, 2008. A recapitulation of old ideas. Nothing special.
2. Is There a Middle Class?
The 40 to 1 ratio between two halves of the U.S. population impressed me. I was listening to Michael Krasny on KQED FM radio talk about the middle class. He did not take my e-mail, so I wrote this essay and sent it to him.
1. Progressive Economic Reform, 2008
January, 2008
This essay presents an array of eleven different sources that argue that our economy does not serve the American people.
The people at Econo-atrocity, the commentary site at Center for
Popular Economics, posted it. It’s my third favorite after What Government Can Do, and
A Wealth Tax to Eliminate Poverty, second best.
Monday, December 29, 2008
Why Full Employment
Why We Need Full Employment
Capitalism is in a code-blue emergency in 2009 because the essential balance between consumers and producers has been broken. Consumers lack the purchasing power -- income and savings -- to purchase what they produce. As in the Great Depression of the 1930s, as described by the Chairman of the Federal Reserve during that time, a “giant suction pump” has sucked the profit out of the system. “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.” (1)
Now, once again, we need to stimulate the economy at the the lowest level of the workforce, the less affluent. Our economy provides the lower 50% of U.S. households
with 15% of the annual national income, and
2.5% of the national wealth. (2)
This should indicate to any sensible human a gross imbalance of resources and amenities। It should grate against our humanity. Inequality was not this great in 1929.
Hourly wages have risen by 14% in 30 years, while the economy, the per capita Gross Domestic Product, has expanded by 77.5%, and worker productivity has increased by 62%. (3) Family income with only one bread winner has risen 0.4% in 25 years. Eighty percent of the U.S. households receive just 40% of the national income. (4) The book Hardships in America states that 28.9% of families with children younger than 12 cannot afford four essentials: food, medical care, housing, and childcare. Eighty percent of these families work. (5) The U.S. has double the child poverty rate among developed nations. (6) Thirty percent of our workforce, 40.6 million adult workers, are either working for poverty-level wages, working part-time, or are unemployed. (7)
All these statistics are shocking and shameful.
Government must provide jobs to less affluent Americans in projects that will directly improve their lives, and enrich the entire nation. Unlike 1983 when Reagan stimulated the economy with a 2% of GDP public jobs program, mostly directed at military spending, we should enlarge our vision to provide Full Employment as envisioned by Franklin Roosevelt. (8) This will rescue our economy. The less affluent will spend their new income; they will not transfer their government bailout into exorbitant executive pay, golden parachutes, inflated stock markets that resemble gambling casinos, tax havens abroad, or into foreign investment opportunities.
We spend $1.1 trillion annually in defense, more than half the discretionary federal budget. (9) Our military spending is twice what the combined world spends: U.S. -- $1.1 trillion, world -- $500 billion. Therefore we must not enlarge the defense budget.
A good place to begin a sensible search for spending ideas is at sharedprosperity.org and National Jobs for All Coalition (njfac.org) (10) The nation has a new lease on life and hope, let’s not squander it on what we really do not need.
Let’s create Full Employment.
Yours, Ben Leet, San Leandro, CA, http://benL8.blogspot.com
1. Marriner Eccles, Beckoning Horizons, posted on wikipedia/Great Depression and posted on Robert Reich blogspot, July 26, 2008.
2. State of Working America, 2006/2007, Mishel, Bernstein, Allegretto, page 79, (an Economic Policy Institute Book, Ithaca, N.Y., Cornell University Press, 2007) about income from an Urban/Brookings Institute study. Currents and Undercurrents, a Federal Reserve report, U.S. Treasury, 2006, Arthur Kennickel, about wealth.
3. SWA, 2006/2007, pages 115, 55; and Comparative Real Gross Domestic Product per capita and per employed person, 1960-2007, Bureau of Labor Statistics, 2008
4. SWA, 2006/2007, pages 79, 55.
5. Bouchey, Heather, Hardships in America (an Economic Policy Institute Book).
80% work--- Making Work Pay Enough, Gregory Acs, Margery Austin Turner, Urban Institute and Brookings institution, Tax Policy Center, July 2008.
6. SWA, page 351, double child poverty rate
7. njfac.org/unemployment, data sourced from BLS, U.S. Department of Labor
8. A 2% of GDP stimulus, Robert Pollin, The Nation magazine, November 4, 2008.
Franklin Roosevelt, State of the Union Speech, 1944, http://teachingamericanhistory.org/library/index.asp?document=463, and cited in
Cass Sunstein’s FDR’s Unfinished Revolution.
9. Chalmers Johnson, Zcommunications.org, Going Bankrupt, January 24, 2008
10. Sharedprosperity.org, and njfac.org/shared prosperity
Capitalism is in a code-blue emergency in 2009 because the essential balance between consumers and producers has been broken. Consumers lack the purchasing power -- income and savings -- to purchase what they produce. As in the Great Depression of the 1930s, as described by the Chairman of the Federal Reserve during that time, a “giant suction pump” has sucked the profit out of the system. “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.” (1)
Now, once again, we need to stimulate the economy at the the lowest level of the workforce, the less affluent. Our economy provides the lower 50% of U.S. households
with 15% of the annual national income, and
2.5% of the national wealth. (2)
This should indicate to any sensible human a gross imbalance of resources and amenities। It should grate against our humanity. Inequality was not this great in 1929.
Hourly wages have risen by 14% in 30 years, while the economy, the per capita Gross Domestic Product, has expanded by 77.5%, and worker productivity has increased by 62%. (3) Family income with only one bread winner has risen 0.4% in 25 years. Eighty percent of the U.S. households receive just 40% of the national income. (4) The book Hardships in America states that 28.9% of families with children younger than 12 cannot afford four essentials: food, medical care, housing, and childcare. Eighty percent of these families work. (5) The U.S. has double the child poverty rate among developed nations. (6) Thirty percent of our workforce, 40.6 million adult workers, are either working for poverty-level wages, working part-time, or are unemployed. (7)
All these statistics are shocking and shameful.
Government must provide jobs to less affluent Americans in projects that will directly improve their lives, and enrich the entire nation. Unlike 1983 when Reagan stimulated the economy with a 2% of GDP public jobs program, mostly directed at military spending, we should enlarge our vision to provide Full Employment as envisioned by Franklin Roosevelt. (8) This will rescue our economy. The less affluent will spend their new income; they will not transfer their government bailout into exorbitant executive pay, golden parachutes, inflated stock markets that resemble gambling casinos, tax havens abroad, or into foreign investment opportunities.
We spend $1.1 trillion annually in defense, more than half the discretionary federal budget. (9) Our military spending is twice what the combined world spends: U.S. -- $1.1 trillion, world -- $500 billion. Therefore we must not enlarge the defense budget.
A good place to begin a sensible search for spending ideas is at sharedprosperity.org and National Jobs for All Coalition (njfac.org) (10) The nation has a new lease on life and hope, let’s not squander it on what we really do not need.
Let’s create Full Employment.
Yours, Ben Leet, San Leandro, CA, http://benL8.blogspot.com
1. Marriner Eccles, Beckoning Horizons, posted on wikipedia/Great Depression and posted on Robert Reich blogspot, July 26, 2008.
2. State of Working America, 2006/2007, Mishel, Bernstein, Allegretto, page 79, (an Economic Policy Institute Book, Ithaca, N.Y., Cornell University Press, 2007) about income from an Urban/Brookings Institute study. Currents and Undercurrents, a Federal Reserve report, U.S. Treasury, 2006, Arthur Kennickel, about wealth.
3. SWA, 2006/2007, pages 115, 55; and Comparative Real Gross Domestic Product per capita and per employed person, 1960-2007, Bureau of Labor Statistics, 2008
4. SWA, 2006/2007, pages 79, 55.
5. Bouchey, Heather, Hardships in America (an Economic Policy Institute Book).
80% work--- Making Work Pay Enough, Gregory Acs, Margery Austin Turner, Urban Institute and Brookings institution, Tax Policy Center, July 2008.
6. SWA, page 351, double child poverty rate
7. njfac.org/unemployment, data sourced from BLS, U.S. Department of Labor
8. A 2% of GDP stimulus, Robert Pollin, The Nation magazine, November 4, 2008.
Franklin Roosevelt, State of the Union Speech, 1944, http://teachingamericanhistory.org/library/index.asp?document=463, and cited in
Cass Sunstein’s FDR’s Unfinished Revolution.
9. Chalmers Johnson, Zcommunications.org, Going Bankrupt, January 24, 2008
10. Sharedprosperity.org, and njfac.org/shared prosperity
Friday, December 5, 2008
Case for a Full Employment Policy
The Case for a Full Employment Policy
We are a very wealthy nation, and we can well afford to employ all unemployed and willing workers through public employment. The social benefits would be revolutionary.
This short article traces the historical government remedies to combat high unemployment, and outlines full employment proposals that would completely eliminate joblessness.
On December 1, 2008, the National Bureau of Economic Research announced to the public that the U.S. economy has been in economic recession since a year ago, December, 2007. We face a possible social breakdown similar to 1932. In October of 2008 6.5% of the workers are unemployed (10,100,000 workers), 7.1% are underemployed or discouraged from looking for work (11,700,000 workers), and still another 16.2% are working full-time for wages that pay less than the poverty rate for a family of four (17,600,000 workers). The combined total is 29.8 % of the workforce, or 39,400,000 workers. Many economists expect additional workers to fall into these categories in the coming months.(1) For every job opening listed there are six unemployed, according to the Bureau of Labor Statistics.
The Conflict
When there are more workers than jobs, or fewer jobs than workers, what should society do? Should society let joblessness skyrocket with all the negative social hardships, or provide jobs through public expenditures? Private business owners downsize their operations during economic downturns. The surplus labor force --- the unemployed --- demand the right to earn a living. The practical interests and property rights of affluent business owners conflict with the human rights of workers and non-owners. Owners cannot be forced to hire unneeded workers. Citizens cannot be left to starve. Public adjustments must be made. A social choice has to be managed.
The History
The Great Depression, 1930 to 1941, brought this conflict to the fore. Approximately 17.1% of all workers were unemployed over the 12 year period.
Half the economic capacity of the nation lay idled over 12 years.(2) “Thus, because of the planlessness of the twenties --- because of the lack of courageous action immediately following the collapse --- the nation lost 105,000,000
man-years of production in the thirties,” concludes the testimony to the Full Employment act of 1945. (3) The American Depression was not caused by a lack of resources or skills, it was a breakdown of social organization.
Franklin Roosevelt’s Second Bill of Rights, 1944
Franklin Roosevelt foresaw this problem in a speech delivered in 1932, and later his State of the Union Speech of 1944 addressed the dilemma.
“We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. ‘Necessitous men are not free men.’ People who are hungry and out of a job are the stuff of which dictatorships are made.
In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.
Among these are:
The right to a useful and remunerative job in the industries or shops or farms or
mines of the Nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give
him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of
freedom from unfair competition and domination by monopolies at home or
abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good
health;
The right to adequate protection from the economic fears of old age, sickness,
accident, and unemployment;
The right to a good education.
All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.” (4)
United Nations Charter, 1945
The United Nations Charter, drafted in 1945 after a severe worldwide depression in the 30s and a worldwide war in the 40s, dealt with the right to work vs. the need of private ownership to layoff workers. Article 23 stated that,
“1. Everyone has the right to work, to free choice of employment, to just and favorable conditions of work and to protection against unemployment. . . .
3. Everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.” (5)
In effect, when economic conditions demand it, nations must care for citizens just as families care for children. Abandonment, neglect, negligence is not part of the civilizing standard of the U.N. member states.
The Full Employment Bill of 1946
While debating this bill, Congress backed away from a mandate of full employment and substituted “maximum employment.” All of the quantitative markers from the final incarnation of the law were removed. The act instructs the executive branch to "promote maximum employment, production, and purchasing power." (6) Reassuring his Republican colleagues, Senator Robert Taft (R-Ohio) stated, “I do not think any Republican need fear voting for the bill because of any apprehension that there is a victory in the passage of the full employment bill, because there is no full employment bill anymore.” (7)
CETA --- Comprehensive Employment and Training Act, 1973 - 1983
CETA was a federal program administered locally. It was the first jobs creation program since the 1930s. “At its height, CETA had more than 700,000 people in public sector jobs and provided training and assistance to 1.3 million disadvantaged. . . . Almost by accident CETA was becoming a broad program serving both the poor and nonpoor. It could have been a model for what the War on Poverty should have been --- a permanent job-and-training program serving all Americans. But scandals and opposition to the idea of serving the nonpoor led to such severe restrictions that, by 1980, more than 90% of new enrollees were poor. However humane this seemed, it eroded support and opened the door to the elimination of CETA in the first years of the Reagan administration.” (8)
Humphrey-Hawkins Full Employment Act, 1978
In 1978 the Congress passed the Full Employment and Balanced Growth Act. The binding commitment of a job to all job seekers was deleted from the original proposal of 1976, just as in 1948. As such it stands as a lifeless statue to an unrealized goal. (9)
In 2009 Two Stimulus Plans to Restore Economic Growth
Many economists have addressed the need for a federal jobs creation plan. But their advocacy does not go so far as to promote full employment, just restoration of positive growth.
For instance, economist William Grieder proposes a five point plan in The Nation magazine, October 20, 2008. Point three suggests that we
“Get serious about economic stimulus. We need a recovery program five or six times larger than the pitiful $60 billion proposal by Democratic leaders. These billions should go for the familiar list of neglected priorities --- fixing bridges and schools --- but should also jump-start the green agenda for alternative fuels and restoration of ruined ecosystems. The government should subsidize the new industries of our age, just as New Deal spending financed the modern development of aircraft, petrochemicals, steelmaking and other key industries in the 1930s.”
Economist Robert Pollin, in The Nation, November 24, 2008, states,
“This is no time to be timid. The stimulus program last April totaled $150 billion, including $100 billion in household rebates and the rest in business tax breaks. This initiative did encourage some job growth, though as we have seen, the impact would have been larger had the same money been channeled toward a green public-investment stimulus. But any job benefits were negated by the countervailing forces of the collapsed housing bubble, the financial crisis and the spike in oil prices. The resulting recession is now before us. This argues for a significantly larger stimulus than the one enacted in April. But how much larger?” (For the elaboration of his proposal, see the end of this essay.) (10)
Full Employment Plans
The proposals for full employment seek to provide every last potential worker with work. The aforementioned expensive government jobs programs will not eliminate unemployment. Two scholars, Philip Harvey and L. Randall Wray, have elaborated detailed plans for a full employment project.
In his chapbook “Human Rights and Economic Policy Discourse: Taking Economic and Social Rights Seriously” Harvey presents five rationales for a full employment program:
One, “it attacks poverty and other social problems not only by reducing joblessness, but also by increasing the provision of public goods and services.”
Two, “direct job creation programs actually increase national wealth.”
Three, “a large-scale direct job creation program could serve as a powerful automatic stabilizer, flattening the business cycle.”
Four, it is likely to increase “the effectiveness of structuralist and behavioralist policies for combating joblessness.” (The structuralist approach is increased education, training and relief measures, the behavioralist approach is the cultural, moralistic disapproval of free-loaders sponging off public charity.)
Five, the “funds allocated to support the [jobs creation] program otherwise would have been used to pay income transfer [unemployment insurance] benefits to the persons targeted by the program. . . In fact, there is good reason to believe that even a very generous job creation program could be funded from this and other sources, and would not displace any job sustaining expenditures.”
In an argument reminiscent of Roosevelt’s 1944 Inauguration speech, Harvey further emphasizes that the “conflict between majoritarian public preferences for policies that use unemployment to combat inflation and government obligations to strive to secure the right to work constitutes a real-world example of a widely recognized theoretical problem in social choice theory. That problem arises from the possibility that utility-maximization and human rights protection may conflict with one another as public policy goals.” Harvey concludes, “Applying these principles to assess the relative deference owed to right to work claims compared to public preferences for inflation control and other utilitarian policy goals, I conclude that the right to work is entitled to far more deference than it normally receives.” “I argue that unemployed workers constitute just such a minority in need of special protection, particularly in periods of relative prosperity when their interests are likely to conflict with the policy preferences of a majority of the population.” (11)
Government Sponsored Jobs
A national public full employment program is proposed by Professor L. Randall Wray in his book Understanding Modern Money. He calls for the federal government to be the “Employer of Last Resort” and the jobs it creates would pay workers a “Basic Public Service Wage.” The following are job positions that could be created:
1. Companions to the elderly, orphans, physically disabled and mental health patients. Each companion would attend classes or seminars in caregiving, and perhaps also attend group discussions with other ELR companions. This position would serve as a preparation for private sector jobs.
