On March 30, 2015, Robert Reich writes:
Many believe that poor people deserve to be poor because they’re lazy. As Speaker John Boehner has said, the poor have a notion that “I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around.”
In reality, a large and growing share of the nation’s poor work full time – sometimes sixty or more hours a week – yet still don’t earn enough to lift themselves and their families out of poverty.
It’s also commonly believed, especially among Republicans, that the rich deserve their wealth because they work harder than others.
In reality, a large and growing portion of the super-rich have never broken a sweat. Their wealth has been handed to them.
The rise of these two groups – the working poor and non-working rich – is relatively new. Both are challenging the core American assumptions that people are paid what they’re worth, and work is justly rewarded.
Why are these two groups growing?
The ranks of the working poor are growing because wages at the bottom have dropped, adjusted for inflation. With increasing numbers of Americans taking low-paying jobs in retail sales, restaurants, hotels, hospitals, childcare, elder care, and other personal services, the pay of the bottom fifth is falling closer to the minimum wage.
At the same time, the real value of the federal minimum wage is lower today than it was a quarter century ago.
In addition, most recipients of public assistance must now work in order to qualify.
Bill Clinton’s welfare reform of 1996 pushed the poor off welfare and into work. Meanwhile, the Earned Income Tax Credit, a wage subsidy, has emerged as the nation’s largest anti-poverty program. Here, too, having a job is a prerequisite.
The new work requirements haven’t reduced the number or percentage of Americans in poverty. They’ve just moved poor people from being unemployed and impoverished to being employed and impoverished.
While poverty declined in the early years of welfare reform when the economy boomed and jobs were plentiful, it began growing in 2000. By 2012 it exceeded its level in 1996, when welfare ended.
At the same time, the ranks of the non-working rich have been swelling. America’s legendary “self-made” men and women are fast being replaced by wealthy heirs.Six of today’s ten wealthiest Americans are heirs to prominent fortunes. The Walmart heirs alone have more wealth than the bottom 40 percent of Americans combined.
Americans who became enormously wealthy over the last three decades are now busily transferring that wealth to their children and grand children.
The nation is on the cusp of the largest inter-generational transfer of wealth in history. A study from the Boston College Center on Wealth and Philanthropy projects a total of $59 trillion passed down to heirs between 2007 and 2061.
As the French economist Thomas Piketty reminds us, this is the kind of dynastic wealth that’s kept Europe’s aristocracy going for centuries. It’s about to become the major source of income for a new American aristocracy.
The tax code encourages all this by favoring unearned income over earned income.
The top tax rate paid by America’s wealthy on their capital gains – the major source of income for the non-working rich – has dropped from 33 percent in the late 1980s to 20 percent today, putting it substantially below the top tax rate on ordinary income (36.9 percent).
If the owners of capital assets whose worth increases over their lifetime hold them until death, their heirs pay zero capital gainstaxes on them. Such “unrealized” gains now account for more than half the value of assets held by estates worth more than$100 million.
At the same time, the estate tax has been slashed. Before George W. Bush was president, it applied to assets in excess of $2 million per couple at a rate of 55 percent. Now it kicks in at $10,680,000 per couple, at a 40 percent rate.
Last year only 1.4 out of every 1,000 estates owed any estate tax, and the effective rate they paid was only 17 percent.
Republicans now in control of Congress want to go even further. Last Friday the Senate voted 54-46 in favor of a non-binding resolution to repeal the estate tax altogether. Earlier in the week, the House Ways and Means Committee also voted for a repeal. The House is expected to vote in coming weeks.
Yet the specter of an entire generation doing nothing for their money other than speed-dialing their wealth management advisers is not particularly attractive.
It puts more and more responsibility for investing a substantial portion of the nation’s assets into the hands of people who have never worked.
It also endangers our democracy, as dynastic wealth inevitably and invariably accumulates political influence and power.
Consider the rise of both the working poor and the non-working rich, and the meritocratic ideal on which America’s growing inequality is often justified doesn’t hold up.
That widening inequality – combined with the increasing numbers of people who work full time but are still impoverished and of others who have never worked and are fabulously wealthy – is undermining the moral foundations of American capitalism.
http://robertreich.org/post/115067624170
What is consistently unbelievable, to me, about Robert Reich is his utter obliviousness to REALLY getting to the core reason why the rich are rich. Why because, as should be obvious, they OWN wealth-creating, income-producing capital assets, the essential underlying valuation of corporate America.
The truly rich do not have to WORK because their capital assets are working for them. I say it’s great to be unemployed if you can afford it. And the truly rich can do just that. Now think about it, wouldn’t it be logical to then conclude that if the truly rich are affluent because they OWN productive capital assets, shouldn’t our solutions to wealth and income inequality embrace broadening productive capital ownership? To me this makes perfect sense, but you won’t find Robert Reich advocating such solutions. Instead its always some form of taking from the rich through tax extraction and redistributing their earned wealth to those who are not capital OWNERS, and must slave at a job they hate or choose a life of welfare slavery and poverty or charity slavery.
Reich notes that the ranks of the non-working rich have been swelling, and that America’s legendary “self-made” men and women are fast being replaced by wealthy heirs––their children and grandchildren who they want to leave their fortunes to.
