On July 30, 2013, Michael Snyder writes on the EconomicCollaspeBlog.com:
What is America going to look like when the middle class is dead? Once upon a time, the United States has the largest and most vibrant middle class in the history of the world.
There just aren’t as many “middle class jobs” as there used to be. In fact, just six years ago there were about six million more full-time jobs in our economy than there are right now. Those jobs are being replaced by part-time jobs and temp jobs. The number one employer in America today is Wal-Mart and the number two employer in America today is a temp agency (Kelly Services). But you can’t support a family on those kinds of jobs. We live at a time when incomes are going down but the cost of living just keeps going up. As a result, the middle class in America is being absolutely shredded and the ranks of the poor are steadily growing. The following are 44 facts about the death of the middle class that every American should know…
1. According to one recent survey, “four out of five U.S. adults struggle with joblessness, near poverty or reliance on welfare for at least parts of their lives”.
2. The growth rate of real disposable personal income is the lowest that it has been in decades.
3. Median household income (adjusted for inflation) has fallen by 7.8 percent since the year 2000.
4. According to the U.S. Census Bureau, the middle class is taking home a smaller share of the overall income pie than has ever been recorded before.
5. The home ownership rate in the United States is the lowest that it has been in 18 years.
6. It is more expensive to rent a home in America than ever before. In fact, median asking rent for vacant rental units just hit a brand new all-time record high.
7. According to one recent survey, 76 percent of all Americans are living paycheck to paycheck.
8. The U.S. economy actually lost 240,000 full-time jobs last month, and the number of full-time workers in the United States is now about 6 million below the old record that was set back in 2007.
9. The largest employer in the United States right now is Wal-Mart. The second largest employer in the United States right now is a temp agency (Kelly Services).
10. One out of every ten jobs in the United States is now filled through a temp agency.
11. According to the Social Security Administration, 40 percent of all workers in the United States make less than $20,000 a year.
12. The ratio of wages and salaries to GDP is near an all-time record low.
13. The U.S. economy continues to trade good paying jobs for low paying jobs. 60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.
14. Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.
15. At this point, one out of every four American workers has a job that pays $10 an hour or less.
16. According to one study, between 1969 and 2009 the median wages earned by American men between the ages of 30 and 50 declined by 27 percent after you account for inflation.
17. In the year 2000, about 17 million Americans were employed in manufacturing. Today, only about 12 million Americans are employed in manufacturing.
18. The United States has lost more than 56,000 manufacturing facilities since 2001.
19. The average number of hours worked per employed person per year has fallen by about 100 since the year 2000.
20. Back in the year 2000, more than 64 percent of all working age Americans had a job. Today, only 58.7 percent of all working age Americans have a job.
21. When you total up all working age Americans that do not have a job, it comes to more than 100 million.
22. The average duration of unemployment in the United States isnearly three times as long as it was back in the year 2000.
23. The percentage of Americans that are self-employed has steadily declined over the past decade and is now at an all-time low.
24. Right now there are 20.2 million Americans that spend more than half of their incomes on housing. That represents a 46 percent increase from 2001.
25. In 1989, the debt to income ratio of the average American family was about 58 percent. Today it is up to 154 percent.
26. Total U.S. household debt grew from just 1.4 trillion dollars in 1980 to a whopping 13.7 trillion dollars in 2007. This played a huge role in the financial crisis of 2008, and the problem still has not been solved.
27. The total amount of student loan debt in the United States recently surpassed the one trillion dollar mark.
28. Total home mortgage debt in the United States is now about 5 times larger than it was just 20 years ago.
29. Back in the year 2000, the mortgage delinquency rate was about 2 percent. Today, it is nearly 10 percent.
30. Consumer debt in the United States has risen by a whopping1700% since 1971, and 46% of all Americans carry a credit card balance from month to month.
31. In 1999, 64.1 percent of all Americans were covered by employment-based health insurance. Today, only 55.1 percent are covered by employment-based health insurance.
32. One study discovered that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt, and according to a report published in The American Journal of Medicine medical bills are a major factor inmore than 60 percent of all personal bankruptcies in the United States.
33. Each year, the average American must work 107 days just to make enough money to pay local, state and federal taxes.
34. Today, approximately 46.2 million Americans are living in poverty.
35. The number of Americans living in poverty has increased by more than 15 million since the year 2000.
36. Families that have a head of household under the age of 30 have a poverty rate of 37 percent.
37. At this point, approximately 25 million American adults are living with their parents.
38. In the year 2000, there were only 17 million Americans on food stamps. Today, there are more than 47 million Americans on food stamps.
