On September 5, 2014, Gar Alperovitz writes in the Los Angeles Times:
The concept of “secular stagnation” — that the economy may be facing a protracted period of low growth and high unemployment — has been seeping back into economic and policy discourse. Once relegated to the margins of heterodox economic theory, the idea of stagnation as a likely ongoing direction for the economy, in fact, is now virtually mainstream, expounded by such well-known figures as Lawrence Summers and Paul Krugman.
Stagnation, however, is not a new problem. Careful examination of the U.S. economy over the last century suggests that stagnation may not be the exception but just possibly the rule of modern economic performance — a rule that was mainly broken only by the stimulus effects of massive military expenditures at three crucial junctures.
Major economic floundering in the first quarter of the 20th century was relieved by the boost World War I gave to the economy, and the tremendous economic collapse in the second quarter was ended by World War II’s huge increase in military spending. In the third quarter, the Korean War, the Cold War and the Vietnam War added major stimulus at key times.
Moreover, several of the indirect consequences of World War II — including wartime savings, the compression of wages, the strengthening of unions, the GI Bill that educated millions of veterans, and the reconstruction of Europe, together with the fact that major competitors had been temporarily destroyed by war — all contributed to the third quarter’s great economic boom.
The modern trend, despite Iraq, Afghanistan and other smaller-scale wars, is also clear. Defense expenditures declined decade by decade from a Korean War high of 13.8% of the economy in 1953 to 3.7% in the 2000s, with steadily reduced economic impact. The financial bubbles in the late 1980s, 1990s and early 2000s produced only partial and highly unstable upswings that masked the underlying decline.
The notion that stagnation is far more important than is commonly understood has been bolstered by Thomas Piketty’s landmark book “Capital in the Twenty-First Century,” which also emphasizes just how unusual the era of the Depression and two world wars was. Piketty’s analysis suggests that the high growth rates of the post-World War II period were, by and large, an aberration. “Many people think that growth ought to be at least 3 or 4 percent a year,” he wrote. “Both history and logic show this to be illusory.”
Viewed in this light, the latest long-range projections from the Organization for Economic Cooperation and Development, the Paris-based intergovernmental group for advanced economies, make for sobering reading. In a new report, “Policy Challenges for the Next 50 Years,” the OECD warns that economic growth in the world’s advanced industrial economies — including Europe, North America and Japan — will likely slow even further from historic levels over the next half-century, while inequality will rocket to new heights and climate change will take an increasingly damaging toll on world GDP.
According to the projections, the OECD member nations’ annual average contribution to global GDP growth will steadily fall from 1.19% this decade to 0.54% between 2050 and 2060. Meanwhile, inequality in these countries may rise as much as 30% or more.
The OECD projections are, if anything, optimistic, since they assume that Europe and the United States each will absorb in the neighborhood of 50 million new immigrants over this period — an assumption that may run contrary to the restrictive politics of immigration playing out on both sides of the Atlantic.
The economic remedy for stagnation is relatively straightforward — in theory: Faltering demand could be offset by large-scale government spending on infrastructure, education and other much-needed investments. In practice, however, it is painfully clear that large-scale Keynesian policies of this kind are no longer politically viable.
The implications of the emerging possibility of a sustained period of stagnation are profound. Through the repeated economic downturns of recent U.S. history — 11 since 1945 alone — the expectation of eventual sustained recovery has been the critical assumption underpinning both politics and policy. An era of stagnation would undermine the economic basis of traditional political hope of both left and right. It would mean ongoing high unemployment, ongoing deficits, ongoing struggles to fund public programs and, in all probability, ongoing and intensified political deadlock and wrangling as unemployment continues, deficits increase and a profound battle over narrowing economic possibilities sets in.
If stagnation is the new normal, we will likely be forced to reassess the fundamental assumptions of politics and the economy and to ultimately get serious about restructuring our faltering economic system in more far-reaching ways than most Americans have contemplated.
Stagnation does not have to be the new normal!
The problems is imbalance. Productive capital, not labor, is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. Yet this reality is virtually never addressed and instead the focus is on JOB CREATION and policies that effectively REDISTRIBUTE wealth.
In terms of the productive capital input to creating products and services (for consumption) the statistic is somewhere between 90 percent and 98 percent (Rand Corporation).
In concentrated capital ownership terms, roughly 1 percent own 50 percent of the corporate wealth with 10 percent owning 90 percent. This leaves 90 percent of the people scrambling for the last 10 percent, with them dependent on their labor worker wages to purchase capital assets. Thus, we have the great bulk of the people providing a mere 10 percent or less of the productive input. Contrast that to the less than 5 percent who own all the productive capital providing 90 percent or more of the productive input, and who initiate and oversee most of the technological advances that replace labor work with capital work.
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.
As a result, the trend has been to diminish the importance of employment with productive capital ownership concentrating faster than ever, while technological change makes capital ever more productive. Technology is an easier and faster way to get a job done. Because technology increases the profitability of companies throughout the world, technology always has the advantage over human labor when the costs of them are the same. But because this is not well understood, what we as a society have been doing is to continually shift the work burden from people labor to real physical capital while distributing the earning capacity of physical capital’s work (via capital ownership of stock in corporations) to non-owners through jobs, minimum wage, and welfare. Such policies do not function effectively, and prevent us from escaping stagnation with significant annual growth wherein production and consumption are in sync.
Our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success––always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent are not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption. It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.
What we need to be asking is why are the rich, rich? Obviously, because they are the OWNERS of wealth-creating, income-producing capital assets. The rich are always seeking to further enrich themselves through government policies that favor their monopoly OWNERSHIP interests, leaving behind an American majority struggling to survive and prosper.
If we are to effectively eliminate monopoly OWNERSHIP interests, then we MUST reform and repair the system to prevent further monopoly OWNERSHIP.
Necessarily, all economic growth should be financed in ways that create new OWNERS of the wealth, not keep it concentrated so that the only recourse for the citizen majority is redistribution of the benefits of ownership to non-owners.
The solution to broadened individual ownership is to make all stock dividend earnings tax deductible at the corporate level to encourage companies to pay out all earnings and give owners their rights. The tax system should favor the accumulation of capital assets by ordinary people on a tax-deferred basis. Full payout of earnings in the form of dividends tax deductible to the corporation, not artificial government stimulus, would increase consumer demand, and thus the demand for new capital and job creation, raising wages naturally as the demand for labor increases.
Non-owners need help to purchase newly issued corporate growth shares of stock using non-recourse credit obtained from commercial banks at low cost and collateralized with capital credit insurance and reinsurance, and rediscounted at the Federal Reserve, to be paid for with dividend earnings on the shares purchased.
An aggressive program of expanded capital ownership financed by expanding private sector bank credit would spread out capital ownership and supplement or replace wage income with ownership income, thereby reducing the upward pressure on wages and benefits, and thus turn propertyless citizens into productive capital OWNERS with political power and “customers with money” to create further demand for a growth economy that can support general affluence for EVERY child, woman and man.
The role of the State should be to remove barriers to full participation in economic life, not put more in place. Thus, the first step is to acknowledge barriers that inhibit or prevent propertyless people from owning capital on easy terms. The system is the PROBLEM! We need to reform the system.
The open platform of the Unite America Party provides a path to prosperity, opportunity, and economic justice for EVERY citizen. The platform has been published by published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change at http://www.nationofchange.org/platform-unite-america-party-1402409962 and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.
http://www.latimes.com/opinion/op-ed/la-oe-alperovitz-economic-stagnation-20140905-story.html
