The Inequality Problem (Demo)

On January 16, 2014, David Brooks writes in The New York Times:

Suddenly the whole world is talking about income inequality. But, as this debate goes on, it is beginning to look as though the thing is being misconceived. The income inequality debate is confusing matters more than clarifying them, and it is leading us off in unhelpful directions.

In the first place, to frame the issue as income inequality is to lump together different issues that are not especially related. What we call “inequality” is caused by two different constellations of problems.

At the top end, there is the growing wealth of the top 5 percent of workers. This is linked to things like perverse compensation schemes on Wall Street, assortative mating (highly educated people are more likely to marry each other and pass down their advantages to their children) and the superstar effect (in an Internet economy, a few superstars in each industry can reap global gains while the average performers cannot).

At the bottom end, there is a growing class of people stuck on the margins, generation after generation. This is caused by high dropout rates, the disappearance of low-skill jobs, breakdown in family structures and so on.

If you have a primitive zero-sum mentality then you assume growing affluence for the rich must somehow be causing the immobility of the poor, but, in reality, the two sets of problems are different, and it does no good to lump them together and call them “inequality.”

Second, it leads to ineffective policy responses. If you think the problem is “income inequality,” then the natural response is to increase incomes at the bottom, by raising the minimum wage.

But raising the minimum wage may not be an effective way to help those least well-off. Joseph J. Sabia of San Diego State University and Richard V. Burkhauser of Cornell looked at the effects of increases in the minimum wage between 2003 and 2007. Consistent with some other studies, they find no evidence that such raises had any effect on the poverty rates.

That’s because raises in the minimum wage are not targeted at the right people. Only 11 percent of the workers affected by such an increase come from poor households. Nearly two-thirds of such workers are the second or third earners living in households at twice the poverty line or above.

The primary problem for the poor is not that they are getting paid too little for the hours they work. It is that they are not working full time or at all. Raising the minimum wage is popular politics; it is not effective policy.

Third, the income inequality frame contributes to our tendency to simplify complex cultural, social, behavioral and economic problems into strictly economic problems.than comparable women.

There is a very strong correlation between single motherhood and low social mobility. There is a very strong correlation between high school dropout rates and low mobility. There is a strong correlation between the fraying of social fabric and low economic mobility. There is a strong correlation between de-industrialization and low social mobility. It is also true that many men, especially young men, are engaging in behaviors that damage their long-term earning prospects; much more than comparable women.

Third, the income inequality frame contributes to our tendency to simplify complex cultural, social, behavioral and economic problems into strictly economic problems.prospects; much more than comparable women.

There is a very strong correlation between single motherhood and low social mobility. There is a very strong correlation between high school dropout rates and low mobility. There is a strong correlation between the fraying of social fabric and low economic mobility. There is a strong correlation between de-industrialization and low social mobility. It is also true that many men, especially young men, are engaging in behaviors that damage their long-term earning prospects; much more than comparable women.

Low income is the outcome of these interrelated problems, but it is not the problem. To say it is the problem is to confuse cause and effect. To say it is the problem is to give yourself a pass from exploring the complex and morally fraught social and cultural roots of the problem. It is to give yourself permission to ignore the parts that are uncomfortable to talk about but that are really the inescapable core of the thing.

Fourth, the income inequality frame needlessly polarizes the debate. There is a growing consensus that government should be doing more to help increase social mobility for the less affluent. Even conservative Republicans are signing on to this. The income inequality language introduces a class conflict element to this discussion.

Democrats often see low wages as both a human capital problem and a problem caused by unequal economic power. Republicans are more likely to see them just as a human capital problem. If we’re going to pass bipartisan legislation, we’re going to have to start with the human capital piece, where there is some agreement, not the class conflict piece, where there is none.

Some on the left have always tried to introduce a more class-conscious style of politics. These efforts never pan out. America has always done better, liberals have always done better, when we are all focused on opportunity and mobility, not inequality, on individual and family aspiration, not class-consciousness.