39. Back in the 1970s, about one out of every 50 Americans was on food stamps. Today, about one out of every 6.5 Americans is on food stamps.
40. Right now, the number of Americans on food stamps exceeds the entire population of the nation of Spain.
41. According to one calculation, the number of Americans on food stamps now exceeds the combined populations of “Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.”
42. At this point, more than a million public school students in the United States are homeless. This is the first time that has ever happened in our history. That number has risen by 57 percent since the 2006-2007 school year.
43. According to U.S. Census data, 57 percent of all American children live in a home that is either considered to be “poor” or “low income”.
44. In the year 2000, the ratio of social welfare benefits to salaries and wages was approximately 21 percent. Today, the ratio of social welfare benefits to salaries and wages is approximately 35 percent.
And not only is the middle class being systematically destroyed right now, we are also destroying the bright economic future that our children and our grandchildren were supposed to have by accumulating gigantic mountains of debt in their names.
As the unemployment problems and income inequality get seriously worse throughout the United States and industrialized countries, the question becomes what are the solutions. Thus far, the solutions put forth are based on one-factor human labor economics, which completely ignores the economic reality that tectonic shifts in the technologies of production are destroying jobs and devaluing the worth of labor in the industrialized world overall.
The United States and the industrialized world are headed for more personal and family economic turmoil and social unrest and upheaval due to a faulty economic system that fosters the concentration of wealth-creating, income-generating productive capital––the ownership of non-human productive assets such as land, structures, machines, super-automation, robotics, digital computerized operations, etc. The system is faulty because economic growth is based on individual and family accumulations of savings, with ALL economic growth dependent on past savings “invested” to further concentrate productive capital ownership. This will leave the vast majority, or the so-called 99 percent, who are propertyless as related to ownership of productive capital assets, unable to save sufficiently and instead struggling to sustain their livelihood month to month as they fear for job loss and having to rely on taxpayer-supported government welfare.
To change the rules and reform the system, the outcome of FUTURE policies must be to facilitate financing economic growth with “FUTURE SAVINGS,” and simultaneously create new capitalist owners of wealth-creating, income-generating productive capital assets. “FUTURE SAVINGS” are profits used to repay loans for new capital formation and acquisition of existing productive assets by new owners.
Critically, we must recognized that Americans or the world’s people do not have to be desolute as the FUTURE unfolds due to fundamentally flawed assumptions in modern economics and finance: that new capital formation is impossible without first cutting consumption, saving, then investing. The result has been that the “supply of loanable funds” derived from past savings determines the “production possibilities curve” or rate at which economic growth can be sustained.
If we are to achieve the goal of general affluence for every human being, the first requirement is to increase progressively the total amount of the income to be shared. This requires increased production, not redistribution, in order to generate incomes that would be distributed according to market principles. This is the ONLY means to promote a fuller utilization of our productive facilities and a consequent progressive increase in the aggregate income to be available for distribution, and to which increasing quantities of newly created products and services would become available to everyone.
“Distribution is the trouble” said Dr, Harold G. Moulton, President of Brookings Institution, in his 1935 book The Formation Of Capital. Said Moulton, “The way our income is distributed provides an inadequate purchasing power for our full production.”
The problem that needs to be addressed is threefold: 1) how to increase production, 2) how to distribute the income from production according to relative inputs of human labor and non-human productive capital, and 3) how to distribute that income to people who will use the increased income for consumption, not reinvestment (to further concentrate ownership of wealth-creating, income-generating productive capital assets).
In today’s economic world, economic progress and the financing of FUTURE growth is subject to a reliance on existing accumulations of savings that result from cutting current consumption. Income, instead of being spent on consumption to keep production and consumption in balance, is diverted into savings. With fewer customers purchasing what is produced, the financing of FUTURE productive capital used to produce new products and services becomes less financially feasible.
As is noted in the forward to the “new edition” of Moulton’s The Formation Of Capital, written by my colleagues at the Center for Economic and Social Justice (www.cesj.org):
Financial feasibility refers to the ability of new capital investment to pay for itself out of the future earnings of the new capital. This is an application of Adam Smith’s observation that the purpose of production is consumption. A standard test to determine whether a company should invest in new capital is whether there is sufficient consumer demand to support the marketable good or service to produced. In other words, why add a new productive asset or tool if no one is going to buy (consume) what it produces? Thus, as Moulton emphasizes in this book, demand for capital is derived from consumer demand.
