Ex-Labor Secretary Robert Reich Warns About Income Inequality (Demo)

Reich is promoting his new documentary, Inequality for All, which looks at the income gap and possible solutions. The film premiered at the Sundance Film Festival in January and won a special jury prize in the documentary competition for director Jacob Kornbluth.

The following is an edited transcript:

Income inequality has been an issue for a number of years. Is there a danger that the middle class will shrink and fewer people will be able to climb the economic ladder?

It’s already happened. When you have so much income and wealth concentrated at the very top — and the top couldn’t possibly spend all that they’re gathering even if they wanted to — they’re the ones where almost all the saving is coming from. Under normal circumstances it would be good, but their savings are going around the world wherever they can get the highest return.

And 70% of the American economy is based on consumer spending; consumers just don’t have the ability to continue to buy what the economy is capable of producing. So what do you get? You get an economy that is struggling to get out of the worst economic downturn since the Great Depression.

Will this growing income inequality eventually lead to social unrest?

It’s already close to that. The tea party movement and the Occupy movement both grew out of the bailout of Wall Street and the sense that many Americans had then and still have now that the game is rigged, that the wealthy have managed to get the goodies, the tax breaks and the subsidies. Now the tea partiers, their ire is directed at government, and the Occupiers directed their ire at Wall Street, but the underlying lack of confidence, distrust, anger is there right now.

The anger is coming directly out of the frustrations of so many people that they’re working harder than ever, and they’re still living essentially paycheck to paycheck.

The AFL-CIO is forming alliances with non-union groups to reverse labor’s waning power. The labor federation says its aim is to boost the middle class and improve wages. What’s the future of organized labor?

The idea of making new political alliances is very smart and very important. In terms of organizing workers, low-wage workers at big-box retailers like Wal-Mart, retail fast-food chains like McDonald’s, all of these workers need to be unionized. They’re working at very low wages. They’re not teenagers anymore. These people are mostly adults. One-third of them are heads of households. They cannot function at a minimum wage or near a minimum wage and the rest of us end up subsidizing their employers through food stamps, in effect, and other safety nets.

We need to raise the minimum wage. If we had a minimum wage that was the minimum wage we had in 1968 adjusted for inflation, it’d be $10.40 today.

How will record-low labor force participation rates affect future economic growth?

One reason the labor market participation rates are going down is baby boomers are retiring. A more serious concern is that you’ve got an increasing number of people who are too discouraged to look for work, not because they get generous safety nets and benefits. They want to work, would make more money in jobs. The conservative view that they are all sitting on their hands and collecting welfare is wrong. For one thing, we don’t have welfare anymore. For another, there are now still three people looking for work for every job that exists. If they get discouraged looking for work it’s not because they have welfare, it’s because there’s not a job for them.

Does company loyalty still exist?

Loyalty is dead. Nobody is looking to long term. It means every employee is looking over his or her shoulder at “What am I going to do if I get sacked? What is my next job?” Everybody is assuming they’re a free agent and they can’t count on their employer.

And it means that the employer can’t count on the employees to go that extra mile. The employer can’t count on the employee to work harder than that employee feels is justified by the salary and compensation and overall possibilities in that company. This is the story of the private sector in America today. Part of this is the relentless demands of Wall Street for short-term quarterly performance that has driven almost every company in this direction.

What will the U.S. economy look like in five years?

If nothing changes, the median household is going to get poorer and poorer. The wealth of the country is going to get more concentrated, which is not only bad for the economy but it’s also bad for society. I’m optimistic only because this has happened before in American history. If we were having this conversation in 1900, we would say much the same thing. Then two years later, we’d be in the middle of the Progressive movement. How did we get from 1900 to the Progressive era? Frankly nobody knows how social upheaval of a positive kind that we have in the United States occurs, but it’s very simple: We get to a gap where our ideal — equal opportunity, a society based on merit — is so far away from the reality that people just can’t stand it anymore.

Robert Reich’s intentions are good as is his assessment of the deplorable American condition, but the solutions he proposes are “redistributive” rather than “distributive” measures that do not solve the invisible structural problems inherent in our economic system.

Reich speaks of income and wealth concentration but does not clarify and identify OWNERSHIP CONCENTRATION of wealth-creating, income-generatiing productive capital assets as the problem.

Reich speaks of a “rigged game” but does not address how it is rigged by limiting acquisition of productive capital ONLY to those who have “savings” to invest.

Reich advocates for workers to be unionized but for JOBS pay and benefits, and fails to advocate for a transformation to producers’ ownership union movement.

Reich acknowledges that there are less job opportunities but does not address the reality that tectonic shifts in the technologies of production are destroying jobs (which increases the number of people seeking employment) and devaluing the worth of labor.

Reich points to the employer’s worry that  employees can’t be counted on to work harder than what the employee feels is justified by the salary and compensation and overall possibilities in that company, yet does not advocate for employee ownership participation in their companies, which would incentivize employees.

Reich acknowledges that if nothing changes the  the median household is going to get poorer and poorer and the wealth of the country is going to get more concentrated, but continues to advocate policies that are “redistributive” rather than providing opportunities for EVERY citizen to become an OWNER of FUTURE productive capital asset wealth.