2. Public school classroom assistants who tutor in reading, writing and math. Field trip aides for classes on out-of-school excursions. After-school assistants in academic support and/or art and recreation programs.
3. Child care assistants, and Head Start and preschool assistants.
4. Safety monitors and facilitators assigned to public schools, playgrounds, transit hubs, downtown areas.
5. Neighborhood clean-up crews for abandoned properties, and highway clean-up crews.
6. Auxiliary assistants in low-income housing restoration projects such as home insulation projects.
7. Public library assistants.
8. Environmental safety monitors testing for lead paint contamination, water quality, beach contamination. Aides for restoration of ‘super fund’ clean-up sites and other environmental clean-up projects.
9. National and state park improvement teams.
10. Artists, musicians and performers in community beautification projects, and performing in schools.
11. Community and cultural historians.
12. Public assistants collecting information and monitoring compliance with government regulations.
13. Prison education assistants, and liaisons to juvenile detention facilities.
This list is drawn mostly from L. Randall Wray’s book Understanding Modern Money. Wray concludes that,
“The federal government would simply provide as much funding as necessary to let every state and local government hire as many new employees as they desired, with only two constraints: these jobs could not replace current employment, and the could only pay BPSW[basic public service wages] (or at least the federal government could reimburse wages at BPSW rate). Finally a similar offer could be made to qualifying non-governmental non-profit organizations, such as AmeriCorps, VISTA, the Student Community Service Program, the National Senior Service Corps, the Peace Corps, the National Health Service Corps, school districts, and Meals on Wheels.” (12)
Conclusion
Strong popular support exists for a traditional jobs program. In the fall of 2008 Yes! Magazine published a poll indicating that 67% of Americans favor public works projects to create jobs. (13) While the promulgation of a full, universal employment program may have to wait for a swelling of popular support, the groundwork has been done over the years with full employment Congressional legislation, and through scholarly examination. As Harvey points out, such a program would increase national wealth while combating the sources of poverty and increasing social services to the non-affluent.
__________________________________________________________________
Footnotes
1. See njfac.org/unemployment, taken from
Source: http://www.bls.gov/news.release/pdf/empsit.pdf
2. The American People in the Great Depression, David M. Kennedy, Oxford University Press, 1999, page 166
3. 105,000,000 man-years lost, quote from Full Employment Act of 1945, Hearings, page 1104, as cited in The Employment Act of 1946: Some History Notes, G.J. Santoni, U.S. Federal Reserve report., November, 1986
4. Franklin Roosevelt, http://www.teachingamericanhistory.org/library/index.asp?document
=463; and cited in FDR’s Unfinished Revolution, Cass Sunstein
5. United Nations Charter, cited in “Human Rights and Economic Policy Discourse; Taking Economic and Social Rights Seriously), Columbia Human Rights Law Review, Volume 33, Number 2, Spring 2002, Philip Harvey, page 376
6. Full Employment Bill of 1946
7. Senator Robert Taft, cited in Harvey, ibid, page 374
8. Stricker, Frank, Why America Lost the War on Poverty --- And How to Win It,
University of North Carolina Press, 2007, page 134, 135
9. Ibid, Stricker, page 135, Humphrey-Hawkins Bill of 1978
10. William Grieder, The Nation magazine, October 4, 2008 and Robert Pollin, The Nation, November 24, 2008
11. Philip Harvey, ibid, pages 466 to 471.
12. L. Randall Wray, Understanding Modern Money, Edward Elgar Publishing Limited, 1999, page 141
13. Poll, Fortune Magazine poll conducted by Abt SRBI. Jan. 14-16, 2008. N=1,000 adults nationwide. MoE ± 3. ---- www.pollingreport.com/budget.htm.
_________________________________________________________________
Robert Pollin’s jobs program (continuation)
Pollin in his article, The Nation, November 24, 2008, elaborates his proposal, and brings a historical perspective to today’s proposals. This continues the quoted section:
“One way to approach the question is to consider the last time the economy faced a recession of similar severity, which was in 1980-82, during Ronald Reagan’s first term as president. In 1982 gross domestic product contracted by 1.9 percent, the most severe one-year drop in GDP since World War II. Unemployment rose to 9.7 percent that year, which was, again, the highest figure since the ‘30s.
The Reagan administration responded with a massive stimulus program, even though its alleged free-market devotees never acknowledged as much. They preferred calling their program of military expansion and tax cuts for the rich “supply-side economics.” Whatever the label, this combination generated an increase in the federal deficit of about two percentage points relative to the size of the economy at that time. In 1983 GDP rose sharply by 4.5 percent. In 1984 GDP growth accelerated to 7.2 percent, with Reagan declaring the return to “morning in America.” Unemployment fell back to 7.5 percent.
In today’s economy, an economic stimulus equivalent to the 1983 Reagan program would amount to about $300 billion in spending --- roughly double the size of April’s stimulus program, though in line with the high-end figures being proposed in Congress. A stimulus of this size could create nearly 6 million jobs, offsetting the job-shedding forces of the recession.
Of course, the green public-investment stimulus will be much more effective as a jobs program than the Reagan agenda of militarism and upper-income tax cuts. This suggests that an initiative costing somewhat less than $300 billion could be adequate to fight the job losses. But because the long-term benefits to the economy, there is little danger that we would spend too much. Since all these investments are needed,to fight global warming and improve overall productivity, the sooner we move forward, the better. Moreover, under today’s weak job market conditions, we will not run short of qualified workers.”
We are a very wealthy nation, and we can well afford to employ all unemployed and willing workers through public employment. The social benefits would be revolutionary.
This short article traces the historical government remedies to combat high unemployment, and outlines full employment proposals that would completely eliminate joblessness.
On December 1, 2008, the National Bureau of Economic Research announced to the public that the U.S. economy has been in economic recession since a year ago, December, 2007. We face a possible social breakdown similar to 1932. In October of 2008 6.5% of the workers are unemployed (10,100,000 workers), 7.1% are underemployed or discouraged from looking for work (11,700,000 workers), and still another 16.2% are working full-time for wages that pay less than the poverty rate for a family of four (17,600,000 workers). The combined total is 29.8 % of the workforce, or 39,400,000 workers. Many economists expect additional workers to fall into these categories in the coming months.(1) For every job opening listed there are six unemployed, according to the Bureau of Labor Statistics.
The Conflict
When there are more workers than jobs, or fewer jobs than workers, what should society do? Should society let joblessness skyrocket with all the negative social hardships, or provide jobs through public expenditures? Private business owners downsize their operations during economic downturns. The surplus labor force --- the unemployed --- demand the right to earn a living. The practical interests and property rights of affluent business owners conflict with the human rights of workers and non-owners. Owners cannot be forced to hire unneeded workers. Citizens cannot be left to starve. Public adjustments must be made. A social choice has to be managed.
The History
The Great Depression, 1930 to 1941, brought this conflict to the fore. Approximately 17.1% of all workers were unemployed over the 12 year period.
Half the economic capacity of the nation lay idled over 12 years.(2) “Thus, because of the planlessness of the twenties --- because of the lack of courageous action immediately following the collapse --- the nation lost 105,000,000
man-years of production in the thirties,” concludes the testimony to the Full Employment act of 1945. (3) The American Depression was not caused by a lack of resources or skills, it was a breakdown of social organization.
Franklin Roosevelt’s Second Bill of Rights, 1944
Franklin Roosevelt foresaw this problem in a speech delivered in 1932, and later his State of the Union Speech of 1944 addressed the dilemma.
“We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. ‘Necessitous men are not free men.’ People who are hungry and out of a job are the stuff of which dictatorships are made.
In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.
Among these are:
The right to a useful and remunerative job in the industries or shops or farms or
mines of the Nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give
him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of
freedom from unfair competition and domination by monopolies at home or
abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good
health;
The right to adequate protection from the economic fears of old age, sickness,
accident, and unemployment;
The right to a good education.
All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.” (4)
United Nations Charter, 1945
The United Nations Charter, drafted in 1945 after a severe worldwide depression in the 30s and a worldwide war in the 40s, dealt with the right to work vs. the need of private ownership to layoff workers. Article 23 stated that,
“1. Everyone has the right to work, to free choice of employment, to just and favorable conditions of work and to protection against unemployment. . . .
3. Everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.” (5)
In effect, when economic conditions demand it, nations must care for citizens just as families care for children. Abandonment, neglect, negligence is not part of the civilizing standard of the U.N. member states.
The Full Employment Bill of 1946
While debating this bill, Congress backed away from a mandate of full employment and substituted “maximum employment.” All of the quantitative markers from the final incarnation of the law were removed. The act instructs the executive branch to "promote maximum employment, production, and purchasing power." (6) Reassuring his Republican colleagues, Senator Robert Taft (R-Ohio) stated, “I do not think any Republican need fear voting for the bill because of any apprehension that there is a victory in the passage of the full employment bill, because there is no full employment bill anymore.” (7)
CETA --- Comprehensive Employment and Training Act, 1973 - 1983
CETA was a federal program administered locally. It was the first jobs creation program since the 1930s. “At its height, CETA had more than 700,000 people in public sector jobs and provided training and assistance to 1.3 million disadvantaged. . . . Almost by accident CETA was becoming a broad program serving both the poor and nonpoor. It could have been a model for what the War on Poverty should have been --- a permanent job-and-training program serving all Americans. But scandals and opposition to the idea of serving the nonpoor led to such severe restrictions that, by 1980, more than 90% of new enrollees were poor. However humane this seemed, it eroded support and opened the door to the elimination of CETA in the first years of the Reagan administration.” (8)
Humphrey-Hawkins Full Employment Act, 1978
In 1978 the Congress passed the Full Employment and Balanced Growth Act. The binding commitment of a job to all job seekers was deleted from the original proposal of 1976, just as in 1948. As such it stands as a lifeless statue to an unrealized goal. (9)
In 2009 Two Stimulus Plans to Restore Economic Growth
Many economists have addressed the need for a federal jobs creation plan. But their advocacy does not go so far as to promote full employment, just restoration of positive growth.
For instance, economist William Grieder proposes a five point plan in The Nation magazine, October 20, 2008. Point three suggests that we
“Get serious about economic stimulus. We need a recovery program five or six times larger than the pitiful $60 billion proposal by Democratic leaders. These billions should go for the familiar list of neglected priorities --- fixing bridges and schools --- but should also jump-start the green agenda for alternative fuels and restoration of ruined ecosystems. The government should subsidize the new industries of our age, just as New Deal spending financed the modern development of aircraft, petrochemicals, steelmaking and other key industries in the 1930s.”
Economist Robert Pollin, in The Nation, November 24, 2008, states,
“This is no time to be timid. The stimulus program last April totaled $150 billion, including $100 billion in household rebates and the rest in business tax breaks. This initiative did encourage some job growth, though as we have seen, the impact would have been larger had the same money been channeled toward a green public-investment stimulus. But any job benefits were negated by the countervailing forces of the collapsed housing bubble, the financial crisis and the spike in oil prices. The resulting recession is now before us. This argues for a significantly larger stimulus than the one enacted in April. But how much larger?” (For the elaboration of his proposal, see the end of this essay.) (10)
Full Employment Plans
The proposals for full employment seek to provide every last potential worker with work. The aforementioned expensive government jobs programs will not eliminate unemployment. Two scholars, Philip Harvey and L. Randall Wray, have elaborated detailed plans for a full employment project.
In his chapbook “Human Rights and Economic Policy Discourse: Taking Economic and Social Rights Seriously” Harvey presents five rationales for a full employment program:
One, “it attacks poverty and other social problems not only by reducing joblessness, but also by increasing the provision of public goods and services.”
Two, “direct job creation programs actually increase national wealth.”
Three, “a large-scale direct job creation program could serve as a powerful automatic stabilizer, flattening the business cycle.”
Four, it is likely to increase “the effectiveness of structuralist and behavioralist policies for combating joblessness.” (The structuralist approach is increased education, training and relief measures, the behavioralist approach is the cultural, moralistic disapproval of free-loaders sponging off public charity.)
Five, the “funds allocated to support the [jobs creation] program otherwise would have been used to pay income transfer [unemployment insurance] benefits to the persons targeted by the program. . . In fact, there is good reason to believe that even a very generous job creation program could be funded from this and other sources, and would not displace any job sustaining expenditures.”
In an argument reminiscent of Roosevelt’s 1944 Inauguration speech, Harvey further emphasizes that the “conflict between majoritarian public preferences for policies that use unemployment to combat inflation and government obligations to strive to secure the right to work constitutes a real-world example of a widely recognized theoretical problem in social choice theory. That problem arises from the possibility that utility-maximization and human rights protection may conflict with one another as public policy goals.” Harvey concludes, “Applying these principles to assess the relative deference owed to right to work claims compared to public preferences for inflation control and other utilitarian policy goals, I conclude that the right to work is entitled to far more deference than it normally receives.” “I argue that unemployed workers constitute just such a minority in need of special protection, particularly in periods of relative prosperity when their interests are likely to conflict with the policy preferences of a majority of the population.” (11)
Government Sponsored Jobs
A national public full employment program is proposed by Professor L. Randall Wray in his book Understanding Modern Money. He calls for the federal government to be the “Employer of Last Resort” and the jobs it creates would pay workers a “Basic Public Service Wage.” The following are job positions that could be created:
1. Companions to the elderly, orphans, physically disabled and mental health patients. Each companion would attend classes or seminars in caregiving, and perhaps also attend group discussions with other ELR companions. This position would serve as a preparation for private sector jobs.
2. Public school classroom assistants who tutor in reading, writing and math. Field trip aides for classes on out-of-school excursions. After-school assistants in academic support and/or art and recreation programs.
3. Child care assistants, and Head Start and preschool assistants.
4. Safety monitors and facilitators assigned to public schools, playgrounds, transit hubs, downtown areas.
5. Neighborhood clean-up crews for abandoned properties, and highway clean-up crews.
6. Auxiliary assistants in low-income housing restoration projects such as home insulation projects.
7. Public library assistants.
8. Environmental safety monitors testing for lead paint contamination, water quality, beach contamination. Aides for restoration of ‘super fund’ clean-up sites and other environmental clean-up projects.
9. National and state park improvement teams.
10. Artists, musicians and performers in community beautification projects, and performing in schools.
11. Community and cultural historians.
12. Public assistants collecting information and monitoring compliance with government regulations.
13. Prison education assistants, and liaisons to juvenile detention facilities.
This list is drawn mostly from L. Randall Wray’s book Understanding Modern Money. Wray concludes that,
“The federal government would simply provide as much funding as necessary to let every state and local government hire as many new employees as they desired, with only two constraints: these jobs could not replace current employment, and the could only pay BPSW[basic public service wages] (or at least the federal government could reimburse wages at BPSW rate). Finally a similar offer could be made to qualifying non-governmental non-profit organizations, such as AmeriCorps, VISTA, the Student Community Service Program, the National Senior Service Corps, the Peace Corps, the National Health Service Corps, school districts, and Meals on Wheels.” (12)
Conclusion
Strong popular support exists for a traditional jobs program. In the fall of 2008 Yes! Magazine published a poll indicating that 67% of Americans favor public works projects to create jobs. (13) While the promulgation of a full, universal employment program may have to wait for a swelling of popular support, the groundwork has been done over the years with full employment Congressional legislation, and through scholarly examination. As Harvey points out, such a program would increase national wealth while combating the sources of poverty and increasing social services to the non-affluent.
