We should Learn from the New Deal

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

by Ben Leet, January, 2010

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

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

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

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

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

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

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

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

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

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

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

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

Sources:

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

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

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

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

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

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

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

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