Cutting Public Sector Employment Makes The Economy Worse (Demo)

Both Democrats and Republicans are guilty of borrowing trillions of dollars to prop up the economy by creating all sorts of make-work through government spending, military-industrial build-up through government contracts, and welfare support, open and concealed. Debt and redistribution through taxation has been the primary tool to create and sustain demand, as well as freely extended consumer credited to purchase the products and services produced. The result has been that, while the economy has experienced decades of instant gratification, the system has empowered only a minority of Americans who, with loans secured by “past” savings and equity assets, have accumulated the ownership of the physical assets represented by the private sector productive capital growth engine of corporations and companies and denied the majority of ordinary Americans from participating in productive capital ownership.

Compounding this condition is the fact that the function of technology is to save labor. The role of physical productive capital is to do ever more of the work, which produces income. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum. If labor is cheaper then companies will hire labor workers, or vice versa with respect to “machinery.” 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. Yet our leaders, their advisors, and conventional economist, as well as those in academia teaching economics and public poliicy do not fundamentally acknowledge that economic value is created through human and non-human contributions, and remain stuck in one-factor labor worker concepts attributed to GDP productivity gains, while in fact, the opposite is true. Productivity gains are largely the result of the application the non-human factor of production.

Thus, the obvious questions to pose is “Who owns and who should own the productive capital assets of the economy? But these questions are not being posed or discussed on the national stage. This is extremely important because the United States economy is based on private property rights and while we own our labor if we do not participate in the ownership of the non-human productive capital assets of the economy we have no connection or right to the income that is generated from owning those assets.
Why is this so important to understand? Because our future growth and development will be the product of technological innovation and invention, which will result in even for wondrous and efficient non-human instruments of production and service. 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.

Because productive capital is increasingly the source of the world’s economic growth, it should therefore become the source of added property ownership incomes for all. If we can understand that both labor and capital are interdependent 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, the American people and its leaders still pretend to believe that labor is becoming more productive. Thus, the emphasis is on job creation for the sake of full employment, rather than on productive capital creation and full production. To reverse this self-defeating unattainable  “full employment” goal, we urgently need to provide access to the means of acquiring and possessing future productive capital creation through broadened ownership simultaneously with the growth of the economy.

Because of the tectonic shifts in the technologies of production and the steady off-loading of American manufacturing and jobs caused by continued concentrated ownership of productive capital, the stability of the United States economy has been and continues to be threatened.

This problem cannot be solved by incurring endless public borrowing and debt, nor through increased taxation and income redistribution.

So, what is the most logical approach to solving the problem when faced with an economy’s potential to produce through productive capital growth abundant products and services needed and wanted but stifled and frustrated because not enough people have the income to purchase those products and services?

The Republican approach will no doubt end up as a painful, socially unjust “adjustment” in which further job destruction and job degradation will impact many millions more Americans whose ability to earn an income will be deprived, which will further shrink the private sector business landscape, if not destroy many American businesses.

The Democrat approach will keep the economy limping along as their leaders and advisors pretend that the economy can be fixed with more borrowing and taxation increases channeled as redistribution to support further government spending to prop up the economy. The Democrat leadership is stuck in the paradoxical situation in which government spending vastly outweighs what it takes in until the debt load finally becomes intolerable and unmanageable.

There is a Just Third Way, which embraces policies and programs that purposefully and directly broaden private, individual ownership in future productive capital asset growth, connecting over time ALL Americans to income streams generated by the productive capital investments. This though requires a paradigm rebooting of the collective mindset with respect to  education on this subject. This is a long-term solution. While short-term pain can be somewhat minimized, there are no “quick-fix” short-term solutions.

Without a policy shift to broaden productive capital ownership simultaneously with economic growth, further development of technology and globalization will undermine the American middle class and make it impossible for more than a minority of citizens to achieve middle-class status.

To implement this third way will require reforms of corporate charters and/or tax policy that incentivizes corporations to pay out fully 100 percent of their profit earnings in dividends to their stock owners. When companies want to expand and grow, they would issue and sell new stock and not use financial mechanisms that result in continued concentrated ownership. The practice should be to effectively prohibit retained earnings financing of new productive capital formation (reinvesting the corporate earnings already earned). The government could also limit debt financing by imposing some ratio formula to annual revenue under which a corporation could debt finance new productive capital formation with borrowed monies. Both retained earnings and debt financing only enhance the ownership holding value of the existing corporate ownership class and do nothing to create new owners. Thus, the rich get richer systematically and capital ownership concentration is furthered, facilitated by financing further productive capital acquisition out of the earnings of existing productive capital.

ALL Americans should be empowered to acquire this new stock through commercially insured capital loans, backed if necessary by the Federal Reserve, based on the principle that good investments pay for themselves by generating future earnings, and once paid for continue to generate income for their owners. Federal Reserve policy and role should be to favor future money and credit for ownership-expanding asset-backed productive capital loans and discourage future ownership- concentrating non-productive loans for government deficits.

The government at all levels must require that contracts, loans, guarantees, and grants be awarded on the basis that the companies applying must broaden their ownership among their employees and other Americans to qualify. This would apply, for example, to multi-year government stimulus investment and infrastructure spending. Such policies would boost employment in numerous sectors of the economy. While infrastructure spending involves further debt or taxation redistribution, when the projects are finished, America has the modern infrastructure that benefits ALL Americans. But all that is ever discussed is the “jobs” that would be created, not as well the “new owners” that would be created.

There are numerous other solutions that support this problem-solving concept that requires a lot of space to present. An overview can be found at http://foreconomicjustice.com/11/economic-justice/. Also follow this thread of thought on Facebook at http://www.facebook.com/pages/For-Economic-Justice/347893098576250. Also refer to http://cesj.org/homestead/index.htm for more proposals that support this approach.

In the democratic growth economy that I am advocating, based on binary economics, the ownership of productive capital 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, also benefiting the traditionally disenfranchised poor and working and middle class. Thus, productive capital income 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. 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, while at the same time create opportunities for “real” job growth. It also means that  political democracy will better work within a property-based free market system of economic democracy.

My mentor, binary economist and author Louis Kelso, wrote: “In the distribution of social power, whether it be political power or economic power, all things are relative. The essence of economic democracy lies in the elimination of differences of earning power resulting from denial of equality of economic opportunity, particularly equal access to capital credit. Differences of economic status resulting from differences in advantages taken and uses made of differences based on inequality of economic opportunity, particularly those that give access to capital credit to the already capitalized and deny it to the non- or -undercapitalized, are flagrant violations of the constitutional rights of citizens in a democracy.”