__________________________________________________________________
Footnotes
1. See njfac.org/unemployment, taken from
Source: http://www.bls.gov/news.release/pdf/empsit.pdf
2. The American People in the Great Depression, David M. Kennedy, Oxford University Press, 1999, page 166
3. 105,000,000 man-years lost, quote from Full Employment Act of 1945, Hearings, page 1104, as cited in The Employment Act of 1946: Some History Notes, G.J. Santoni, U.S. Federal Reserve report., November, 1986
4. Franklin Roosevelt, http://www.teachingamericanhistory.org/library/index.asp?document
=463; and cited in FDR’s Unfinished Revolution, Cass Sunstein
5. United Nations Charter, cited in “Human Rights and Economic Policy Discourse; Taking Economic and Social Rights Seriously), Columbia Human Rights Law Review, Volume 33, Number 2, Spring 2002, Philip Harvey, page 376
6. Full Employment Bill of 1946
7. Senator Robert Taft, cited in Harvey, ibid, page 374
8. Stricker, Frank, Why America Lost the War on Poverty --- And How to Win It,
University of North Carolina Press, 2007, page 134, 135
9. Ibid, Stricker, page 135, Humphrey-Hawkins Bill of 1978
10. William Grieder, The Nation magazine, October 4, 2008 and Robert Pollin, The Nation, November 24, 2008
11. Philip Harvey, ibid, pages 466 to 471.
12. L. Randall Wray, Understanding Modern Money, Edward Elgar Publishing Limited, 1999, page 141
13. Poll, Fortune Magazine poll conducted by Abt SRBI. Jan. 14-16, 2008. N=1,000 adults nationwide. MoE ± 3. ---- www.pollingreport.com/budget.htm.
_________________________________________________________________
Robert Pollin’s jobs program (continuation)
Pollin in his article, The Nation, November 24, 2008, elaborates his proposal, and brings a historical perspective to today’s proposals. This continues the quoted section:
“One way to approach the question is to consider the last time the economy faced a recession of similar severity, which was in 1980-82, during Ronald Reagan’s first term as president. In 1982 gross domestic product contracted by 1.9 percent, the most severe one-year drop in GDP since World War II. Unemployment rose to 9.7 percent that year, which was, again, the highest figure since the ‘30s.
The Reagan administration responded with a massive stimulus program, even though its alleged free-market devotees never acknowledged as much. They preferred calling their program of military expansion and tax cuts for the rich “supply-side economics.” Whatever the label, this combination generated an increase in the federal deficit of about two percentage points relative to the size of the economy at that time. In 1983 GDP rose sharply by 4.5 percent. In 1984 GDP growth accelerated to 7.2 percent, with Reagan declaring the return to “morning in America.” Unemployment fell back to 7.5 percent.
In today’s economy, an economic stimulus equivalent to the 1983 Reagan program would amount to about $300 billion in spending --- roughly double the size of April’s stimulus program, though in line with the high-end figures being proposed in Congress. A stimulus of this size could create nearly 6 million jobs, offsetting the job-shedding forces of the recession.
Of course, the green public-investment stimulus will be much more effective as a jobs program than the Reagan agenda of militarism and upper-income tax cuts. This suggests that an initiative costing somewhat less than $300 billion could be adequate to fight the job losses. But because the long-term benefits to the economy, there is little danger that we would spend too much. Since all these investments are needed,to fight global warming and improve overall productivity, the sooner we move forward, the better. Moreover, under today’s weak job market conditions, we will not run short of qualified workers.”
Friday, October 10, 2008
Full Employment
Full Employment
Leads to a World Without Poverty
Our economy does not provide everyone with work, much less good paying work. Thirty percent are either unemployed (6.1%), working part-time but wanting full-time or discouraged from looking for work (6.4%), or receiving wages that place them at a below-poverty income (16.4%). If you add in the number who are imprisoned, you arrive at nearly one in three working adults either not fully producing or not being rewarded adequately. That is a gross waste. We can do better.
In our economy 28.9% of families with children under 12 cannot afford the necessities of food, housing, medical care, and child care. Millions, some 12.5% of population, fall below the poverty line of $20,000 a year income for a family of four, and others place the percentage at 17.7%. It doesn’t have to be this way. It is not an “act of nature,” or an act of God. It is an act of human design.
Full employment uses the power of government to employ the human resources of the nation regardless of the cyclical ups and downs of private and free enterprise. Full employment offers a route out of poverty and unemployment for anyone willing to apply him or herself. Today a child born to a father who earns $16,000 has a 1 in 20 chance of ever earning more than $55,000 a year. There are millions of children who fall into that category. What do you tell them about the American Dream?
Full employment would tighten up the labor market which would slowly raise the wages of the lowest paid workers. Combined with programs such as the Earned Income Tax Credit, the EITC, wages and incomes at the bottom of the scale would be ramped up without damaging small employers with huge payroll expenses.
A full employment policy would function as a ballast to the economy. It would automatically protect against price inflation. Professor L. Randall Wray makes
this argument in his book Understanding Modern Money.
During the Great Depression the unemployment rate was 17.1% on average for ten years. Economists say that half the productive capacity of the nation was wasted during that time. Private enterprise could not save itself. New Deal programs and finally government spending on the war mobilization fully boosted consumer savings and spending during the 1950s. Today, once agian, we need public spending to get the economy going.
Once again the economy is seriously “out of whack.” Wealth and income are out of balance. The top one percent, or 3 million people, in wealth own more than the bottom 91%, or 273,000,000 people, and the top one percent earns each year more than 60% of the people. The lower half of the nation owns only 2.5% of the national wealth. How can we have a healthy economy with a distribution ratio like that?
Full employment funded by federal government programs provides one method of rebalancing our national top heaviness. It has the promise of eliminating poverty.
Documentation, Full Employment Leads to a World without Poverty
30% are unemployed, part-time employed,etc,
njfac.org/Unemployment rates, drawn from Bureau of Labor Statistics, Dept. of Commerce
28.9% of families with children:
Hardships in America, Heather Bouchey, 2001, EPI, page 2
Child born to father who earns less than $16,000:
State of Working America, 2006/2007, Mishel, Bernstein, Allegretto, EPI, page 95
Understanding Modern Money, L.Randall Wray, The Key to Full Employment and Price Stability, Edward Elgar, publisher, 1998
Poverty percentages:
EPI, epi.org, Snapshot for July 2, 2008.
Official poverty measure undercounts the nation's poor, by Jared Bernstein
http://www.epi.org/content.cfm/webfeatures_snapshots_20080702
Wealth percentages:
U.S. Federal Reserve Bank, Survey of Consumer Finances, Currents and Undercurrents, 2006, Arthur Kennickell
Income percentages:
SWA, 2006,2007, page 79, from a Brookings/Urban Institute report, Microsimulation Model 0305, 2006
Leads to a World Without Poverty
Our economy does not provide everyone with work, much less good paying work. Thirty percent are either unemployed (6.1%), working part-time but wanting full-time or discouraged from looking for work (6.4%), or receiving wages that place them at a below-poverty income (16.4%). If you add in the number who are imprisoned, you arrive at nearly one in three working adults either not fully producing or not being rewarded adequately. That is a gross waste. We can do better.
In our economy 28.9% of families with children under 12 cannot afford the necessities of food, housing, medical care, and child care. Millions, some 12.5% of population, fall below the poverty line of $20,000 a year income for a family of four, and others place the percentage at 17.7%. It doesn’t have to be this way. It is not an “act of nature,” or an act of God. It is an act of human design.
Full employment uses the power of government to employ the human resources of the nation regardless of the cyclical ups and downs of private and free enterprise. Full employment offers a route out of poverty and unemployment for anyone willing to apply him or herself. Today a child born to a father who earns $16,000 has a 1 in 20 chance of ever earning more than $55,000 a year. There are millions of children who fall into that category. What do you tell them about the American Dream?
Full employment would tighten up the labor market which would slowly raise the wages of the lowest paid workers. Combined with programs such as the Earned Income Tax Credit, the EITC, wages and incomes at the bottom of the scale would be ramped up without damaging small employers with huge payroll expenses.
A full employment policy would function as a ballast to the economy. It would automatically protect against price inflation. Professor L. Randall Wray makes
this argument in his book Understanding Modern Money.
During the Great Depression the unemployment rate was 17.1% on average for ten years. Economists say that half the productive capacity of the nation was wasted during that time. Private enterprise could not save itself. New Deal programs and finally government spending on the war mobilization fully boosted consumer savings and spending during the 1950s. Today, once agian, we need public spending to get the economy going.
Once again the economy is seriously “out of whack.” Wealth and income are out of balance. The top one percent, or 3 million people, in wealth own more than the bottom 91%, or 273,000,000 people, and the top one percent earns each year more than 60% of the people. The lower half of the nation owns only 2.5% of the national wealth. How can we have a healthy economy with a distribution ratio like that?
Full employment funded by federal government programs provides one method of rebalancing our national top heaviness. It has the promise of eliminating poverty.
Documentation, Full Employment Leads to a World without Poverty
30% are unemployed, part-time employed,etc,
njfac.org/Unemployment rates, drawn from Bureau of Labor Statistics, Dept. of Commerce
28.9% of families with children:
Hardships in America, Heather Bouchey, 2001, EPI, page 2
Child born to father who earns less than $16,000:
State of Working America, 2006/2007, Mishel, Bernstein, Allegretto, EPI, page 95
Understanding Modern Money, L.Randall Wray, The Key to Full Employment and Price Stability, Edward Elgar, publisher, 1998
Poverty percentages:
EPI, epi.org, Snapshot for July 2, 2008.
Official poverty measure undercounts the nation's poor, by Jared Bernstein
http://www.epi.org/content.cfm/webfeatures_snapshots_20080702
Wealth percentages:
U.S. Federal Reserve Bank, Survey of Consumer Finances, Currents and Undercurrents, 2006, Arthur Kennickell
Income percentages:
SWA, 2006,2007, page 79, from a Brookings/Urban Institute report, Microsimulation Model 0305, 2006
Suggestions for the Meltdown/Bailout
Congressman Stark, Oct.10.2008
Re: Banks, Economic Meltdown
I bet you are busy.
Here are four suggestions that Democrats should bring to the table.
1. Homeowners sacrifice part of future appreciation of home value when they accept reduction in mortgage value. A fair give and take for both sides.
2. Federal government takes a SENIOR claim on failed banks that supersedes bondholder and shareholder claims.
3. Create a central bank with $300 billion, leverage it to $1.8 trillion, take over many insolvent banks. Government operates failed financial institutions until they can be resold to private market. Frank Mankiw’s idea of sharing equity 50 - 50 with private investors in individual banks is not so hot. It’s too slow and piecemeal. Grab them in one fell swoop.
4. Go with Levy Institute and Nouriel Roubini’s plan for public investment in infrastructure.
These are my sources:
1. and 2. John Hussman, Ph.D.
http://www.hussmanfunds.com/wmc/wmc080922.htm
5) To assist homeowners, the bill should allow for a reduction of mortgage principal during foreclosure, but the mortgage lender should also receive a Property Appreciation Right (PAR) that gives the original lender a claim on future property appreciation up to that original mortgage amount. In other words, the homeowner receives a substantially lower mortgage balance and payment burden now, but the lender stands to be made whole over time through property appreciation rather than immediate burdens on the homeowner to make payments.
2) In return for these funds, the government should NOT take equity (which is a subordinate claim and also creates potential conflicts of interest), but instead should take a SENIOR claim that precedes not only the stockholders but also the senior bondholders in the event the company defaults anyway. Congress may need to make some modification to existing bankruptcy law or provide for expedited bondholder approval to do this, but essentially, the government's claim should be subordinate only to customers in the event of default, and senior to both stockholders and bondholders. However, it should also be countable as capital for the purposes of satisfying bank capital requirements.
3. Professor Peter Dorman’s “Plan B” as presented at EconoSpeak.org
http://econospeak.blogspot.com/2008/09/plan-b-how-to-restore-financial-markets.html
4. Nouriel Roubini’s web page -- World Is at Severe Risk
http://www.rgemonitor.com/roubini-monitor/253973/the_world_is_at_severe_risk_of_a_global_systemic_financial_meltdown_and_a_severe_global_depression
Re: Banks, Economic Meltdown
I bet you are busy.
Here are four suggestions that Democrats should bring to the table.
1. Homeowners sacrifice part of future appreciation of home value when they accept reduction in mortgage value. A fair give and take for both sides.
2. Federal government takes a SENIOR claim on failed banks that supersedes bondholder and shareholder claims.
3. Create a central bank with $300 billion, leverage it to $1.8 trillion, take over many insolvent banks. Government operates failed financial institutions until they can be resold to private market. Frank Mankiw’s idea of sharing equity 50 - 50 with private investors in individual banks is not so hot. It’s too slow and piecemeal. Grab them in one fell swoop.
4. Go with Levy Institute and Nouriel Roubini’s plan for public investment in infrastructure.
These are my sources:
1. and 2. John Hussman, Ph.D.
http://www.hussmanfunds.com/wmc/wmc080922.htm
5) To assist homeowners, the bill should allow for a reduction of mortgage principal during foreclosure, but the mortgage lender should also receive a Property Appreciation Right (PAR) that gives the original lender a claim on future property appreciation up to that original mortgage amount. In other words, the homeowner receives a substantially lower mortgage balance and payment burden now, but the lender stands to be made whole over time through property appreciation rather than immediate burdens on the homeowner to make payments.
2) In return for these funds, the government should NOT take equity (which is a subordinate claim and also creates potential conflicts of interest), but instead should take a SENIOR claim that precedes not only the stockholders but also the senior bondholders in the event the company defaults anyway. Congress may need to make some modification to existing bankruptcy law or provide for expedited bondholder approval to do this, but essentially, the government's claim should be subordinate only to customers in the event of default, and senior to both stockholders and bondholders. However, it should also be countable as capital for the purposes of satisfying bank capital requirements.
3. Professor Peter Dorman’s “Plan B” as presented at EconoSpeak.org
http://econospeak.blogspot.com/2008/09/plan-b-how-to-restore-financial-markets.html
4. Nouriel Roubini’s web page -- World Is at Severe Risk
http://www.rgemonitor.com/roubini-monitor/253973/the_world_is_at_severe_risk_of_a_global_systemic_financial_meltdown_and_a_severe_global_depression
Sunday, September 28, 2008
Nationalize or Bailout?
To Buy or to Bail, that is the question.
We do not have to buy "frozen negative assets." For much less taxpayers could
Nationalize the banks, clean up their accounts, and then sell them back to private enterprise. The taxpayers win. Go to Econospeak, find Peter Dorman’s essay “Plan B,” or go to the Financial Times and Martin Wolf’s article “Paulson’s Plan Was Never a True Solution,” Sept. 23, 2008, or go to Paul Krugman’s New York Times article of September 28, or Brad DeLong’s plan, or Nouriel Roubini’s plan at RGEMonitor.com, or John Hussman’s plan at John Hussman Investments. It is complicated. Hussman's article really helped me. There are many who endorse nationalizing the credit system. Peter Dorman's also has a great idea. On September 28, 2008, the Congressional plan does not look right to me.
Sources of information:
Peter Dorman, Plan B
http://econospeak.blogspot.com/2008/09/plan-b-how-to-restore-financial-markets.html
John Hussman, Open Letter to Congress
http://www.hussmanfunds.com/wmc/wmc080922.htm
This American Life, The Giant Pool of Money
http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1242
Swedish Banks Collapse in 1992
OK, Marjie, my sister, I'm in the mood to try to explain the Swedish bank failure of 1992. There was a real estate bubble in Sweden, it popped, and the banks found themselves with so many bad mortgages on their books that the entire bank system failed. Sounds like today. What the Swedes did is what Ralph Nader is now proposing. Nader uses the example of Chrysler Motors. Chrysler came to Congress for a bailout in about 1992. Congress instead took equity control or ownership of Chrysler. For the cash the government got stock and that means control of decisions. The government ran Chrysler for a while, then sold the stock to private money. Eventually the government pocketed a $400 million dollar profit.
In Sweden the government bought the banks, made the banks open their books with the bad loans in them. Government ran the banks, paid off the bad loans, then resold the bank to new investors.
How Investment Banks Work
Our financial investment banks are 3% owned by owners called shareholders or stockholders, that's the equity amount; 17% owned by creditors or bondholders; and 80% owned by depositors, called customers, who have a legal claim to x amount of interest on their deposits. That x amount are the banks liabilities. So is the interest to bondholders. When 3% leverages 100% that's called a 33 times leverage ratio. It's dangerous. If their investments go bad, then they can't pay the 97% their x amount of interest, a demand on profits, and they are forced to declare bankruptcy. Their emergency default plan is to get Secretary Paulson, former head of a Goldman Sachs investment bank and a man who had to place his $500 million savings in a blind trust before he could be appointed as Secretary of Treasury, to go Bush, Congress, the American public, and demand $700,000,000,000.00, no questions asked, no judicial review ever, no oversight. And do it now.
The John Hussman, Ph.D. Plan for Recovery
Here is the analysis of John Hussman, Ph.D. economist and president Hussman Investment Trust.
