On May 2, 2015, Mark Hensch write on The Hill:
Sen. Bernie Sanders (I-Vt.) on Saturday argued that the annual income provided by the minimum wage could not sustain most American families.“That is a starvation wage,” Sanders said of the $7.25 federal hourly minimum wage at an AFL-CIO event in North Conway, N.H.“Anyone who works 40 hours in a week in America should not be in poverty,” the 2016 Democratic presidential candidate added. “That’s the simple reality.”Sanders additionally criticized massive corporations for hurting the economy with their business practices. Their manipulation of the tax code, he charged, was especially troubling.“They stash their money in the Cayman Islands, Bermuda and other hidden tax havens around the world,” he said of the multinational companies on Wall Street.“It is time they rejoin the United States of America,” he said. “It is time they start paying their fair share of taxes.”Sanders’s remarks follow the launch of his 2016 campaign Thursday. On Saturday, he said his quest to thwart corporate greed would generate support from a wide range of voters.“I think we are going to bring some strange bedfellows into our coalition,” Sanders said. “I think there are a lot of conservatives out there who do not find it appropriate that so many Wall Street firms have so much wealth and income.”“I think there are a lot of moderates out there who do not like the Koch brothers spending billions buying elections,” he added, referencing billionaire business moguls David and Charles Koch.Sanders vowed he would reform the political process for the benefit of average Americans. No longer, he promised, would the average citizen be shut out of their government.“We can create a nation where you can run for office without being a billionaire or beholden to billionaires,” Sanders said. “It is not some utopian vision.”Sanders announced Friday his campaign had already raised $1.5 million from 35,000 donors. He has made rejecting corporate sponsorship of his bid a major part of his 2016 platform.Former secretary of State Hillary Clinton remains the only other official Democratic candidate. Former Maryland Gov. Martin O’Malley has hinted that he may become a contender as well in the future.
What Bernie Sanders is advocating is not the REAL solution to economic inequality. It is an inflation-inducing approach to increase the income earned by minimum wage workers––that increase would come from raising the minimum wage to $15 per hours incrementally over the next three years rather than implementing monetary reform to empower EVERY citizen, whether minimum wage earners or not, including those workers earning above minimum wage, those unemployed, and others not needing employment or unemployable.
Sanders’ premise and the foundation of his argument is that the typical worker today is more than twice as productive. Thus, adjusted for both inflation and productivity gains the minimum wage should be raised.
What’s wrong with this analysis? Sanders fails to acknowledge that fundamentally, economic value is created through human and non-human contributions.
Sanders fails to acknowledge that “tools”––the non-human factor–-significantly has and continues to change the way in which products and services are produced from labor intensive to capital intensive––the core function of technological invention and innovation. Sanders does not attribute most changes in the productive capacity of the world since the beginning of the Industrial Revolution to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Instead, he bases his argument on the false belief that labor is becoming more productive.
The true reality is that physical 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. Because of this undeniable fact, free-market forces no longer establish the “value” of labor. Instead, the price of labor is artificially elevated by government through minimum wage legislation, overtime laws, and collective bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.
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.
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.
The result is that the price of products and services are extremely competitive as consumers will always seek the lowest cost/quality/performance alternative, and thus for-profit companies are constantly competing with each other (on a local, national and global scale) for attracting “customers with money” to purchase their products or services.
Sanders fails to understand the fact that over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital worker input has been rapidly changing at an exponential rate of increase. If Sanders understood this he would hopefully conclude that because productive capital is increasingly the source of the world’s economic growth it should become the source of added property ownership incomes for all. This postulation is simple to grasp: if both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. Yet, sadly, Sanders still pretends to believe that labor is becoming more productive, and ignores the necessity to broaden personal ownership of wealth-creating, income-producing capital assets simultaneously with the growth of the American economy.
At Agenda 2000, the advocacy firm I founded in the late 1960s with binary economist Louis Kelso, we used 90 percent, while the Rand Corporation statistic was 98 percent, to represent the productive capital factor input to creating products and services. 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 by workers with capital work by the owners of productive capital assets.
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 physical capital ever more productive. Corporate decision makers know this, whether in the United States or in other countries, or anywhere organized assemblies of people engage in production. 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 make-work job creation, minimum wage requirements, and welfare programs. Such policies do not function effectively, yet these are precisely the policies that Reich advocates.
Sanders is devoid of REAL solutions that address the core problem causing income and wealth inequality. But he should be able to be enlightened.
In a democratic growth economy, in which both human and non-human productive inputs are understood, the ownership of productive capital assets would be spread more broadly as the economy grows, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate wealth. Instead, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader, benefiting EVERY citizen, including the traditionally disenfranchised poor and working and middle class. Thus, productive capital income, from full earnings dividend payouts, would be distributed more broadly and the demand for products and services would be distributed more broadly from the earnings of capital and result in the sustentation of consumer demand, which will promote economic growth and more profitable enterprise. That also means that society can profitably employ unused productive capacity and invest in more productive capacity to service the demands of a growth economy. As a result, our business corporations would be enabled to operate more efficiency and competitively, while broadening wealth-creating ownership participation, creating new capitalists and “customers with money” to support the products and services being produced.
Sanders is stuck in one-factor, labor work, thinking. If he had studied the writings of binary economist Louis Kelso he would be able to understand the economics of reality. Kelso 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.”
What Sanders and his campaign staff should focus on is addressing the question: how do you use the logic of corporate finance, the logic that the corporation insists upon is minimal, that is, the logic of investing in things that will pay for themselves––how do you use it for the individual, how do you bring the economic game down from the corporation to the human scale?
The obvious answer is to implement policies that will broaden individual ownership of wealth-creating, income-producing productive capital assets simultaneously with the growth of the economy. Unlike Sanders’ call for inflation-inducing minimum wage boosts, a form of coerced State redistribution, REAL income growth would result through expanded personal property ownership of new growth productive capital assets.