If we’re going to mobilize a policy revolution, we should focus on the real concrete issues: bad schools, no jobs for young men, broken families, neighborhoods without mediating institutions. We should not be focusing on a secondary issue and a statistical byproduct.

David Brooks fails to grasp the REAL problem that has resulted in the growth of economic inequality––the reality that the system as presently structured empowers ONLY a narrow group of Americans to CONCENTRATE OWNERSHIP of wealth-creating, income-producing capital assets––the non-human factor of production or primarily productive structures, machines, tools, super-automatino, robotics, digital computerized operations, etc. To use terms such as “human capital” implies that humans are OWNED. Productive capital is non-human and is the result of technological progress, which never ceases to march forward as it makes jobs in every sector of the economy more scarce.

David Brooks is definitely stuck in one-factor LABOR ONLY thinking because he NEVER addresses the concentration of capital ownership. If he viewed the process of production of products and services as consisting of two independent factors––human and non-human––he would realize that human labor is NOT becoming more productive, but that the non-human factor––productive capital––is.  Most changes in the productive capacity of the world since the beginning of the Industrial Revolution can be attributed to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Productive capital does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary.

Technological change makes tools, machines, structures, and processes ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). The technology industry is always changing, evolving and innovating. The result is that primary distribution through the free market economy, whose distributive principle is “to each according to his production,” delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor.

This is a simple concept that describes the economics of reality, but Brooks fails to grasp its significance, which when understood leads to ONLY ONE possible solution that strengthens our country’s founding principles in private property.

Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment––thus the political focus on job creation and redistribution of wealth rather than on full production and broader capital ownership accumulation. This is manifested in the belief that labor work is the ONLY way to participate in production and earn income. Long ago that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Capital provides not less than 90 to 95 percent of the input. Full employment as the means to distribute income is not achievable. When capital workers (productive capital owners) replace labor workers (non-capital owners) as the principal suppliers of products and services, labor employment alone becomes inadequate. Thus, we are left with government policies that redistribute income in one form or another.

What Brooks and other national media pundits should be advocating is equal opportunity for every citizen to become a capital owner.

The “pursuit of happiness” phrase in the Declaration of Independence was interchangeable in those times with the word “property.” The original phrasing was “the right to life, liberty and property.” “The pursuit of happiness” phrase was a substitute for the “property” phrase.  In the forerunner of the Declaration of Independence and Bill of Rights, the 1776 Virginia Declaration of Rights declared that securing “Life, Liberty, with the means of acquiring and possessing Property” is the highest purpose for which any just government is formed. The full wording, authored by George Mason and adopted on June 29, 1776, reads: “All men are by nature equally free and independent and have certain inherent rights, of which, when they enter into a state of society, they cannot, by any compact, deprive or divest their posterity; namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety.”

Democratizing economic power will return us to the pristine innocence and economic power diffusion we had in a pre-industrial society where labor was the principal factor in the creation of wealth.

Binary economist Louis Kelso, who Brooks and other pundits 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 it 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.”

As long as working people are limited by earning income solely through their labor worker wages, they will be left behind by the continued gravitation of economic bounty toward the top 1 percent of the people that the system is rigged to benefit. Working people and the middle class will continue to stagnate, resulting in a stagnated consumer economy.

This intense fear of losing jobs reflects the reality that Americans are, in reality, job serfs. While Americans want the private sector to “behave” and act as responsible producers, as soon as a company threatens to close their operations and relocate elsewhere, they don’t want rules and regulations enforced that might cost them their livelihoods––for they are solely dependent on jobs. Every year, due to tectonic shifts in the technologies of production, a smaller share of working-age and able Americans hold jobs. The necessity of holding a job is so strong that Americans are afraid of change and too cowed to make a ruckus. Yet their ONLY hope to ever achieve an affluent lifestyle is to fight for the right to equal opportunity for every citizen to become a capital owner, and benefit from the income produced by their owning wealth-creating, income-producing capital assets.

There is only one viable hope for creating consumer demand and it is NOT JOBS! The Job is DYING and with it our economy, while capital ownership for the wealthy ownership class is flourishing.