“It is difficult to believe that the U.S. government is contemplating taking on the bad assets of these institutions at probable taxpayer loss and effectively immunizing the bondholders (and shareholders) of these companies. . . . They are failing because 5% of the assets have gone bad and they over-stretched their capital. At the heart of the problem is “gross leverage” - the ratio of total assets taken on by the company to its shareholder equity. . . . The appropriate solution is not for the government to replace the bad assets with public money, but rather for the government to execute a receivership of the failed institution and immediately conduct a “whole bank” sale - selling the bank’s assets and liabilities as a package, but ex the debt to bondholders, which preserves the ongoing business without loss to customers and counterparties, wipes out shareholder equity, and gives bondholders partial (perhaps even nearly complete) recovery with the proceeds.
The key is to recognize that for nearly all of the institutions currently at risk of failure, there exists a cushion of bondholder capital sufficient to absorb all probable losses, without any need for the public to bear the cost. . . .
The stockholders and bondholders of the company itself should be the first to bear losses, not the public. That is the essence of what a free and fair market, and a responsible government would enforce. The investors in the companies that produced the losses should be accountable for them, and the customers and counterparties should be protected.”
Peter Dorman's Plan B
In Peter Dorman's "Plan B" (See Econospeak.org) he proposes a federal investment of $300 billion to fund a national central bank that would leverage 6 times to $1.8 trillion. (Morgan Stanley bank has a gross leverage ratio of 23.5, and failed banks had higher ratios.) It would buy failed banking and investment institutions, hedge funds, etc, and reconstitute their portfolios of bad loans, and then sell them back to private investors. Simple and direct. I think it superior to Hussman's "whole bank sale" method in that it would bring more transparency to the value of the bad loans. A bailout just perpetuates ineptitude, incompetence and greed.
Big Numbers in Perspective
That $700 billion bailout amount is equal to 5% of the annual national product, GDP (in Sweden they paid 4% to get out of their mess), and equal to about 22% of the annual federal budget. It is also the amount we have paid for five and a half years of war in Iraq. The war is expected to cost $3 trillion. There are $50 trillion in national assets, $14.2 trillion in annual GDP for 2008, $3.3 trillion in annual federal budget, and soon there will be $11.3 trillion in national debt, up from $6 trillion when Bush came into office. Too many numbers, but maybe you get a picture.
How the Mortgage Market Went Biz-zerk
What I think happened is now the most important part. Capitalism is like a game of chicken. You are looking to float a scheme that looks good on the surface, but is flawed. Such is the case with bundled mortgages, called CDOs, collateralized debt obligations. You sell the idea, people invest, you hold your position until you guess that the last fool has invested, then you jump out.
I'm of the opinion that the "negligence" of bank presidents ran this game, fully aware of the shoddiness of their CDOs. Warren Buffett called CDOs "weapons of mass financial destruction." Everyone knew that. They knew.
I heard a program on KALW from This American Life, and they traced the whole process back and forth. The show’s title is called The Great Pool of Money, and it was aired in May, 2008, available on the web for listening. And I listened to it over again.
Mortgage companies were creating and re-selling crappy mortgage loans. They called them Nina loans, meaning, No Income No Assets. One example on the show I can summarize quickly: "Hey buddy, you want a loan for $540,000? Sure. Have you got a job? Sure. Here's the money." That was on the program. They never checked on mortgage applicants incomes.
Then they aggregated the loans into bundles, slicing and dicing them up so that no one knew who owned the mortgage. One small company in upper Manhattan, small buyer of CDOs, had interest in 16 million different mortgages. If there are 70 million home owners, and three quarters have not paid off their mortgages, then there are 53 million outstanding mortgages. This company had a fractional piece of a 30% of U.S. mortgages. This bubble got bigger as mortgage brokers became more brazenly reckless. The bundles were rated by Moodys and Standard and Poors as AAA, the top-most risk free loans. They discovered later that they were analyzing them wrong, but that came later. Of course, the rating agencies were being paid by the investment banks to rate the CDO bundles.
The mess was insured by AIG, who really went out on a limb, but hey, they wanted to make a profit, and what the hell, and now ......taxpayers nationalized that company for $85 billion.
One year prior to costing the taxpayers $85 billion dollars the CEO of the company stated that under no reasonable scenario could his company fail. !! (See Gretchen Morgenson's article in the New York Times, September 28, 2008)
Poison in the Water Bottles
Now, no one wants to buy the mess. And none of the banks will loan to each other. Paul O'Neil, Bush’s first Secretary of Treasury, made the analogy of having 12 bottles of water on the shelf, and you know that one of them has poison in it. What do you do? You throw them all out. That is the source of the credit freeze up that Bush warns against. Banks will not loan to banks because there is poison in the loan portfolios of all the banks. Also the default rate added to the inflation rate is about 11%, and that’s a high interest charge. The real estate market is down. Perhaps 8%, or 5 million, of U.S. mortgage holders and second mortgage holders in a two year period are going to declare bankruptcy, or give up their loan, foreclose, and there is no one to buy the house at its inflated value. Bankruptcies are slated to double in 2008 from last year.
If you are still here, Sweden, bought out the 3% shareholder stake, kept the 17% bondholders happy, and serviced the 80% customers. Paulson does not want the shareholders to take their consequences. Nor does Bush, McCain, Bernanke. And Obama? We’ll see. Nader of course saw it coming some years ago.
On the other hand economists like Paul Krugman, Martin Wolf, Brad DeLong, Peter Dorman at Econospeak who presented a “Plan B” on that web site, Nouriel Roubini at RGEMonitor.com
have endorsed the plan to nationalize the insolvent companies.
Well, this is my imperfect analysis, but I draw it from an article by John P. Hussman, Ph.D. who runs a financial advisory firm. He posted his solution, I downloaded. Now you have it. It is confusing, isn't it. I know if a professional economist looked at it he would shake his head. But not just at my analysis. There are really creative people working on this, and many other problems. I am optimistic. But enough! Send this to someone if you dare.
Ben.
"Love is its own excuse for being." Meher Baba
We do not have to buy "frozen negative assets." For much less taxpayers could
Nationalize the banks, clean up their accounts, and then sell them back to private enterprise. The taxpayers win. Go to Econospeak, find Peter Dorman’s essay “Plan B,” or go to the Financial Times and Martin Wolf’s article “Paulson’s Plan Was Never a True Solution,” Sept. 23, 2008, or go to Paul Krugman’s New York Times article of September 28, or Brad DeLong’s plan, or Nouriel Roubini’s plan at RGEMonitor.com, or John Hussman’s plan at John Hussman Investments. It is complicated. Hussman's article really helped me. There are many who endorse nationalizing the credit system. Peter Dorman's also has a great idea. On September 28, 2008, the Congressional plan does not look right to me.
Sources of information:
Peter Dorman, Plan B
http://econospeak.blogspot.com/2008/09/plan-b-how-to-restore-financial-markets.html
John Hussman, Open Letter to Congress
http://www.hussmanfunds.com/wmc/wmc080922.htm
This American Life, The Giant Pool of Money
http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1242
Swedish Banks Collapse in 1992
OK, Marjie, my sister, I'm in the mood to try to explain the Swedish bank failure of 1992. There was a real estate bubble in Sweden, it popped, and the banks found themselves with so many bad mortgages on their books that the entire bank system failed. Sounds like today. What the Swedes did is what Ralph Nader is now proposing. Nader uses the example of Chrysler Motors. Chrysler came to Congress for a bailout in about 1992. Congress instead took equity control or ownership of Chrysler. For the cash the government got stock and that means control of decisions. The government ran Chrysler for a while, then sold the stock to private money. Eventually the government pocketed a $400 million dollar profit.
In Sweden the government bought the banks, made the banks open their books with the bad loans in them. Government ran the banks, paid off the bad loans, then resold the bank to new investors.
How Investment Banks Work
Our financial investment banks are 3% owned by owners called shareholders or stockholders, that's the equity amount; 17% owned by creditors or bondholders; and 80% owned by depositors, called customers, who have a legal claim to x amount of interest on their deposits. That x amount are the banks liabilities. So is the interest to bondholders. When 3% leverages 100% that's called a 33 times leverage ratio. It's dangerous. If their investments go bad, then they can't pay the 97% their x amount of interest, a demand on profits, and they are forced to declare bankruptcy. Their emergency default plan is to get Secretary Paulson, former head of a Goldman Sachs investment bank and a man who had to place his $500 million savings in a blind trust before he could be appointed as Secretary of Treasury, to go Bush, Congress, the American public, and demand $700,000,000,000.00, no questions asked, no judicial review ever, no oversight. And do it now.
The John Hussman, Ph.D. Plan for Recovery
Here is the analysis of John Hussman, Ph.D. economist and president Hussman Investment Trust.
“It is difficult to believe that the U.S. government is contemplating taking on the bad assets of these institutions at probable taxpayer loss and effectively immunizing the bondholders (and shareholders) of these companies. . . . They are failing because 5% of the assets have gone bad and they over-stretched their capital. At the heart of the problem is “gross leverage” - the ratio of total assets taken on by the company to its shareholder equity. . . . The appropriate solution is not for the government to replace the bad assets with public money, but rather for the government to execute a receivership of the failed institution and immediately conduct a “whole bank” sale - selling the bank’s assets and liabilities as a package, but ex the debt to bondholders, which preserves the ongoing business without loss to customers and counterparties, wipes out shareholder equity, and gives bondholders partial (perhaps even nearly complete) recovery with the proceeds.
The key is to recognize that for nearly all of the institutions currently at risk of failure, there exists a cushion of bondholder capital sufficient to absorb all probable losses, without any need for the public to bear the cost. . . .
The stockholders and bondholders of the company itself should be the first to bear losses, not the public. That is the essence of what a free and fair market, and a responsible government would enforce. The investors in the companies that produced the losses should be accountable for them, and the customers and counterparties should be protected.”
Peter Dorman's Plan B
In Peter Dorman's "Plan B" (See Econospeak.org) he proposes a federal investment of $300 billion to fund a national central bank that would leverage 6 times to $1.8 trillion. (Morgan Stanley bank has a gross leverage ratio of 23.5, and failed banks had higher ratios.) It would buy failed banking and investment institutions, hedge funds, etc, and reconstitute their portfolios of bad loans, and then sell them back to private investors. Simple and direct. I think it superior to Hussman's "whole bank sale" method in that it would bring more transparency to the value of the bad loans. A bailout just perpetuates ineptitude, incompetence and greed.
Big Numbers in Perspective
That $700 billion bailout amount is equal to 5% of the annual national product, GDP (in Sweden they paid 4% to get out of their mess), and equal to about 22% of the annual federal budget. It is also the amount we have paid for five and a half years of war in Iraq. The war is expected to cost $3 trillion. There are $50 trillion in national assets, $14.2 trillion in annual GDP for 2008, $3.3 trillion in annual federal budget, and soon there will be $11.3 trillion in national debt, up from $6 trillion when Bush came into office. Too many numbers, but maybe you get a picture.
How the Mortgage Market Went Biz-zerk
What I think happened is now the most important part. Capitalism is like a game of chicken. You are looking to float a scheme that looks good on the surface, but is flawed. Such is the case with bundled mortgages, called CDOs, collateralized debt obligations. You sell the idea, people invest, you hold your position until you guess that the last fool has invested, then you jump out.
I'm of the opinion that the "negligence" of bank presidents ran this game, fully aware of the shoddiness of their CDOs. Warren Buffett called CDOs "weapons of mass financial destruction." Everyone knew that. They knew.
I heard a program on KALW from This American Life, and they traced the whole process back and forth. The show’s title is called The Great Pool of Money, and it was aired in May, 2008, available on the web for listening. And I listened to it over again.
Mortgage companies were creating and re-selling crappy mortgage loans. They called them Nina loans, meaning, No Income No Assets. One example on the show I can summarize quickly: "Hey buddy, you want a loan for $540,000? Sure. Have you got a job? Sure. Here's the money." That was on the program. They never checked on mortgage applicants incomes.
Then they aggregated the loans into bundles, slicing and dicing them up so that no one knew who owned the mortgage. One small company in upper Manhattan, small buyer of CDOs, had interest in 16 million different mortgages. If there are 70 million home owners, and three quarters have not paid off their mortgages, then there are 53 million outstanding mortgages. This company had a fractional piece of a 30% of U.S. mortgages. This bubble got bigger as mortgage brokers became more brazenly reckless. The bundles were rated by Moodys and Standard and Poors as AAA, the top-most risk free loans. They discovered later that they were analyzing them wrong, but that came later. Of course, the rating agencies were being paid by the investment banks to rate the CDO bundles.
The mess was insured by AIG, who really went out on a limb, but hey, they wanted to make a profit, and what the hell, and now ......taxpayers nationalized that company for $85 billion.
One year prior to costing the taxpayers $85 billion dollars the CEO of the company stated that under no reasonable scenario could his company fail. !! (See Gretchen Morgenson's article in the New York Times, September 28, 2008)
“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.”
— Joseph J. Cassano, a former A.I.G. executive, August 2007
Poison in the Water Bottles
Now, no one wants to buy the mess. And none of the banks will loan to each other. Paul O'Neil, Bush’s first Secretary of Treasury, made the analogy of having 12 bottles of water on the shelf, and you know that one of them has poison in it. What do you do? You throw them all out. That is the source of the credit freeze up that Bush warns against. Banks will not loan to banks because there is poison in the loan portfolios of all the banks. Also the default rate added to the inflation rate is about 11%, and that’s a high interest charge. The real estate market is down. Perhaps 8%, or 5 million, of U.S. mortgage holders and second mortgage holders in a two year period are going to declare bankruptcy, or give up their loan, foreclose, and there is no one to buy the house at its inflated value. Bankruptcies are slated to double in 2008 from last year.
If you are still here, Sweden, bought out the 3% shareholder stake, kept the 17% bondholders happy, and serviced the 80% customers. Paulson does not want the shareholders to take their consequences. Nor does Bush, McCain, Bernanke. And Obama? We’ll see. Nader of course saw it coming some years ago.
On the other hand economists like Paul Krugman, Martin Wolf, Brad DeLong, Peter Dorman at Econospeak who presented a “Plan B” on that web site, Nouriel Roubini at RGEMonitor.com
have endorsed the plan to nationalize the insolvent companies.
Well, this is my imperfect analysis, but I draw it from an article by John P. Hussman, Ph.D. who runs a financial advisory firm. He posted his solution, I downloaded. Now you have it. It is confusing, isn't it. I know if a professional economist looked at it he would shake his head. But not just at my analysis. There are really creative people working on this, and many other problems. I am optimistic. But enough! Send this to someone if you dare.
Ben.
"Love is its own excuse for being." Meher Baba
Saturday, September 20, 2008
Understanding the Crisis
Once I built a tower up to the sun,
Brick and rivet and lime.
Once I built a tower, now it’s done --
Brother, can you spare a dime?
E.Y. Harburg and Jay Gorney, 1932
Written on September 19, 2008, the week after Fannie Mae, Freddie Mac, Merrill Lynch, AIG, Lehman Brothers failed, coming after the failure of Bear Stearns, IndyMac, and Countrywide Mortgage. Also take into account the $160 billion dollar stimulus rebate tax check of the spring of 2008, and the announcement of a $700 billion bailout of the system, Sept. 20, 2008, and a $200 billion inflow of funds from international central banks! For your info: The Federal Reserve ascribes a value to all assets in the U.S.A. The total net worth is over $50 trillion.
The annual GDP, national yearly product, July, 2008, is $14.2 trillion. The Credit Default Swap market, the AIG bailiwick, is over $62 trillion. That sounds like a Ponzi scheme.
See Why Economies Grow by Jeff Madrick, editor of Challenge Magazine, for a complete description of my argument. Download his summary essay available at Challenge Magazine. I am repeating many of his points in this essay।
***************************************************************************
With the top decile (10%) of households in the U.S. owning 70% of all property and earning 50% of yearly national income, the majority of workers cannot generate enough consumer demand to buy the stuff and services they are producing. It’s not too difficult to understand the Crisis. Income and wealth are polarized, and they must be de-polarized or spread around, nationally and to a certain extent globally. Debt, not income, has become a way of life. The Crisis is of low income and wealth for the majority. The shenanigans of the financial market are symptomatic. Fixing the credit markets is not going to plug the hole in the bucket. It will not restore the mortgage market that depends ultimately on good and stable if not rising wages. Capitalism depends on producers and buyers, owners and workers, and, what is now lacking, a fair distribution of money at all levels, not just the profits-go-to-the-top system we have today. The credit market can work perfectly and still the system is going to collapse.