Worse, from the standpoint of political and social stability, using past savings to finance growth accelerates, and provides a rationalization for maintaining and even increasing, concentrated ownership of the means of production. It also leads to expanding the role and powers of the State in a desperate effort to stabilize the economy. The rights of private property (i.e., the rights to the fruits of, and control over, what one owners) are taken from individual citizens and transferred to the State.
The resulting problem is that to the extent that the savings investment approach increases production the economic benefit accrues to the current owners productive capital wealth, who re-invest rather than consume a growing portion of their capital incomes, which concentrates ownership even further. Effectively, this approach provides the savings for additional investment in new productive capital assets, instead of providing the means to satisfy people’s material needs and wants. The result has been to create a global ownership class of very rich people who reinvest most of their capital incomes to further their concentrated wealth ownership.
Supporters of this economic paradigm argue that no income generated by capital should be used for consumption. Instead, all capital income should be reinvested in ways that create new capital, thereby providing jobs for the masses until full employment is reached. Thus, most economist today assume that there is virtually no other means whereby most people can earn an income except in the form of wages paid for their labor.
Moulton summarized the results of his investigation:
We find no support whatever for the view that capital expansion and the extension of the roundabout process of production may be carried on for years at a time when consumption is declining. [i.e., when saving is taking place.] The growth of capital and the expansion of consumption are virtually concurrent phenomena.
Of course, the supporters of the arcane economic paradigm ignore and are oblivious to the reality that tectonic shifts in the technologies of production are destroying jobs and devaluing the worth of labor as increasingly the non-human productive capital factor is replacing the need for labor in the production of products and services needed and wanted by society.
Understanding Moulton is absolutely necessary in order for us to set out on a path to prosperity, opportunity, and economic justice. The question that Moulton poses is what should be the source of financing for capital formation?
Moulton answered the question as follows:
A new and even more dynamic factor has come into the process of capital formation through the evolution of modern commercial banking. The development of the banking system, with its ability to manufacture credit, has served to render funds immediately available for the purposes of capital creation without the necessity of waiting upon the slower processes of accumulating funds from individual savings. The result is to sustain productivity at a higher level and to facilitate the growth of new capital at a more rapid rate than would otherwise have occurred.
In other words, as noted in the forward to Moulton’s new edition:
New capital formation can be financed by using money created by the commercial banking system. It is not necessary (and even counterproductive from the standpoint of economic equilibrium and sustainable growth) to rely on cutting consumption to generate the savings necessary to finance new capital formation.
Following Moulton’s reasoning, the remedy to an economic downturn is thus not to manipulate the money supply by increasing government debt or bailing out failed speculation (which, among other problems, distorts the operation of the market and places a debt burden on future taxpayers). Nor is it an effective, long term solution to stimulate demand by subsidizing artificial job creation, legislating higher minimum wages, ignoring market forces in collective bargaining negotiations, imposing price controls or supports (especially on interest rates), or redistributing existing wealth. Such measures may be necessary at times as expedients, but are ultimately self-defeating. Instead, what is needed is to:
1) Increase production by financing new capital formation through the extension of bank credit backed by the present value of the future stream of income to be generated by the new capital.
2) Get the profits generated by the new capital into the hands of all workers and citizens who will use it for consumption, not reinvestment in additional new capital.
In reading The Formation Of Capital, Moulton fails to list as a possible solution widespread, direct private ownership of the means of production. As noted by my colleagues at CESJ in the forward to the new edition:
A broad base of owners and diversity in the forms of productive capital owned would ensure that all workers and as many people as possible, including the disabled and poorest of the poor, would receive income generated by many forms of advancing technology, and would use the income from their capital for consumption rather than reinvestment.
Moulton’s omission was addressed by Louis Kelso and Mortimer J. Adler in their 1958 book The Capitalist Manifesto. Kelso, a successful corporate lawyer and self-schooled economist, was also an expert in finance who later formed a leading investment banking firm specializing in his financial mechanism, the Employee Stock Ownership Plan (ESOP) and other methods for financing worker and broader citizen individual ownership in productive capital. In the late 1960s, I had the privilege to form with Kelso Agenda 2000 Incorporated, a consulting firm, whose advocacy mission was to provide financial mechanism for economic development based on the Kelsonian principles underlying the binary economic or two-factor model of economic reality.
The Capitalist Manifesto made the moral and economic case for widespread ownership of the means of production. How to finance widespread productive capital ownership was spelled out in the assertive subtitle to The New Capitalists: A Proposal To Free Economic Growth From The Slavery Of Savings. (Both books are available as free downloads at http://www.kelsoinstitute.org/pdf/cm-entire.pdf and http://www.kelsoinstitute.org/pdf/nc-entire.pdf, respectively.)