While its true that a minority of Americans became enormously wealthy over the last three decades, Reich digresses from addressing the reason for this and instead points to the tax code, which encourages all this by favoring unearned income over earned income. By Reich using the term “unearned income” he shows his lack of understanding and recognition that there are two independent factors of production: people (labor workers who contribute manual, intellectual, creative and entrepreneurial work) and capital (land; structures; infrastructure; tools; machines; robotics; computer processing; certain intangibles that have the characteristics of property, such as patents and trade or firm names; and the like which are owned by people individually or in association with others). Reich sadly fails to recognize that fundamentally, economic value is created through human and non-human contributions.
Reich is correct in stating: “If the owners of capital assets whose worth increases over their lifetime hold them until death, their heirs pay zero capital gainstaxes on them. Such ‘unrealized’ gains now account for more than half the value of assets held by estates worth more than$100 million.” Reich believes that capital property value increases are “unrealized” even though such value gains are a function of the free market valuations assessed. Reich also states that the estate tax has been slashed.
Reich goes on to argue the damage this is creating for America in terms of widening wealth and income inequality but stops short of suggesting solutions (other than his normal redistribution approach).
One REAL solution to the estate tax would be, as a substitute for inheritance and gift taxes, a transfer tax should be imposed on the recipients whose holdings exceeded $1 million, thus encouraging the super-rich to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes, teachers, health workers, police, other public servants, military veterans, artists, the poor and the disabled. Such a solution should be a component of comprehensive tax and monetary reform with the objective of broadening capital OWNERSHIP, and preventing further concentrated OWNERSHIP by an already wealthy capital OWNERSHIP class. I capitalize “OWNERSHIP” because we, as a nation, and “professors” such as Robert Reich, NEVER put any emphasis on broadening capital OWNERSHIP.
Because of Reich’s obliviousness to the “broadening capital OWNERSHIP” solution, he continues to create scenarios that are entirely misleading.
Reich continues to believe that peoples’ work and the “non-work” of the rich is not fair. But Reich has been wrong when he has stated that “the productivity workers are generating, most of it is going to the top.” The reality is that we, as humans are limited in our facilities to turn our work, and that the real productivity gains are due to the addition of the non-human means of production such as tools, machines, super-automation, robotics, computerized operations, etc.
Reich has cited in previous writings that “around the time Ronald Reagan was president, wages flattened out, adjusted for inflation, yet productivity continued to go up.” Productivity continued to go up because productive capital has increasingly become the source of the world’s economic growth, but rather than become the source of added property ownership incomes for all, it has been allowed to concentrate among a wealthy capital OWNERSHIP class.
Reich has often stated that: “The real problem is you’ve had growth, you have productivity, but none of that has trickled down to average workers.” Why do you think that is? Obviously, because the system is rigged to ensure that the formation of ALL new capital will be OWNED by the already wealthy capital OWNERSHIP class.
Binary economist Louis Kelso, who Reich should study, was quoted as saying, “Conventional wisdom says there is only one way to earn a living, and that’s to work. Conventional wisdom effectively treats capital (land, structures, machines, and the like) as though it were a kind of holy water that, sprinkled on or about labor, makes labor more productive. Thus, if you have a thousand people working in a factory and you increase the design and power of the machinery so that one hundred men can now do what a thousand did before, conventional wisdom says, ‘Voila! The productivity of the labor has gone up 900 percent!’ I say ‘hogwash.’ All you’ve done is wipe out 90 percent of the jobs, and even the remaining ten percent are probably sitting around pushing buttons. What the economy needs is a way of legitimately getting capital ownership into the hands of the people who now don’t have it.”
The role of physical productive capital is to do ever more of the work, which produces wealth and thus income to those who OWN productive capital assets. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. They strive to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role. This, in turn, is devaluing the worth of labor.
To put this in context, it is important to briefly note that throughout history, man has endeavored to overpower the time constraints of physical and biological processes. It is now an accepted fact that accelerated scientific and technological innovation has directly led to a speeding up of all physical and social processes in the name of progress. The competitive drive has led to a frantic national and international chase for more efficient methods of production and distribution. In the process, humanity has pushed to develop even more powerful technologies, on the assumption that such technologies would accomplish more and more useful functions in less time. The results have been a dramatic acceleration of change and concentration of wealth ownership.
Reich has consistently blamed the lack of economic growth on low wages and wage stagnation as the key problem in the economy. That’s because he is a one-factor labor thinker and can ONLY see earning an income through a job. NEVER does Reich address solutions that would empower EVERY child, woman, and man to acquire personal and joint OWNERSHIP in future wealth-creating, income-producing capital assets simultaneously with the growth of the economy. This is the REAL means to create “customers with money” and purchasing power for EVERY citizen to support what the economy is capable of producing.
Unbelievably, Reich has stated that: “The goal is not growth per se. The goal is good jobs with good wages.” Reich is stuck in the JOBS ONLY restraint on his thinking and completely ignores the solution to CREATE OWNERS of future wealth-creating, income-producing capital asset growth.
If Reich really wants to reform the system and provide equal opportunity to EVERY citizen to become empowered as owners to meet their own consumption needs with government more dependent on economically independent citizens, Reich would be advocating for the passage of the proposed Capital Homestead Act (see http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/. See http://cesj.org/learn/capital-homesteading/ and http://cesj.org/…/uploads/Free/capitalhomesteading-s.pdf).