Go to the essay (google) “Striking It Richer” by Emmanuel Saez, professor of economics at University of California. In March, 2008, he described the distribution of income in the U.S. over the past 81 years, especially the past 15. One goes to the graph on page five describing the portion of national income received by the top decile (10%) of earners from 1917 to 2006. One sees a U curve. Between 1942 to 1982 the earnings of this group hovered around 35% of the national total. Needless to say, the economy never did better. Today it has grown to 49.7%. Before 1942 likewise it was higher.
To me this is the key to understanding a vibrant economy, and why we will not have a vibrant economy any time soon. When you take your product or your labor into a marketplace, you’ll get a better price if all the shoppers have much money or discretionary income to spend. When all do better, it self-supports. Look at the graph if you doubt that all are not doing better. Thirty years ago women worked at a rate of 45%, now it’s 60%. Houses cost 2 times the annual median household income, now they cost 4 times. The median income for workers without the wife in the labor force has risen by 0.4% in 25 years. Education, housing, medical care have all gone up. Where’s the income to afford those essentials? The wife has been the savior, but we have run out of wives.
Capitalism has an inherent self-destructive attribute. By seeking to produce lowest unit production cost employers/owners seek to decrease labor expense, thereby decreasing labor’s income. Owners try to lower prices on their products by lowering labor costs, a critical expense output. In a world with third of the human population, 2 billion humans, living on a $2 a day income, productive enterprises are migrating away from high-cost labor markets. So the downward pressure on high-cost labor markets is becoming unbearable. Robert Reich’s book Supercapitalism describes this process. Alan Blinder, professor of economics at Princeton University, has described the likelihood of up to 20 million U.S. jobs going offshore. There are 145 million actively employed in the present labor force, so that would knock off 1 in 7 jobs. Wages are lowering across the board, worldwide, Textile production has moved to China, auto production to Hermosillo, Mexico, Sony produces products in maquiladoras, Satsung builds its mobile phones and Hitashi builds its flat screen TVs and Dell their computers in China at a $0.30 an hour wage rate. Eventually, no one will have income to buy this stuff.
The U.S. will continue to experience declining economic fortunes until it re-achieves the top decile level of income once achieved between 1942 and 1982। In fact, the nation should consider means to achieve both an income distribution curve and a wealth distribution curve। This sounds somewhat anti-capitalistic. But it is the opposite of that. Only by sustaining a moderately high level of income for the majority of workforce participants can the overall economy thrive. (See Jeff Madrick's book Why Ecoonomies Grow)
This therefore begs a nationalistic policy in a world that has been careening away from national controls on any given country’s economy.
As many have pointed out, the minority owner group sequesters the profits of labor and industry. This is called “The Divine Right of Capital.” Owners take your excess labor value and put it in their bank accounts, according to Marx. The majority of workers have no countervailing power to gain those profits. Labor unions once exercised this countervailing power, but no longer. The wealthiest one percent have received over half the economic gains in the past 35 years. And no one has complained.
Consider that under the best historical conditions the top ten percent received a third of the income. Then ask, how much should the next 40 percent receive, and the bottom 50%? It’s not all that academic. It’s a practical problem that provides stability, hope, and a future of reasonable expectation for all, not just the favored top minority.
Unfortunately this type of thinking requires two attributes currently lacking in our modern world. One is an understanding of the necessity of this fair distribution idea, and the other is desire. Simply, there is not the heart quality to wish to achieve it; our culture has a bad case of greed, exclusivity, and disdain. Not to worry, it must and will change. But not without much hue and cry and grief.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++
****************************************************************************
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
To research this topic thoroughly I suggest:
One
The web site of Nouriel Roubini, professor of economics at NYU, RGEMonitor.com. He predicted the financial meltdown on September 7, 2006.
Also see N.Y. Times article “Dr. Doom”, August 15, 2008.
Two
Robert Kuttner provides an essay in the American Prospect, “The Seven Deadly Sins of Deregulation --- and Three Necessary Reforms,” September 17, 2008.
http://www.prospect.org/cs/articles?article=seven_deadly_sins_of_deregulation_and_three_necessary_reforms
Three
The New York Times article, “The Debt Trap”, July 22, 2008, segment titled
“The American Way of Debt,”.
http://www.nytimes.com/interactive/2008/07/20/business/20debt-trap.html
Between 1920 and 2006, only for four years, 1942 to 1945, did national savings exceed debt spending in the U.S. The ratio of savings to debt in 1950 was -- 1 to 4, in 1960 -- 1 to 7, and in 2006 -- 1 to 341. Debt is King, cash and savings are squeezed out of the picture.
Four
An audio interview with law professor Michael Greenberger on Terry Gross’s NPR radio program Fresh Air, September 17, 2008 http://www.npr.org/templates/story/story.php?storyId=94686428
Five
And for a solution, read the book Understanding Modern Money by L. Randall Wray, professor of economics at University of Missouri, who advocates a national jobs program. The federal government would act as the Employer of Last Resort. This would defy the gravity of unrelenting pressure to lower wages and add more workers to the workforce. For $700 billion you could add a lot of needed jobs. Also read my essays What Government Can Do (a short prescription) and There Are Solutions (a long prescription). (http://benL8.blogspot.com) There you will find plans presented by scholars and organizations to deal with the entrenched low-income, low-wealth problem.
"They used to tell me I was building a dream
And so I followed the mob.
When there was earth to plow or guns to bear,
I was always there, right on the job.
They used to tell me I was building a dream
With peace and glory ahead --
Why should I be standing in line, just waiting for bread?
"Once I built a railroad, I made it run,
Made it race against time.
Once I built a railroad, now it's done --
Brother, can you spare a dime?
"Once I built a tower, up to the sun,
brick and rivet and lime.
Once I built a tower, now it's done --
Brother, can you spare a dime?"
“Buddy Can You Spare A Dime”
By E. Y. Harburg and Jay Gorney, 1932
Once I built a tower up to the sun,
Brick and rivet and lime.
Once I built a tower, now it’s done --
Brother, can you spare a dime?
E.Y. Harburg and Jay Gorney, 1932
Written on September 19, 2008, the week after Fannie Mae, Freddie Mac, Merrill Lynch, AIG, Lehman Brothers failed, coming after the failure of Bear Stearns, IndyMac, and Countrywide Mortgage. Also take into account the $160 billion dollar stimulus rebate tax check of the spring of 2008, and the announcement of a $700 billion bailout of the system, Sept. 20, 2008, and a $200 billion inflow of funds from international central banks! For your info: The Federal Reserve ascribes a value to all assets in the U.S.A. The total net worth is over $50 trillion.
The annual GDP, national yearly product, July, 2008, is $14.2 trillion. The Credit Default Swap market, the AIG bailiwick, is over $62 trillion. That sounds like a Ponzi scheme.
See Why Economies Grow by Jeff Madrick, editor of Challenge Magazine, for a complete description of my argument. Download his summary essay available at Challenge Magazine. I am repeating many of his points in this essay।
***************************************************************************
With the top decile (10%) of households in the U.S. owning 70% of all property and earning 50% of yearly national income, the majority of workers cannot generate enough consumer demand to buy the stuff and services they are producing. It’s not too difficult to understand the Crisis. Income and wealth are polarized, and they must be de-polarized or spread around, nationally and to a certain extent globally. Debt, not income, has become a way of life. The Crisis is of low income and wealth for the majority. The shenanigans of the financial market are symptomatic. Fixing the credit markets is not going to plug the hole in the bucket. It will not restore the mortgage market that depends ultimately on good and stable if not rising wages. Capitalism depends on producers and buyers, owners and workers, and, what is now lacking, a fair distribution of money at all levels, not just the profits-go-to-the-top system we have today. The credit market can work perfectly and still the system is going to collapse.
Go to the essay (google) “Striking It Richer” by Emmanuel Saez, professor of economics at University of California. In March, 2008, he described the distribution of income in the U.S. over the past 81 years, especially the past 15. One goes to the graph on page five describing the portion of national income received by the top decile (10%) of earners from 1917 to 2006. One sees a U curve. Between 1942 to 1982 the earnings of this group hovered around 35% of the national total. Needless to say, the economy never did better. Today it has grown to 49.7%. Before 1942 likewise it was higher.
To me this is the key to understanding a vibrant economy, and why we will not have a vibrant economy any time soon. When you take your product or your labor into a marketplace, you’ll get a better price if all the shoppers have much money or discretionary income to spend. When all do better, it self-supports. Look at the graph if you doubt that all are not doing better. Thirty years ago women worked at a rate of 45%, now it’s 60%. Houses cost 2 times the annual median household income, now they cost 4 times. The median income for workers without the wife in the labor force has risen by 0.4% in 25 years. Education, housing, medical care have all gone up. Where’s the income to afford those essentials? The wife has been the savior, but we have run out of wives.
Capitalism has an inherent self-destructive attribute. By seeking to produce lowest unit production cost employers/owners seek to decrease labor expense, thereby decreasing labor’s income. Owners try to lower prices on their products by lowering labor costs, a critical expense output. In a world with third of the human population, 2 billion humans, living on a $2 a day income, productive enterprises are migrating away from high-cost labor markets. So the downward pressure on high-cost labor markets is becoming unbearable. Robert Reich’s book Supercapitalism describes this process. Alan Blinder, professor of economics at Princeton University, has described the likelihood of up to 20 million U.S. jobs going offshore. There are 145 million actively employed in the present labor force, so that would knock off 1 in 7 jobs. Wages are lowering across the board, worldwide, Textile production has moved to China, auto production to Hermosillo, Mexico, Sony produces products in maquiladoras, Satsung builds its mobile phones and Hitashi builds its flat screen TVs and Dell their computers in China at a $0.30 an hour wage rate. Eventually, no one will have income to buy this stuff.
The U.S. will continue to experience declining economic fortunes until it re-achieves the top decile level of income once achieved between 1942 and 1982। In fact, the nation should consider means to achieve both an income distribution curve and a wealth distribution curve। This sounds somewhat anti-capitalistic. But it is the opposite of that. Only by sustaining a moderately high level of income for the majority of workforce participants can the overall economy thrive. (See Jeff Madrick's book Why Ecoonomies Grow)
This therefore begs a nationalistic policy in a world that has been careening away from national controls on any given country’s economy.
As many have pointed out, the minority owner group sequesters the profits of labor and industry. This is called “The Divine Right of Capital.” Owners take your excess labor value and put it in their bank accounts, according to Marx. The majority of workers have no countervailing power to gain those profits. Labor unions once exercised this countervailing power, but no longer. The wealthiest one percent have received over half the economic gains in the past 35 years. And no one has complained.
Consider that under the best historical conditions the top ten percent received a third of the income. Then ask, how much should the next 40 percent receive, and the bottom 50%? It’s not all that academic. It’s a practical problem that provides stability, hope, and a future of reasonable expectation for all, not just the favored top minority.
Unfortunately this type of thinking requires two attributes currently lacking in our modern world. One is an understanding of the necessity of this fair distribution idea, and the other is desire. Simply, there is not the heart quality to wish to achieve it; our culture has a bad case of greed, exclusivity, and disdain. Not to worry, it must and will change. But not without much hue and cry and grief.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++
****************************************************************************
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
To research this topic thoroughly I suggest:
One
The web site of Nouriel Roubini, professor of economics at NYU, RGEMonitor.com. He predicted the financial meltdown on September 7, 2006.
Also see N.Y. Times article “Dr. Doom”, August 15, 2008.
Two
Robert Kuttner provides an essay in the American Prospect, “The Seven Deadly Sins of Deregulation --- and Three Necessary Reforms,” September 17, 2008.
http://www.prospect.org/cs/articles?article=seven_deadly_sins_of_deregulation_and_three_necessary_reforms
Three
The New York Times article, “The Debt Trap”, July 22, 2008, segment titled
“The American Way of Debt,”.
http://www.nytimes.com/interactive/2008/07/20/business/20debt-trap.html
Between 1920 and 2006, only for four years, 1942 to 1945, did national savings exceed debt spending in the U.S. The ratio of savings to debt in 1950 was -- 1 to 4, in 1960 -- 1 to 7, and in 2006 -- 1 to 341. Debt is King, cash and savings are squeezed out of the picture.
Four
An audio interview with law professor Michael Greenberger on Terry Gross’s NPR radio program Fresh Air, September 17, 2008 http://www.npr.org/templates/story/story.php?storyId=94686428
Five
And for a solution, read the book Understanding Modern Money by L. Randall Wray, professor of economics at University of Missouri, who advocates a national jobs program. The federal government would act as the Employer of Last Resort. This would defy the gravity of unrelenting pressure to lower wages and add more workers to the workforce. For $700 billion you could add a lot of needed jobs. Also read my essays What Government Can Do (a short prescription) and There Are Solutions (a long prescription). (http://benL8.blogspot.com) There you will find plans presented by scholars and organizations to deal with the entrenched low-income, low-wealth problem.
"They used to tell me I was building a dream
And so I followed the mob.
When there was earth to plow or guns to bear,
I was always there, right on the job.
They used to tell me I was building a dream
With peace and glory ahead --
Why should I be standing in line, just waiting for bread?
"Once I built a railroad, I made it run,
Made it race against time.
Once I built a railroad, now it's done --
Brother, can you spare a dime?
"Once I built a tower, up to the sun,
brick and rivet and lime.
Once I built a tower, now it's done --
Brother, can you spare a dime?"
“Buddy Can You Spare A Dime”
By E. Y. Harburg and Jay Gorney, 1932
Thursday, August 21, 2008
Justice Revolution in Economics
The Justice Revolution
The wealthiest one percent of U.S. households own more property than the lower 91%, and in 2006 one percent received more income than the lower 60%.
The lower half of U.S. households own 2.5% of the national wealth, and earn 15% of the annual national income.
Really, I need a picture. I wish I had one, and a megaphone.
Nearly 30% of the workforce are unemployed, part-time employed but wishing full-time, discouraged from looking for work, or earning less than poverty wages.
(See njfac.org/unemployment rate.)
Is this an Aristocracy? Why do so few know of this condition?
From 1983 to 2008, 25 years, half of the economic growth has gone to the top one percent.
(Documentation follows in the essay.)
Aristocracy: government by a small, privileged minority.
According to economics professor at University of California Emmanuel Saez:
“Therefore, in the economic expansion of 2002-2006, the top 1 percent captured almost three- quarters of income growth.” “This implies that top 1 percent incomes captured about half of the overall economic growth over the period 1993-2006.”
“Indeed, the top decile share in 2006 (of national income) is equal to 49.7 percent, a level higher than any other year since 1917 and even surpasses 1928, the peak of stock market bubble in the “roaring” 1920s.” (page 2)
The graph on page 5 shows “The Top Decile Income Share in the United States, 1917-2006.” Between 1942 and 1982 the income for the top decile averaged around 35% of national income. Today it is at 49.7%.
(See http://elsa.berkeley.edu/-saez/) (page 2)
--- from the essay Striking It Richer by professor of economics Emmanuel Saez of University of California, March 15, 2008,
According to economics professor Edward Wolff:
“The richest 1 percent accumulated 53 percent of the total gain in marketable wealth over the 1983-1998 period. The next 19 percent received another 39 percent, so that the top quintile accounted for 91 percent of the total growth in wealth, while the bottom 80 percent accounted for a mere 9 percent.” “Meanwhile, the poorest 40 percent lost 76 percent of their (very modest) wealth.”
Professor Edward Wolff, “Where Has All the Money Gone?” Milken Institute Review, Vol. 3, page 37, 2001.
There is injustice around the issue of compensation for work. The injustice is amply demonstrated by the figures for income and wealth distribution. The nation and the world will soon devise new ways to redistribute income and wealth, and we will create methods to insure against such an imbalance happening again. This movement will be the Justice Revolution.
The genesis for our nation’s Great Depression, 1929 to 1942, stemmed from the same imbalance of income and wealth. Marriner Eccles, the Chairman of the Federal Reserve between 1934 and 1948 said that a “giant suction pump” sucked the profits out of the system leaving consumers too little income to purchase the products they manufactured. The storm clouds now gathering are global, just like the global warming problem, and require a global solution.
I am going to try to sketch the outlines of the problem and the solutions. I think they are clear enough, even if my figures are contestable, as any data set will be.