Those who address economic inequality and advocates for economic justice should be sensitive to the systemic barriers in today’s tax laws, Federal Reserve policies and Wall Street financing practices that have enabled the 400 most wealthy Americans to have acquired more ownership of productive capital than the bottom 150 million Americans combined. The ownership gap between the top 1 percent and the bottom 90 percent continues to widen each year. Is it any wonder that a growing number of propertyless voters vote each year for those politicians advocating government programs that provide social insurance benefits through redistributive tax extraction and incurred national debt?

More troubling is that this continued stagnation will further dim the economic hopes of America’s youth, no matter what their education level. The result will have profound long-term consequences for the nation’s economic health and further limit equal earning opportunity and spread income inequality. As the need for labor decreases and the power and leverage of productive capital increases, the gap between labor workers and capital owners will increase, which will result in turmoil and upheaval, if not revolution.

David Brooks appears to falsely presume that the only way to balance mass productive power with mass purchasing power is through a wage system––ignoring the possibility of democratizing future ownership of labor-displacing productive capital technologies and rising ownership incomes as a market-generated means of eliminating wage slavery, welfare slavery, debt slavery and charity slavery for the 99 percent of humanity. Brooks and the cadre of conventional one-factor economists that provide supportive analysis fail to see this simple cause and effect relationship. Binary economist Louis Kelso argued that their Keynesian model fails to recognize that “when capital workers (owners) replace labor workers as the major suppliers of goods and services, labor employment alone becomes inadequate because labor’s share of the income arising from production cannot provide the progressively better standard of living that technology is making possible. Labor produces subsistence at best. Capital can produce affluence. To enjoy affluence, all households must engage to an increasing extent in capital work.”

Rather than advocate for broader private sector ownership and full dividend payouts of the earnings of corporations, David Brooks focus is on class conflict without realizing that the wealthy are wealthy because they own wealth-creating, income-producing capital assets and the poor are poor because they are effectively propertyless in terms of owing capital assets. The result is policies are enacted that behold the poor and middle class to government dependency supported by redistributive tax extraction and national debt.

Such an obviously narrow and unrealistic mindset is driving America to welfare state status. This mindset  permeates the highest levels of academia and every level of education, from the time a child is first exposed to the educational system. In turn, such mis-education of parents and children totally ignores private property ownership of all non-human “means of production” as an increasingly relevant means by which the economy can both grow faster toward general prosperity and every member of society could legitimately earn a decent living in the future with more and more time to engage in what Aristotle called “leisure work,” producing without material compensation “the goods of civilization” and solve problems demanding uniquely human creative capacities and beyond the creative capacity of computers, robots and other “energy slaves that are replacing the need for human “toil” labor.

If you reject broadened individual private sector ownership of the FUTURE then you will remain OWNED and controlled by others as a wage or welfare slave. Wealthy people are wealthy because they OWN, wealth-creating, income-producing capital assets. The reality is that labor input is becoming exponentially less necessary as humans are replaced by increasingly more productive non-human means of production that produce income for its owners. There will always be less and less human labor input as technology advances and non-human means replace the need.

There is a market-based alternative system that is becoming known as The Just Third Way (http://foreconomicjustice.org/?p=5797). It advocates a “solution” called “The Capital Homestead Act” (http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm), a 21st century updating of Lincoln’s land-based Homestead Act of 1862. Brooks and other pundits should carefully study these reforms, none of which violate the property rights of today’s capital owners.

So how about it David Brooks, why nor advocate for broadened ownership of the FUTURE wealth-creating, income-producing capital assets of corporations growing the economy so that EVERY child, woman and man can benefit as an OWNER and secure a source of income produced by the non-human assets of corporate production? That would result is “A Wonderful Life” for EVERY American by eliminating over time the wide economic inequality that the present system faciliates.

http://www.nytimes.com/2014/01/17/opinion/brooks-the-inequality-problem.html?hp&rref=opinion&_r=1