Robert Reich needs to support the The Just Third Way movement, which seeks to reform the  system and put us on a corrective course to prosperity, opportunity, and economic justice. The Agenda of The Just Third Way Movement is described at http://foreconomicjustice.org/?p=5797.

Reich, who is an academic, should become aware of The Just Third Way movement and the proposed Capital Homestead Act.

While Reich in his numerous writings outlines the problems and the persistent continuance of structural problems that are the cause of economic turmoil and poverty in the United States he fails to address the REAL reason the middle and working class is getting poorer and the unemployed underclass is facing hopelessness and dwindling resources to cope with basic existence needs: they are propertyless with ONLY their diminishing labor worth to sell in an era in which tectonic shifts in the technologies of production are destroying jobs and devaluing the worth of labor.

This deplorable situation will worsen as long as we as a nation fail to address the REAL problem at the root of income inequality and poverty––CONCENTRATED OWNERSHIP of wealth-creating, income-generating productive capital. And to advocate for solutions that systematically broaden private sector individual ownership of the formation of FUTURE productive capital investment to empower EVERY American to accumulate over time a viable capital trust (super-IRA) portfolio of stock in diversified companies and reap the full earnings payout of corporate earnings as dividend income to support their livelihood and retirement. Such economic policy will build REAL financial security and wealth assets that generate annual incomes.

What we need now is a “New Deal” that implements the Capital Homestead Act (http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm).

Under Capital Homesteading, basic economic laws and policies would be established to encourage national and regional central banks, corporate and individual income tax authorities, commercial and investment bankers, capital credit insurance and reinsurance companies, industrial and community development planners, legal and enterprise financial advisors, and unions to determine the nation’s annual needs for the quantity of money needed for accelerated rates of sustainable private sector capital growth and asset transfers to provide every citizen personal access to capital credit repayable with the projected future pretax earnings of the acquired capital. As a substitute for collateral required in today’s financial world to cover potential risk of default of borrowing for investment, the new system would cover risk through capital credit insurance financed by the pooling of risk premiums on all borrowed money. Today, only those who have already accumulated large accumulations of past savings have been able provide such collateral. This explains why the rich will continue to automatically accumulate most of the growth capital in the world, unless Capital Homesteading reforms are adopted.

Every man, woman and child from birth to death could be granted periodically (at least annually) an equal allotment of asset-backed and privately insured capital credit repayable with future savings. Such credit would flow through a personal tax-sheltered (super-IRA) capital asset accumulation trust or “Capital Homestead Account” (CHA) established at a local bank. Citizens, supported by licensed advisors, would have informed choices of investing their allotment of capital credit in shares in an enterprise for which a member of the family works, or public utilities, for-profit Citizens Land Banks or Community Land Cooperatives, and other approved categories of commercial, industrial or agricultural enterprises willing to issue full dividend payout shares.

Once the citizen’s offer (in the form of a bill of exchange) to purchase new shares on insured capital credit is scrutinized and the offer accepted by the commercial bank lender, the bank would create asset-backed money for the purchase of the shares. The bank,would create the new asset-backed money by approving a promissory note or establishing a deposit account for the borrower. The bank’s discount rate would cover all bank service charges and the risk premium. Commercial banks would immediately rediscount all Capital Homesteading loans for new currency supplied interest-free (since no past savings would be involved) by the Federal Reserve central bank, thereby ensuring an elastic, stable, uniform and private sector asset-backed currency to replace the currencies that in most of the world are backed almost entirely by non-productive government debt.

Growth of the economy would no longer be subject to the slavery of past savings, reflected in the subtitle of the second book by binary economist Louis Kelso and philosopher Mortimer Adler. (The New Capitalists: A Proposal To Free Economic Growth From The Slavery Of [Past] Savings.) Kelso based his revolutionary “pure credit” approach to financing broad-based capital ownership on the 1935 book by Harold Moulton, then president of Brookings Institution, entitled The Formation of Capital. (CESJ republished Moulton’s book, the Foreword of which is athttp://www.cesj.org/homestead/reforms/moneycredit/formationofcapital_cesj.pdf. Both Kelso-Adler books can be downloaded free athttp://www.cesj.org/publications/freedownloads.html)

Wealthy citizens with large accumulations (who would have the same privilege as non-rich citizens to an equal annual Capital Homestead allotment of capital credit) would be encouraged to spend their savings, which would enable the economy to grow even faster or to enable the rich to invest in high risk ventures not eligible for Capital Homestead credit, or to engage in charity and spending for improving the nation’s education and health systems and other investments for the common good.

Dividends on shares financed through Capital Homesteading would be tax deductible at the enterprise level, deferred from personal taxation when used to repay shares held in the purchaser’s tax-sheltered Capital Homestead Account, but taxable when available as consumption income when distributed at the personal level. Thus, the poorest citizen, whether employed or disabled, could continue over their lives to accumulate assets on a tax-deferred basis and over time begin to receive rising capital incomes to supplement consumption incomes from other sources, free and independent from the need for charity or welfare.

http://www.latimes.com/business/la-fi-reich-qanda-20130920,0,2240742.story