A revolution in awareness and a new public understanding of economics will emerge: Inequality is economically dangerous at worst, and a drag on productivity at best.
Taking a broad view, we see that we organize ourselves into groups to build things and serve each other. Groups are legally enshrined as corporations. Only a minority of the group, the owners, decide on how to distribute the profits from work. People must sell their labor to groups in a competitive bidding that constantly devalues their labor contribution in order to be employed.
Both practices work well up to a point, the point at which labor is undervalued on a national scale, and the workers are impoverished by the owner group.
Wealth: In 2006 (See Currents and Undercurrents, Federal Reserve Bank, U.S. Department of Treasury, Arthur Kennickel, and see my essay A Wealth Tax to Eliminate Poverty) wealth had these national characteristics:
0 to 50 percentile (or half of U.S. households)
average net worth ----- $25,000 -----percentage of national wealth ----- 2.5%
50 to 90 percentile (or 40% of U.S. households)
average net worth ---- $312,500 -----percentage of national wealth ----- 28.0%
91 to 99 percentile (or 9 % of U.S. households)
average net worth --- $2,005,000 --- percentage of national wealth ---- 36.1%
100th percentile (or 1 % of U.S. households)
average net worth --- $14,649,000 --- percentage of national wealth --- 33.4%
The average wealth for the top 1% is 668 times the average of the bottom 50%.
If you converted the wealth into stacks of $100 bills, the bottom 50% stacks would all rise one inch off the ground; the average height of the top 1% would rise nearly 60 feet high, and Bill Gates’ and Warren Buffet’s stacks would approach 30 miles in height.
(See end of essay for another rendition of U.S. wealth.)
Income: In 2006 (See State of Working America, 2006/2007, page 97, quoting the Urban-Brookings Tax Policy Center Microsimulation Model (version 0305-3A) income broke down in quintiles accordingly:
1st 20% ---- 2.5%
2nd 20% ---- 6.4%
3rd 20% ---- 11.4%
4th 20% ---- 19.8%
5th 20% ---- 60.3%
According to inequality.org, quoting a study by Piketty and Saez, "the top 1% of households received 21.8 percent of all pre-tax income in 2005, more than double what that figure was in the 1970s." (The top one percent's share of total income bottomed out at 8.9 percent in 1976.) This is the greatest concentration of income since 1928, when 23.9 percent of all income went to the richest one percent. (Piketty and Saez).
This 21.8% of the national income exceeded the incomes of 60% of U.S. households.
Somehow Americans have to put people above profits. We have to let wages and income soar for the majority. That will be the solution. Perhaps 30% of our households are suffering economic hardship. Profits derived from work must be shared broadly among all who work, not just among a small minority of owners. This process will be the Justice Revolution.
Ownership has monopoly power to distribute profit according to the ownership claims, even though they are a minority of the group who produce the product. Taking the population of the U.S. as a corporation, 44.7% of all income generated by the U.S. economy in 2006 went to the top 10% of households. (See State of Working America, 2006/2007, p.79) The average income will be $585,438 for the 11.4 million households in the top 10% of households in 2008, given the same rates as 2006. (I am asserting that 44.7% of the national income from a GDP of $14.2 trillion dollars (GDP as of July 31, 2008) will be averaged, evenly divided, among the top ten percent.) The median household income will be near to the $48,200 of 2006, a twelve fold difference.
National income is derived from three sources: 64.5% is wages and salaries,; 18.1% is business and capital,; and 17.3% is “other”, mostly pensions and welfare. The top 10% earned on average per household $303,762 in salaries and wages, $188,000 from business and capital sources, and $72,719 in pension income, totaling to $564,461 per household. Of the income derived from business or capital from U.S. corporations 83.4% went the top 10% of American households in 2006.
The U.S. median household income in 2006 was $48.200. (U.S. Census, August 28, 2007, press release) The majority of households derive income from wages and salaries. So to compare, half of households earn less than $48,200 and the top 10% average $564,461, it’s a difference of almost 12 times more, to repeat myself. The ten percent minority also set the wages for 90% of Americans who sell their labor competitively to the group called a corporation. Because of this ownership cum competitive wage system we are impoverishing the majority of workers.
Solutions:
There are simple steps to spread income and wealth. Here are several strategies.
The ultimate solution is to tie the minimum income to the maximum income. The book Good and Greed by Sam Pizzigati presents a strong case for this and posits a ten-times rule. Ten-times or twenty-times, the two income groups are inseparable, tied together. The Inaugural Address by FDR in 1944, as quoted in my essay Economic Rights for the 2 of 7 Who Are Not Making It, explains why economic rights are values consistent with the American sense of independence and justice. During Eisenhower's presidency the top marginal income tax rate was above 90%. We should return to that standard.
We need to progressively raise the minimum wage over a ten to twenty year period. Minimum wage should be a percentage of average production, or GDP. Government should supplement the incomes of low-income workers. Just as payroll deductions are withdrawn from paychecks, payrolls can be increased for low earners. This would relieve the burden from small business owners who otherwise could not stay in business paying higher wages. Eventually the payroll burden would be re-assumed when levels of spending and income were brought up.
We need a larger Earned Income Tax Credit program.
We need to create tax incentives to corporations that pay high wages.
We need to combine a wealth tax with an asset development program for the 30% of Americans who have less than $10,000 in net worth.
We need to target a wealth gradient for the nation and work to accomplish a fair distribution of wealth.
We need public alternatives to monopolistic ownership. The books The Soul of Capitalism by William Greider and America After Capitalism by Gar Alperovitz, and The Ownership Solution by Jeff Gates explore this concept.
The U.S.A. has a $14.2 trillion annual GDP produced by a workforce of 141 million (July 31, 2008). The average product is $100,000 per worker. Yet half the workers earn less than $33,000. As before stated, 64% of the national income goes to wages and salaries, 18% go to capital gains and business ownership, 17% go to “other” being mostly pensions and welfare. So in fact the average wage or salary is 64% of $14.2 trillion, or $9.1 trillion, divided by 141 million workers, or $64,453. So median wage is half the average. Ownership income is 18% of $14.2 trillion, $2.57 trillion.
Income for the top 10% of households:
U.S.A.’s GDP, July 31, 2008, $14.2 trillion
Wages and salaries --- 64.5% of $14.2tr GDP = $9.16 trillion
37.8% to top 10% = $3.46tr, ------------------------$303,726 per household
Business and capital income --- 18.1% of $14.2tr GDP = $2.57 trillion ----
83.4% to top 10% = $2.14tr, -------------------------$188,016 per household
“Other” -- pension and welfare --- 17.3% of $14.2tr GDP = $2.47 trillion
33.6% to top 10% = $0.83tr, ------------------------$72,719 per household
$303,726 Incomes of the top ten percent group
$188,016
$ 72,719
_______
$564,461 average annual income for top 10% of households.
while half of households earn less than $48,200
__________________________________________________________________
total = $14.20trillion GDP, 2008
(Go to Wikipedia and you see a different set of numbers. They place the average for the top 10% around $250,000 annually. Why? I don't know, yet. Probably incomplete data. The US Census also shows income to the top 20% at 50%, not 60% that Urban-Brookings Institution Tax Center places it.)
Assume that half the U.S. workforce earn on average $30,000 (the average is actually lower), then their total payroll expense is $2.13 trillion. Assume everyone earned what half earn, the total payroll expense for the nation would be $4.26 trillion. What would we do with the remaining $10 trillion we produced? We can easily afford to raise the minimum and the median incomes, $6.25 an hour and $16.50 an hour respectively. The mean average production value per worker per hour is $50.00, or $100,000 a year. Why shouldn’t the median and the average be the same amount? Some workers would still earn higher and some lower, but median and average could be approximately the same.
Spartacus and his band of rebellious slaves were not content chained to a Roman slave gang for life. Wage slaves are also at a point of resistance. We are on the verge of a new global understanding that will shift profits back to workers, and that will eliminate slave-like working conditions worldwide. We are prepared to support industries that incorporate economic justice in their charters and accord with our standards of fair treatment.
Part Two --- International Solutions
Towards an International Convergence of Fairness Standards
After solving the domestic economic problem we have to solve the international economic problem. Here are some thoughts on this.
I’m typing on a computer made for Apple Corporation; it’s an iMac. The workers in China have a minimum wage. In 1999 in Shanghai the minimum wage was $0.21 an hour, and in Guangzhou it was $0.26 an hour. For Shanghai, $0.21 an hour works out to $1.68 a day, $8.40 a week, and $436 a year. Should I buy a product made by slaves? Are we all supporting and enabling slavery? Are we the new plantation owners who set the rules for the whip-lashing field bosses? Is this the type of world we wish to promote? It’s quite an irony that a hedge fund director earning $1.7 billion a year will use a computer made with $0.21 an hour labor, or accept a pizza delivered by a man who would have to work 10,000 years to earn what he earned in one year.
New trade treaties can be implemented to enable countries that pay high incomes to workers to receive special trade considerations. I’ll buy my computer from a worker enterprise that pays a respectable income, the government will support my values by enacting trade barriers to slave-like conditions. China-U.S. trade agreements are in danger of my line of thinking.
Paying the Worker -- How to Evaluate Foreign Standards
In this vein I will now try to analyze payment to workers relative to the size of a national economy.
Reading from Michael D. Yates book, Naming the System: Inequality and Work in the Global Economy, we find, (page 111)
“The International Trade Administration, a U.S. government agency that promotes U.S. exports, has made estimates of average manufacturing wage rate, converted to U.S. dollars for a large number of countries. Table 4.6 shows these wage rates, along with the GDP per capita, for the 1997. The countries are listed in the order of their GDP per person, from the lowest to the highest.” And the table follows.
This table will show us how much each country is producing per capita, and how much goes to the workers (at least the manufacturing workers). By comparing the size of a national economy, gdp per capita, with the dollar compensation for labor we should arrive at a picture of just compensation for each nation. I divide gdp per capita into the yearly average wage rate. If a large economy pays a pittance to its workers, the fairness rating is low. If a small economy pays a large compensation, the fairness rating is high.
(I assume all workers work 1,600 hours a year, the average among OECD countries. To make my table more accurate I would have to find the actual number of hours for each country.) Kenya pays the highest rate. Each Kenyan worker earns more per product value relative to per person income. Mexico is the lowest.
Country ------
average hourly wage rate, yearly income -----------
gdp per capita per year ---------
ratio of wage to gdp ------
fairness?
Bangladesh ---- $0.21/hour $336/year ------ $335 -------1 : 1.0 ------- medium
Kenya ----------- $0.49 /hour $784/year ------ $365 ----- 1 : 2.1 ------ highest !
India ---------- $0.19/hour, $304/year ------ $374 -------- 1 : 0.8 ----- medium
South Africa -- $3.81/hour, $6,096/year ----- $3,371 -----1 : 1.8 ----med/high
Poland -------- $1.58, $2,528/year ----------- $3,510 ----- 1 : 0.72 ------- low
Mexico ---- $1.02, $1,632/year ---------- $ 4,250 --------- 1 : 0.38 ------- lowest !
South Korea -- $7.26 , $11,616/year ------$9,620 --------1 : 1.2 ------- med/high
Canada -- $12.13 /hour, $19,408/year -- $20,145 -------- 1 : 0.96 ------- med
Germany --- $10.73/hour, $17,168/year ------- $25,55--- 1 : 0.67 ----- low
Sweden --- $15.19/hour, $24,304/year ---- $25,714 ------1 : 0.95 ----- medium
United States -- $13.17/hour, $21,072/year --- $29,278 ----- 1 : 0.72 --- med/low
Singapore -----$8.72/hour, $13,952/year ------ $31,161 --- 1 : 0.45 ---- low !
Denmark --- $24.54/hour, $39264/year ------ $32,153 ---- 1 : 1.22 -- med/high
Japan ------ $12.36/hour, $19,776/year ------- $33,234 ----1 : 0.60 ------ low
Norway ---- $15.00/hour, $24,000/year ------ $34,840 --- 1 : 0.69 ----- med/low
Switzerland --- $20.07/hour, $32,112/year ---- $35,894 ----- 1 : 0.89 --- medium
Why should we allow goods into our market from a nation-producer that denigrates its workforce by paying very low wages? It is our market place, and we have ideals about economic justice. We can improve conditions for millions by exercising these ideals.
Look at the difference between Denmark and Singapore. In Denmark the individual wage income is high, the gdp is high. The wage in Singapore almost 1/3rd the wage of Denmark, yet gdp per capita is almost the same. Where does the extra amount of income go in Singapore? Not to the workers. In which of the two countries would you chose to work? Why should South Africa pay almost 4 times what Mexico does for wages, and have a gdp per capita lower than Mexico?
The Justice Revolution is about this ratio, how much of the profit from work goes to the worker. Kenya is in the lead, South Africa is next, then Denmark and South Korea. Mexico and Singapore are at the bottom. A popular movement for economic justice would be a tidal shift in U.S. foreign policy. Instead of seeking expanding markets and profits for the U.S.A. we would seek to expand across the world economic equality, self-sufficiency, democracy and justice. The first law of capitalism would be broken, the law that says you must get rich, you must maximize profits. The stock markets of the world know no other law. People power must break it. Only people power can suffice to brake it and then break it.
My figures here may not hold up to scrutiny, especially for Kenya, but that’s not the point. The democratic process should and some day will promote economic fairness, not the elitism it promotes today.
United Nations Human Development Index
The United Nations compares nations with a Human Development Index, it measures “Inequality by income and expenditure” calculating a Gini coefficient for the 177 nations. The U.S. Gini places the U.S. at #78 among nations, though its HDI is #12. Denmark receives a 24.7, the lowest coefficient, followed by most of northern Europe. Norway, Denmark, Germany are in the 20s, France and Italy are in the 30s, the U.S., Singapore, and Mexico are in the 40s, Brazil, Chile, Argentina are in the 50s, Bolivia, Botswana, Lesotho are in the 60s. Haiti is 59.9. A movement that promotes a democratic economy would focus on this measure to ensure economic rights for all.
Some day even corporations could (and should) be rated with a Gini coefficient, and consumers would chose to buy products made with the lowest Gini number. Many U.S. consumers shop at Costco instead of WalMart for this very reason. An independent rating organization could stamp products with the Gini approval rating, like the “organic” foods label. The effect of such a practice would be revolutionary. When consumers buy a Chevy truck they have no idea that the workers in Ciudad Obregon live in homes without running water. If they knew? If you knew that your carrots were harvested by children would you purchase them? This is why the Justice Revolution is such a powerful idea; it’s not limited to government action.
International Minimum Wage
In Richard Duncan’s ground-breaking work, The Dollar Crisis, he advocates for a minimum wage for workers who work in exporting industries. Duncan was an officer of the World Bank working in Thailand and predicted the Asian meltdown in the 1990s.
Proposal: Raise the wage rates of industrial workers employed in export industries in developing countries through coordinated government intervention. At present, factory wages are approximately US$4 per day (2001) or less in most developing countries. An increase of US$1 per day each year would cause the earnings (and purchasing power) of industrial workers to more than triple to US$14 per day over a 10-year period.
. . .
For centuries, as challenges in the economic sphere arose, interventionist solutions were formulated to resolve them. So it must be today. The sudden emergence of a global economy has made it possible to pay industrial workers in the developing world very low wages to produce things for consumption in the economically wealthy parts of the world. Not surprisingly, that development has resulted in very large trade imbalances, as the rich buy more from the poor than the poor buy from the rich. Those trade imbalances have created credit bubbles that have destabilized the global economy and resulted in a rash of systemic banking failures around the world and intense deflationary pressures. The economic challenge facing this generation is that this global economic disequilibrium is about to unwind in a severe deflationary depression unless a new source of aggregate demand can be found to replace the demand that the United States’ overheated economy has been generating up until now but which it is incapable of continuing to generate in the future. Leaving the resolution of this challenge up to market forces is certain to produce a very painful outcome. We can do better than that. Foresight, imagination, courage, and willpower --- in other words, effective leadership --- would do the trick.