Not surprisingly, the source that Kelso and Adler referenced most often in The New Capitalists is Moulton’s The Formation Of Capital. Moulton showed how the extension of commercial bank credit can be used to finance capital formation without requiring existing accumulations of savings. What Kelso and Adler argued as the solution to the income distribution problem was to democratize access to direct, private ownership of new capital formation.
Over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. Advancing technology continues to rapidly take over the vast bulk of production from human labor.
As pointed out in the forward to the new edition of The Formation Of Capital, Moulton demonstrated that the chief means by which capital formation is financed in a modern industrial and financial economy is commercial bank credit backed by the present value of the future stream of income to be generated by the newly formed capital assets themselves with the collateralization requirement of existing accumulations of savings (already owned assets). To this Kelso added that 1) the ownership of the new capital financed with what he called “pure credit” must be broadly owned, and 2) the universal collateralization requirement could be met by using capital credit insurance and reinsurance in place of existing accumulations of savings.
Kelso’s refinements of Moulton’s work underpin a comprehensive national economic program called “Capital Homesteading” (http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm), developed by the Center for Economic and Social Justice. The “Capital Homestead Act,” which gives a legislative framework to the program is a way to implement both Moulton’s insights and Kelso’s solution to the income distribution problems of a modern economy. It would empower every American man, woman and child, including the poorest of the poor, with equal opportunity and the social tools to acquire, control and enjoy the fruits of productive corporate capital assets. Based on a new socio-economic paradigm that some have called the “Just Third Way” (as the moral alternative to traditional capitalism and socialism), Capital Homesteading also offers a template that can be tailored to eradicate poverty and economic powerlessness in the poorest of nations around the globe. (see the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797.)
The means by which Capital Homesteading proposes to achieve its goals involve major restructuring of America’s tax system and Federal Reserve policies (see abridged http://foreconomicjustice.org/?p=8942). These are designed to lift artificial barriers to more equitable distribution of FUTURE corporate capital and stimulate faster growth rates of private sector investment. Capital Homesteading would shift primary national income maintenance policies from inflationary artificial wage increases and unproductive income redistribution expedients, to market-based ownership sharing and dividend incomes.
The proposed Capital Homestead Act would reform monetary institutions and tax laws to democratize access to capital (productive) credit. By universalizing citizen access to direct capital ownership by making available “interest-free” productive credit and new, asset-backed money for increasing production, Capital Homesteading would close the power and opportunity gap between today’s haves and have-nots, without taking away property from today’s owners.
As my colleagues conclude in the forward to the new edition:
Moulton’s insights in The Formation Of Capital suggest a practical and morally sound basis for restructuring the financial system to enable money to be created as needed to finance sustainable economic growth. World poverty can be eradicated, something not possible within the current economic paradigms, which rely on existing accumulations of savings to finance capital formation. With the specter of another economic depression looming over today’s world, and with the widening gap between “haves” and “have-nots” threatening social harmony, there is no real justification for delaying the implementation of a program of Capital Homesteading to establish and maintain a free, prosperous and just economy for all.
For other related articles, please see my article “Democratic Capitalism And Binary Economics: Solutions For A Troubled Nation and Economy” at http://foreconomicjustice.org/11/economic-justice/.
Also please see my article “The Absent Conversation: Who Should Own America?” published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/who-should-own-america_b_2040592.html and by OpEd News at http://www.opednews.com/articles/THE-Absent-Conversation–by-Gary-Reber-130429-498.html
Also see “The Path To Eradicating Poverty In America” at http://www.huffingtonpost.com/gary-reber/the-path-to-eradicating-p_b_3017072.html and “The Path To Sustainable Economic Growth” at http://www.huffingtonpost.com/gary-reber/sustainable-economic-growth_b_3141721.html. Also see “Second Income Plan” at http://www.huffingtonpost.com/gary-reber/second-income-plan_b_3625319.html
Also see the article entitled “The Solution To America’s Economic Decline” at http://www.nationofchange.org/solution-america-s-economic-decline-1367588690 and “Education Is Critical To Our Future Societal Development” at http://www.nationofchange.org/education-critical-our-future-societal-development-1373556479. And also “Achieving The Green Economy” at http://www.nationofchange.org/achieving-green-economy-1373980790. Also see it complete with the footnotes at http://foreconomicjustice.org/?p=9082.