(pages 237, 244)
Conclusion
As I have shown elsewhere, the average annual value of production per worker in the U.S.A. in 2008 is over $100,000. That is 141 million full-time workers create $14.2 trillion in value, the GDP for 2008. Yet half earn less than a third this amount, $33,000 of $100,000. Yet employers can rightly claim that paying $25.00 an hour, half the average annual worker production value of $100,000, will put them out of business. Capitalism cannot save itself. Inequality is squeezing economic health to death, and a democratic force must come to the rescue. Workers must grasp the basics of distribution of income so that their consumer demand can keep in step with productive capacity. It is a sensible way to run a global economy, and it can be broken down reasonably nation by nation. Trade treaties can be arranged that promote these values and encourage growth. The workers must democratically assume responsibility for what they produce globally. This democratic movement will fairly distribute the surplus of production, its profits, so as to grow the world’s economy. Then we will see justice and an advancing standard of living for everyone on planet Earth. Instead of ransacking the world for lower labor costs, we can converge our energies and goodwill to build hospitals, universities, roads, sewage and water and energy facilities and bring the amenities of modern technology to everyone. The crisis of the climate and the world economy are twin crises, and we have to take charge, innovate radically, and share our resources equitably.
August 20, 2008
3,174 words -------- See http://benL8.blogspot.com for additional essays.
Wealth Distribution, once more:
50 individuals at the bottom have a nickel (50 times $0.05 = $2.50)
The next 40 each have $0.70 of wealth (40 times $0.70 = $28.00)
(Above the median, you’d think they’d have more than $1.00)
The next 9 each have $4.00 of wealth (nine times $4.00 = $36.00)
The last richest individual has $33.40 (one times $33.40)
Combined, you have $100.00.
For a thorough analysis of a previous Federal Reserve report go to the analysis of Professor Edward Wolff, “Where Has All the Money Gone?” He shows that over a 15 year period, 1983 to 1998, 53% of the gains in wealth were captured by the top one percent of U.S.A. households.
See a slide show from the Urban Institute that reproduces the facts on inequality in the U.S.A.
Rising Economic Inequality and Tax Policy, Len Burman, Senior Fellow, Director, Tax Policy Center, Urban institute
http://www.taxpolicycenter.org/press/upload/inequality%20and%20taxes.Burman.5-07.swf
The wealthiest one percent of U.S. households own more property than the lower 91%, and in 2006 one percent received more income than the lower 60%.
The lower half of U.S. households own 2.5% of the national wealth, and earn 15% of the annual national income.
Really, I need a picture. I wish I had one, and a megaphone.
Nearly 30% of the workforce are unemployed, part-time employed but wishing full-time, discouraged from looking for work, or earning less than poverty wages.
(See njfac.org/unemployment rate.)
Is this an Aristocracy? Why do so few know of this condition?
From 1983 to 2008, 25 years, half of the economic growth has gone to the top one percent.
(Documentation follows in the essay.)
Aristocracy: government by a small, privileged minority.
According to economics professor at University of California Emmanuel Saez:
“Therefore, in the economic expansion of 2002-2006, the top 1 percent captured almost three- quarters of income growth.” “This implies that top 1 percent incomes captured about half of the overall economic growth over the period 1993-2006.”
“Indeed, the top decile share in 2006 (of national income) is equal to 49.7 percent, a level higher than any other year since 1917 and even surpasses 1928, the peak of stock market bubble in the “roaring” 1920s.” (page 2)
The graph on page 5 shows “The Top Decile Income Share in the United States, 1917-2006.” Between 1942 and 1982 the income for the top decile averaged around 35% of national income. Today it is at 49.7%.
(See http://elsa.berkeley.edu/-saez/) (page 2)
--- from the essay Striking It Richer by professor of economics Emmanuel Saez of University of California, March 15, 2008,
According to economics professor Edward Wolff:
“The richest 1 percent accumulated 53 percent of the total gain in marketable wealth over the 1983-1998 period. The next 19 percent received another 39 percent, so that the top quintile accounted for 91 percent of the total growth in wealth, while the bottom 80 percent accounted for a mere 9 percent.” “Meanwhile, the poorest 40 percent lost 76 percent of their (very modest) wealth.”
Professor Edward Wolff, “Where Has All the Money Gone?” Milken Institute Review, Vol. 3, page 37, 2001.
There is injustice around the issue of compensation for work. The injustice is amply demonstrated by the figures for income and wealth distribution. The nation and the world will soon devise new ways to redistribute income and wealth, and we will create methods to insure against such an imbalance happening again. This movement will be the Justice Revolution.
The genesis for our nation’s Great Depression, 1929 to 1942, stemmed from the same imbalance of income and wealth. Marriner Eccles, the Chairman of the Federal Reserve between 1934 and 1948 said that a “giant suction pump” sucked the profits out of the system leaving consumers too little income to purchase the products they manufactured. The storm clouds now gathering are global, just like the global warming problem, and require a global solution.
I am going to try to sketch the outlines of the problem and the solutions. I think they are clear enough, even if my figures are contestable, as any data set will be.
A revolution in awareness and a new public understanding of economics will emerge: Inequality is economically dangerous at worst, and a drag on productivity at best.
Taking a broad view, we see that we organize ourselves into groups to build things and serve each other. Groups are legally enshrined as corporations. Only a minority of the group, the owners, decide on how to distribute the profits from work. People must sell their labor to groups in a competitive bidding that constantly devalues their labor contribution in order to be employed.
Both practices work well up to a point, the point at which labor is undervalued on a national scale, and the workers are impoverished by the owner group.
Wealth: In 2006 (See Currents and Undercurrents, Federal Reserve Bank, U.S. Department of Treasury, Arthur Kennickel, and see my essay A Wealth Tax to Eliminate Poverty) wealth had these national characteristics:
0 to 50 percentile (or half of U.S. households)
average net worth ----- $25,000 -----percentage of national wealth ----- 2.5%
50 to 90 percentile (or 40% of U.S. households)
average net worth ---- $312,500 -----percentage of national wealth ----- 28.0%
91 to 99 percentile (or 9 % of U.S. households)
average net worth --- $2,005,000 --- percentage of national wealth ---- 36.1%
100th percentile (or 1 % of U.S. households)
average net worth --- $14,649,000 --- percentage of national wealth --- 33.4%
The average wealth for the top 1% is 668 times the average of the bottom 50%.
If you converted the wealth into stacks of $100 bills, the bottom 50% stacks would all rise one inch off the ground; the average height of the top 1% would rise nearly 60 feet high, and Bill Gates’ and Warren Buffet’s stacks would approach 30 miles in height.
(See end of essay for another rendition of U.S. wealth.)
Income: In 2006 (See State of Working America, 2006/2007, page 97, quoting the Urban-Brookings Tax Policy Center Microsimulation Model (version 0305-3A) income broke down in quintiles accordingly:
1st 20% ---- 2.5%
2nd 20% ---- 6.4%
3rd 20% ---- 11.4%
4th 20% ---- 19.8%
5th 20% ---- 60.3%
According to inequality.org, quoting a study by Piketty and Saez, "the top 1% of households received 21.8 percent of all pre-tax income in 2005, more than double what that figure was in the 1970s." (The top one percent's share of total income bottomed out at 8.9 percent in 1976.) This is the greatest concentration of income since 1928, when 23.9 percent of all income went to the richest one percent. (Piketty and Saez).
This 21.8% of the national income exceeded the incomes of 60% of U.S. households.
Somehow Americans have to put people above profits. We have to let wages and income soar for the majority. That will be the solution. Perhaps 30% of our households are suffering economic hardship. Profits derived from work must be shared broadly among all who work, not just among a small minority of owners. This process will be the Justice Revolution.
Ownership has monopoly power to distribute profit according to the ownership claims, even though they are a minority of the group who produce the product. Taking the population of the U.S. as a corporation, 44.7% of all income generated by the U.S. economy in 2006 went to the top 10% of households. (See State of Working America, 2006/2007, p.79) The average income will be $585,438 for the 11.4 million households in the top 10% of households in 2008, given the same rates as 2006. (I am asserting that 44.7% of the national income from a GDP of $14.2 trillion dollars (GDP as of July 31, 2008) will be averaged, evenly divided, among the top ten percent.) The median household income will be near to the $48,200 of 2006, a twelve fold difference.
National income is derived from three sources: 64.5% is wages and salaries,; 18.1% is business and capital,; and 17.3% is “other”, mostly pensions and welfare. The top 10% earned on average per household $303,762 in salaries and wages, $188,000 from business and capital sources, and $72,719 in pension income, totaling to $564,461 per household. Of the income derived from business or capital from U.S. corporations 83.4% went the top 10% of American households in 2006.
The U.S. median household income in 2006 was $48.200. (U.S. Census, August 28, 2007, press release) The majority of households derive income from wages and salaries. So to compare, half of households earn less than $48,200 and the top 10% average $564,461, it’s a difference of almost 12 times more, to repeat myself. The ten percent minority also set the wages for 90% of Americans who sell their labor competitively to the group called a corporation. Because of this ownership cum competitive wage system we are impoverishing the majority of workers.
Solutions:
There are simple steps to spread income and wealth. Here are several strategies.
The ultimate solution is to tie the minimum income to the maximum income. The book Good and Greed by Sam Pizzigati presents a strong case for this and posits a ten-times rule. Ten-times or twenty-times, the two income groups are inseparable, tied together. The Inaugural Address by FDR in 1944, as quoted in my essay Economic Rights for the 2 of 7 Who Are Not Making It, explains why economic rights are values consistent with the American sense of independence and justice. During Eisenhower's presidency the top marginal income tax rate was above 90%. We should return to that standard.
We need to progressively raise the minimum wage over a ten to twenty year period. Minimum wage should be a percentage of average production, or GDP. Government should supplement the incomes of low-income workers. Just as payroll deductions are withdrawn from paychecks, payrolls can be increased for low earners. This would relieve the burden from small business owners who otherwise could not stay in business paying higher wages. Eventually the payroll burden would be re-assumed when levels of spending and income were brought up.
We need a larger Earned Income Tax Credit program.
We need to create tax incentives to corporations that pay high wages.
We need to combine a wealth tax with an asset development program for the 30% of Americans who have less than $10,000 in net worth.
We need to target a wealth gradient for the nation and work to accomplish a fair distribution of wealth.
We need public alternatives to monopolistic ownership. The books The Soul of Capitalism by William Greider and America After Capitalism by Gar Alperovitz, and The Ownership Solution by Jeff Gates explore this concept.
The U.S.A. has a $14.2 trillion annual GDP produced by a workforce of 141 million (July 31, 2008). The average product is $100,000 per worker. Yet half the workers earn less than $33,000. As before stated, 64% of the national income goes to wages and salaries, 18% go to capital gains and business ownership, 17% go to “other” being mostly pensions and welfare. So in fact the average wage or salary is 64% of $14.2 trillion, or $9.1 trillion, divided by 141 million workers, or $64,453. So median wage is half the average. Ownership income is 18% of $14.2 trillion, $2.57 trillion.
Income for the top 10% of households:
U.S.A.’s GDP, July 31, 2008, $14.2 trillion
Wages and salaries --- 64.5% of $14.2tr GDP = $9.16 trillion
37.8% to top 10% = $3.46tr, ------------------------$303,726 per household
Business and capital income --- 18.1% of $14.2tr GDP = $2.57 trillion ----
83.4% to top 10% = $2.14tr, -------------------------$188,016 per household
“Other” -- pension and welfare --- 17.3% of $14.2tr GDP = $2.47 trillion
33.6% to top 10% = $0.83tr, ------------------------$72,719 per household
$303,726 Incomes of the top ten percent group
$188,016
$ 72,719
_______
$564,461 average annual income for top 10% of households.
while half of households earn less than $48,200
__________________________________________________________________
total = $14.20trillion GDP, 2008
(Go to Wikipedia and you see a different set of numbers. They place the average for the top 10% around $250,000 annually. Why? I don't know, yet. Probably incomplete data. The US Census also shows income to the top 20% at 50%, not 60% that Urban-Brookings Institution Tax Center places it.)
Assume that half the U.S. workforce earn on average $30,000 (the average is actually lower), then their total payroll expense is $2.13 trillion. Assume everyone earned what half earn, the total payroll expense for the nation would be $4.26 trillion. What would we do with the remaining $10 trillion we produced? We can easily afford to raise the minimum and the median incomes, $6.25 an hour and $16.50 an hour respectively. The mean average production value per worker per hour is $50.00, or $100,000 a year. Why shouldn’t the median and the average be the same amount? Some workers would still earn higher and some lower, but median and average could be approximately the same.
Spartacus and his band of rebellious slaves were not content chained to a Roman slave gang for life. Wage slaves are also at a point of resistance. We are on the verge of a new global understanding that will shift profits back to workers, and that will eliminate slave-like working conditions worldwide. We are prepared to support industries that incorporate economic justice in their charters and accord with our standards of fair treatment.
Part Two --- International Solutions
Towards an International Convergence of Fairness Standards
After solving the domestic economic problem we have to solve the international economic problem. Here are some thoughts on this.
I’m typing on a computer made for Apple Corporation; it’s an iMac. The workers in China have a minimum wage. In 1999 in Shanghai the minimum wage was $0.21 an hour, and in Guangzhou it was $0.26 an hour. For Shanghai, $0.21 an hour works out to $1.68 a day, $8.40 a week, and $436 a year. Should I buy a product made by slaves? Are we all supporting and enabling slavery? Are we the new plantation owners who set the rules for the whip-lashing field bosses? Is this the type of world we wish to promote? It’s quite an irony that a hedge fund director earning $1.7 billion a year will use a computer made with $0.21 an hour labor, or accept a pizza delivered by a man who would have to work 10,000 years to earn what he earned in one year.
New trade treaties can be implemented to enable countries that pay high incomes to workers to receive special trade considerations. I’ll buy my computer from a worker enterprise that pays a respectable income, the government will support my values by enacting trade barriers to slave-like conditions. China-U.S. trade agreements are in danger of my line of thinking.
Paying the Worker -- How to Evaluate Foreign Standards
In this vein I will now try to analyze payment to workers relative to the size of a national economy.
Reading from Michael D. Yates book, Naming the System: Inequality and Work in the Global Economy, we find, (page 111)
“The International Trade Administration, a U.S. government agency that promotes U.S. exports, has made estimates of average manufacturing wage rate, converted to U.S. dollars for a large number of countries. Table 4.6 shows these wage rates, along with the GDP per capita, for the 1997. The countries are listed in the order of their GDP per person, from the lowest to the highest.” And the table follows.
This table will show us how much each country is producing per capita, and how much goes to the workers (at least the manufacturing workers). By comparing the size of a national economy, gdp per capita, with the dollar compensation for labor we should arrive at a picture of just compensation for each nation. I divide gdp per capita into the yearly average wage rate. If a large economy pays a pittance to its workers, the fairness rating is low. If a small economy pays a large compensation, the fairness rating is high.
(I assume all workers work 1,600 hours a year, the average among OECD countries. To make my table more accurate I would have to find the actual number of hours for each country.) Kenya pays the highest rate. Each Kenyan worker earns more per product value relative to per person income. Mexico is the lowest.
Country ------
average hourly wage rate, yearly income -----------
gdp per capita per year ---------
ratio of wage to gdp ------
fairness?
Bangladesh ---- $0.21/hour $336/year ------ $335 -------1 : 1.0 ------- medium
Kenya ----------- $0.49 /hour $784/year ------ $365 ----- 1 : 2.1 ------ highest !
India ---------- $0.19/hour, $304/year ------ $374 -------- 1 : 0.8 ----- medium
South Africa -- $3.81/hour, $6,096/year ----- $3,371 -----1 : 1.8 ----med/high
Poland -------- $1.58, $2,528/year ----------- $3,510 ----- 1 : 0.72 ------- low
Mexico ---- $1.02, $1,632/year ---------- $ 4,250 --------- 1 : 0.38 ------- lowest !
South Korea -- $7.26 , $11,616/year ------$9,620 --------1 : 1.2 ------- med/high
Canada -- $12.13 /hour, $19,408/year -- $20,145 -------- 1 : 0.96 ------- med
Germany --- $10.73/hour, $17,168/year ------- $25,55--- 1 : 0.67 ----- low
Sweden --- $15.19/hour, $24,304/year ---- $25,714 ------1 : 0.95 ----- medium
United States -- $13.17/hour, $21,072/year --- $29,278 ----- 1 : 0.72 --- med/low
Singapore -----$8.72/hour, $13,952/year ------ $31,161 --- 1 : 0.45 ---- low !
Denmark --- $24.54/hour, $39264/year ------ $32,153 ---- 1 : 1.22 -- med/high
Japan ------ $12.36/hour, $19,776/year ------- $33,234 ----1 : 0.60 ------ low
Norway ---- $15.00/hour, $24,000/year ------ $34,840 --- 1 : 0.69 ----- med/low
Switzerland --- $20.07/hour, $32,112/year ---- $35,894 ----- 1 : 0.89 --- medium
Why should we allow goods into our market from a nation-producer that denigrates its workforce by paying very low wages? It is our market place, and we have ideals about economic justice. We can improve conditions for millions by exercising these ideals.
Look at the difference between Denmark and Singapore. In Denmark the individual wage income is high, the gdp is high. The wage in Singapore almost 1/3rd the wage of Denmark, yet gdp per capita is almost the same. Where does the extra amount of income go in Singapore? Not to the workers. In which of the two countries would you chose to work? Why should South Africa pay almost 4 times what Mexico does for wages, and have a gdp per capita lower than Mexico?
The Justice Revolution is about this ratio, how much of the profit from work goes to the worker. Kenya is in the lead, South Africa is next, then Denmark and South Korea. Mexico and Singapore are at the bottom. A popular movement for economic justice would be a tidal shift in U.S. foreign policy. Instead of seeking expanding markets and profits for the U.S.A. we would seek to expand across the world economic equality, self-sufficiency, democracy and justice. The first law of capitalism would be broken, the law that says you must get rich, you must maximize profits. The stock markets of the world know no other law. People power must break it. Only people power can suffice to brake it and then break it.
My figures here may not hold up to scrutiny, especially for Kenya, but that’s not the point. The democratic process should and some day will promote economic fairness, not the elitism it promotes today.
United Nations Human Development Index
The United Nations compares nations with a Human Development Index, it measures “Inequality by income and expenditure” calculating a Gini coefficient for the 177 nations. The U.S. Gini places the U.S. at #78 among nations, though its HDI is #12. Denmark receives a 24.7, the lowest coefficient, followed by most of northern Europe. Norway, Denmark, Germany are in the 20s, France and Italy are in the 30s, the U.S., Singapore, and Mexico are in the 40s, Brazil, Chile, Argentina are in the 50s, Bolivia, Botswana, Lesotho are in the 60s. Haiti is 59.9. A movement that promotes a democratic economy would focus on this measure to ensure economic rights for all.
Some day even corporations could (and should) be rated with a Gini coefficient, and consumers would chose to buy products made with the lowest Gini number. Many U.S. consumers shop at Costco instead of WalMart for this very reason. An independent rating organization could stamp products with the Gini approval rating, like the “organic” foods label. The effect of such a practice would be revolutionary. When consumers buy a Chevy truck they have no idea that the workers in Ciudad Obregon live in homes without running water. If they knew? If you knew that your carrots were harvested by children would you purchase them? This is why the Justice Revolution is such a powerful idea; it’s not limited to government action.
International Minimum Wage
In Richard Duncan’s ground-breaking work, The Dollar Crisis, he advocates for a minimum wage for workers who work in exporting industries. Duncan was an officer of the World Bank working in Thailand and predicted the Asian meltdown in the 1990s.
Proposal: Raise the wage rates of industrial workers employed in export industries in developing countries through coordinated government intervention. At present, factory wages are approximately US$4 per day (2001) or less in most developing countries. An increase of US$1 per day each year would cause the earnings (and purchasing power) of industrial workers to more than triple to US$14 per day over a 10-year period.
. . .
For centuries, as challenges in the economic sphere arose, interventionist solutions were formulated to resolve them. So it must be today. The sudden emergence of a global economy has made it possible to pay industrial workers in the developing world very low wages to produce things for consumption in the economically wealthy parts of the world. Not surprisingly, that development has resulted in very large trade imbalances, as the rich buy more from the poor than the poor buy from the rich. Those trade imbalances have created credit bubbles that have destabilized the global economy and resulted in a rash of systemic banking failures around the world and intense deflationary pressures. The economic challenge facing this generation is that this global economic disequilibrium is about to unwind in a severe deflationary depression unless a new source of aggregate demand can be found to replace the demand that the United States’ overheated economy has been generating up until now but which it is incapable of continuing to generate in the future. Leaving the resolution of this challenge up to market forces is certain to produce a very painful outcome. We can do better than that. Foresight, imagination, courage, and willpower --- in other words, effective leadership --- would do the trick.
(pages 237, 244)
Conclusion
As I have shown elsewhere, the average annual value of production per worker in the U.S.A. in 2008 is over $100,000. That is 141 million full-time workers create $14.2 trillion in value, the GDP for 2008. Yet half earn less than a third this amount, $33,000 of $100,000. Yet employers can rightly claim that paying $25.00 an hour, half the average annual worker production value of $100,000, will put them out of business. Capitalism cannot save itself. Inequality is squeezing economic health to death, and a democratic force must come to the rescue. Workers must grasp the basics of distribution of income so that their consumer demand can keep in step with productive capacity. It is a sensible way to run a global economy, and it can be broken down reasonably nation by nation. Trade treaties can be arranged that promote these values and encourage growth. The workers must democratically assume responsibility for what they produce globally. This democratic movement will fairly distribute the surplus of production, its profits, so as to grow the world’s economy. Then we will see justice and an advancing standard of living for everyone on planet Earth. Instead of ransacking the world for lower labor costs, we can converge our energies and goodwill to build hospitals, universities, roads, sewage and water and energy facilities and bring the amenities of modern technology to everyone. The crisis of the climate and the world economy are twin crises, and we have to take charge, innovate radically, and share our resources equitably.
August 20, 2008
3,174 words -------- See http://benL8.blogspot.com for additional essays.
Wealth Distribution, once more:
50 individuals at the bottom have a nickel (50 times $0.05 = $2.50)
The next 40 each have $0.70 of wealth (40 times $0.70 = $28.00)
(Above the median, you’d think they’d have more than $1.00)
The next 9 each have $4.00 of wealth (nine times $4.00 = $36.00)
The last richest individual has $33.40 (one times $33.40)
Combined, you have $100.00.
For a thorough analysis of a previous Federal Reserve report go to the analysis of Professor Edward Wolff, “Where Has All the Money Gone?” He shows that over a 15 year period, 1983 to 1998, 53% of the gains in wealth were captured by the top one percent of U.S.A. households.
See a slide show from the Urban Institute that reproduces the facts on inequality in the U.S.A.
Rising Economic Inequality and Tax Policy, Len Burman, Senior Fellow, Director, Tax Policy Center, Urban institute
http://www.taxpolicycenter.org/press/upload/inequality%20and%20taxes.Burman.5-07.swf
Tuesday, August 19, 2008
Sunday, August 17, 2008
Bottom Half of U.S. Owns २.५% of Wealth
The Bottom Half Own 2.5%,
and Earn 15% Yearly:
Wealth and Income Distribution in the U.S.A.
Economic Apartheid in America is the title of a very good book, and summarizes this essay’s title. Here I provide a snapshot of income and wealth distribution to make it easy to remember. Without obscurity of massive details we can think about improving the basic reality.
Wealth
Wealth is fairly simple. Wealth distributes or breaks down into four sectors, 1/3, 1/3, 1/3, and zero. The four sectors are the top 1%, the next 9%, the percentiles 50 to 90, and below the 50th percentile. The zero goes to the bottom 50% who only have 2.5%, of the national net worth, really almost unnoticeable among the other sectors. Total wealth is a little above $50 trillion in 2006, which is $17 trillion per 1/3rd.
The ratio between the bottom 50% and the top 50% is 1 to 39, or 2.5% to 97.5%. The average household wealth is about $440,000 per household. The median is $78,000 (SWA, 2006/2007, p255). The average wealth for the bottom 50% is $22,000. For the top 50% the average is $855,000. The ratio for bottom and top averages is 1 to 39.
The ratio between the lower 50% and the top 1% is almost 1 to 700. The lowest half on average own $22,000, the top $15,400,000. (In my essay “A Wealth Tax to Eliminate Poverty” I show clearer data on this point. Remember that if you convert all the wealth into $100 dollar bills, half the households will have a stack one inch high, the top one percent will have stacks 60 feet high, and Bill Gates and Warren Buffett will have stacks 30 miles high.)
It is so lop-sided that we don’t need to know any more. See Currents and Undercurrents, 2006, Federal Reserve Board, Report of Consumer Finances, Arthur Kennickell. Also look at the lcurve.org for a graphic.
In a just society what should the ratios be? Quintile {1 -- 5%}, {2 -- 15%}, {3 -- 20%}, {4 -- 25%}, {5 -- 35%}. I have no idea. But the present ratios and distributions are not condusive to security for millions of working people.
Warren Buffett is quoted saying, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning।” (Quoted in The Big Squeeze, Steven Greenhouse, p.41)
(Source: Federal Reserve report Currents and Undercurrents, Arthur Kennickell, २००६, available online)
Income
Let’s explain how the income is distributed so that you and I can remember.
Line 100 people up and prepare 100 pennies. You give the first 20 3 cents, then the next 20 7 cents, then the next 20 10 cents. That’s 20 cents and 60 people have walked by. Then the next 20, #s 60-80, you give them each a penny or 20 cents total. That’s 80 people walking by, 40 cents distributed. And finally the last twenty, you give the first 19 2 cents a piece, and the final person gets 20 cents. So it’s 3, 7, 10, 20, 40, 20 for six sections, the last section being one person, the top one percent. Did I lose 2 cents there? That’s my 2 cents.
That’s as simple as I can get it। The ratio between the bottom 50% and the top 50% is 15% to 85%, hard to believe but true. Look at sections one, two and three again and you’ll see why it’s only 15%. (Data comes from State of Working America, 2006/2007, p 79) What should our income quintiles be? But our today’s 3, 7, 10, 20, 60 income distribution is ridiculous.
(Source: State of Working America, 2006/2007, page 79, Mishel, Bernstein, Allegretti, Economic Policy Institute publication)
A Little More
This data comes from page 79 of SWA, 2006,2007, a condensation of a report by the Brookings Institute and the Urban Institute for 2006. The highlights I want to bring out are the following: 64.5% of the national income derives from salaries and wages. Business and capital income make up 18%. And “other income” makes up 17.3%. The owners concentrate in the top income groups. Ownership could be widespread. Why could not ownership be spread among the majority of the households? Concentrated ownership will someday be an anachronism, it seems unhealthy for a society, especially when Congressional elections and many other elections are controlled by donations to candidates. Hughie Long and Eugene Debs are the only names who advocated this common sense idea.
The “other income,” 17.3% of all income, is listed, and maybe in order of amount, as Social Security income, pension income, IRA distributions, unemployment compensation, TANF, workers’ compensation, energy assistance, veterans’ benefits, SSI, disability income, child support and alimony received.
So wages equals 65%, ownership equals 18%, “other” equals 17%।
(Divide the GDP, $14.2 trillion, by the number of workers, 141 million actually working, and arrive at a mean average of $100,000 per worker, yet median income (half earn less) is below $33,000.)
This data is very complicated, but it originates from the Urban-Brookings Institute Tax Policy Center। The ratios are still amazing, the bottom 50% receiving 15% of all income, the top half receiving 85%; and for wealth the ratio is 1 to 40. Amazing. As far as mobility out of one’s income or wealth quintile, again very complicated analysis, but page 95 states that “a son whose father is at the 10th percentile ($16,000 a year) has a 5% chance of earning over $55,000 per year.” If you were 30 years old in 1954 by 1974 your income had increased by 119%. If you were 30 years old in 1984 your income had increased in 2004 by 63%. (SWA, ‘06-’07, p 95, 103)
Confused yet? The main picture should be very clear.
and Earn 15% Yearly:
Wealth and Income Distribution in the U.S.A.
Economic Apartheid in America is the title of a very good book, and summarizes this essay’s title. Here I provide a snapshot of income and wealth distribution to make it easy to remember. Without obscurity of massive details we can think about improving the basic reality.
Wealth
Wealth is fairly simple. Wealth distributes or breaks down into four sectors, 1/3, 1/3, 1/3, and zero. The four sectors are the top 1%, the next 9%, the percentiles 50 to 90, and below the 50th percentile. The zero goes to the bottom 50% who only have 2.5%, of the national net worth, really almost unnoticeable among the other sectors. Total wealth is a little above $50 trillion in 2006, which is $17 trillion per 1/3rd.
The ratio between the bottom 50% and the top 50% is 1 to 39, or 2.5% to 97.5%. The average household wealth is about $440,000 per household. The median is $78,000 (SWA, 2006/2007, p255). The average wealth for the bottom 50% is $22,000. For the top 50% the average is $855,000. The ratio for bottom and top averages is 1 to 39.
The ratio between the lower 50% and the top 1% is almost 1 to 700. The lowest half on average own $22,000, the top $15,400,000. (In my essay “A Wealth Tax to Eliminate Poverty” I show clearer data on this point. Remember that if you convert all the wealth into $100 dollar bills, half the households will have a stack one inch high, the top one percent will have stacks 60 feet high, and Bill Gates and Warren Buffett will have stacks 30 miles high.)
It is so lop-sided that we don’t need to know any more. See Currents and Undercurrents, 2006, Federal Reserve Board, Report of Consumer Finances, Arthur Kennickell. Also look at the lcurve.org for a graphic.
In a just society what should the ratios be? Quintile {1 -- 5%}, {2 -- 15%}, {3 -- 20%}, {4 -- 25%}, {5 -- 35%}. I have no idea. But the present ratios and distributions are not condusive to security for millions of working people.
Warren Buffett is quoted saying, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning।” (Quoted in The Big Squeeze, Steven Greenhouse, p.41)
(Source: Federal Reserve report Currents and Undercurrents, Arthur Kennickell, २००६, available online)
Income
Let’s explain how the income is distributed so that you and I can remember.
Line 100 people up and prepare 100 pennies. You give the first 20 3 cents, then the next 20 7 cents, then the next 20 10 cents. That’s 20 cents and 60 people have walked by. Then the next 20, #s 60-80, you give them each a penny or 20 cents total. That’s 80 people walking by, 40 cents distributed. And finally the last twenty, you give the first 19 2 cents a piece, and the final person gets 20 cents. So it’s 3, 7, 10, 20, 40, 20 for six sections, the last section being one person, the top one percent. Did I lose 2 cents there? That’s my 2 cents.
That’s as simple as I can get it। The ratio between the bottom 50% and the top 50% is 15% to 85%, hard to believe but true. Look at sections one, two and three again and you’ll see why it’s only 15%. (Data comes from State of Working America, 2006/2007, p 79) What should our income quintiles be? But our today’s 3, 7, 10, 20, 60 income distribution is ridiculous.
(Source: State of Working America, 2006/2007, page 79, Mishel, Bernstein, Allegretti, Economic Policy Institute publication)
A Little More
This data comes from page 79 of SWA, 2006,2007, a condensation of a report by the Brookings Institute and the Urban Institute for 2006. The highlights I want to bring out are the following: 64.5% of the national income derives from salaries and wages. Business and capital income make up 18%. And “other income” makes up 17.3%. The owners concentrate in the top income groups. Ownership could be widespread. Why could not ownership be spread among the majority of the households? Concentrated ownership will someday be an anachronism, it seems unhealthy for a society, especially when Congressional elections and many other elections are controlled by donations to candidates. Hughie Long and Eugene Debs are the only names who advocated this common sense idea.
The “other income,” 17.3% of all income, is listed, and maybe in order of amount, as Social Security income, pension income, IRA distributions, unemployment compensation, TANF, workers’ compensation, energy assistance, veterans’ benefits, SSI, disability income, child support and alimony received.
So wages equals 65%, ownership equals 18%, “other” equals 17%।
(Divide the GDP, $14.2 trillion, by the number of workers, 141 million actually working, and arrive at a mean average of $100,000 per worker, yet median income (half earn less) is below $33,000.)
This data is very complicated, but it originates from the Urban-Brookings Institute Tax Policy Center। The ratios are still amazing, the bottom 50% receiving 15% of all income, the top half receiving 85%; and for wealth the ratio is 1 to 40. Amazing. As far as mobility out of one’s income or wealth quintile, again very complicated analysis, but page 95 states that “a son whose father is at the 10th percentile ($16,000 a year) has a 5% chance of earning over $55,000 per year.” If you were 30 years old in 1954 by 1974 your income had increased by 119%. If you were 30 years old in 1984 your income had increased in 2004 by 63%. (SWA, ‘06-’07, p 95, 103)
Confused yet? The main picture should be very clear.
Subscribe to:
Posts (Atom)