On November 17, 2013, Paul Krugman writes in The New York Times:
But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?
You might imagine that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream. In fact, the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between — was made forcefully recently at the most ultrarespectable of venues, the I.M.F.’s big annual research conference. And the person making that case was none other than Larry Summers. Yes, that Larry Summers.
And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time.
Mr. Summers began with a point that should be obvious but is often missed: The financial crisis that started the Great Recession is now far behind us. Indeed, by most measures it ended more than four years ago. Yet our economy remains depressed.
He then made a related point: Before the crisis we had a huge housing and debt bubble. Yet even with this huge bubble boosting spending, the overall economy was only so-so — the job market was O.K. but not great, and the boom was never powerful enough to produce significant inflationary pressure.
Mr. Summers went on to draw a remarkable moral: We have, he suggested, an economy whose normal condition is one of inadequate demand — of at least mild depression — and which only gets anywhere close to full employment when it is being buoyed by bubbles.
Demand for products and services is dependent on “customers with money” to spend on consumption. Our current approach is to allocate tax extraction and incur national debt to bolster demand through “make-work” government employment, the subsidized military-industrial complex, and numerous government welfare services and subsidies.
This is the wrong approach and will continue to deepen the depression as more and more American citizens will become dependent on redistribution rather than growth and FUTURE distribution of new wealth-creating, income-producing productive capital assets.
Our financial system of wealth creation is based on “past” savings and denial of consumption. Those fortunate enough to be in a position of being able to save and deny their personal consumption are the ones who have been able to invest in productive capital, and over time build a viable, wealth estate via their ownership––not via a job, except for excessively paid CEOs, sports, and entertainment persons.
At the same time quality products and services have ONLY been affordable to the rich ownership class with the rest subject to intense competitive pressures and a race-to-the-bottom pricing. We have looked to companies to create jobs yet there is not sufficient demand for the products and services they could produce due to the stagnation of “customers with money.” Yet the focus continues to be on JOBS CREATION when the reality is that 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 no matter what the level of quality of the products and services being produced. 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.
At the same time the exponential growth of technology and tectonic shifts in the technologies of production are destroying jobs and devaluing the worth of labor, such that further depression of demand is occurring. This evolution is persistent, as people will continue to invent tools to improve production and service efficiency, reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive––the core function of technological invention.
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.
Since productive capital is increasingly the source of the world’s economic growth, it therefore should become the source of added property ownership incomes for all. If the reality is that 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, the American people, who have been educated by conventional-one-factor-thinking “labor” economists, and its leaders still pretend to believe that labor is becoming more productive. Thus, they are trapped in the “full employment” paradigm rather than the “full production” paradigm with the emphasis on producing quality products and services from the toil-destroying growing input of the non-human factor––machines including human-intelligence or artificial intelligence, super-automation, robotics, digital computerized operations, etc. and the structures that house such operations.
People OWN this productive capital that is increasingly doing the work. 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. 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. 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. 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 capital while distributing the earning capacity of capital “workers” (via capital ownership of stock in corporations) to non-owners through jobs and welfare. Such policies do not function effectively.
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.
We need to shift and reform the system to a democratic growth economy, based on binary economics that recognizes the two independent factors of production. In such a FUTURE economy, the ownership of 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, benefiting EVERY citizen, including 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.
Binary economist Louis Kelso postulated: “When consumer earning power is systematically acquired in the course of the normal operations of the economy by people who need and want more consumer goods and services, the production of goods and services should rise to unprecedented levels; the quality and craftsmanship of goods and services, freed of the cornercutting imposed by the chronic shortage of consumer purchasing power, should return to their former high levels; competition should be brisk; and the purchasing power of money should remain stable year after year.”
Without this necessary balance hopeless poverty, social alienation, and economic breakdown will persist, even though the American economy is ripe with the physical, technical, managerial, and engineering prerequisites for improving the lives of the 99 percent majority. Why? Because there is a crippling organizational malfunction that prevents making full use of the technological prowess that we have developed. The system does not fully facilitate connecting the majority of citizens, who have unsatisfied needs and wants, to the productive capital assets enabling productive efficiency and economic growth.
Kelso said, “We are a nation of industrial sharecroppers who work for somebody else and have no other source of income. If a man owns something that will produce a second income, he’ll be a better customer for the things that American industry produces. But the problem is how to get the working man [and woman] that second income.”
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.
As long as working people are limited by earning income solely through their labor worker wages or dependent on redistributive welfare, 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. 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 ultimately result in turmoil, if not revolution.
We are absent a national discussion of where consumers earn the money to buy products and services and the nature of capital ownership, and instead argue about policies to redistribute income or not to redistribute income. If Americans do not demand that the contenders for the office of the presidency of the United States, the Senate, and the Congress address these issues, we will have wasted the opportunity to steer the American economy in a direction that will broaden affluence. We have adequate resources, adequate knowhow, and adequate manpower to produce general affluence, but we need as a society to properly and efficiently manage these resources while protecting and enhancing the environment so that our productive capital capability is sustainable and renewable. Such issues are the proper concern of government because of the human damage inflicted on our social fabric as well as to economic growth in which every citizen is fairly included in the American dream.
For solutions see “Financing Economic Growth With ‘FUTURE SAVINGS’: Solutions To Protect America From Economic Decline” at NationOfChange.org http://www.nationofchange.org/financing-future-economic-growth-future-savings-solutions-protect-america-economic-decline-137450624, “The Income Solution To Slow Private Sector Job Growth” at http://www.nationofchange.org/income-solution-slow-private-sector-job-growth-1378041490, and “A Solution To Eroding Retirement Security” at http://www.huffingtonpost.com/gary-reber/a-solution-to-eroding-retirement_b_4103834.html and at http://www.nationofchange.org/solution-eroding-retirement-security-1382020223.
Also see “How To Reverse The Increasing Reliance Of Low-Wage Workers On Billions In Aid And Restore Economic Growth” at http://www.nationofchange.org/how-reverse-increasing-reliance-low-wage-workers-billions-aid-and-restore-economic-growth-1382195936#comment-294097 and at http://www.huffingtonpost.com/gary-reber/how-to-reverse-the-increa_b_4125981.html.
Support the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797.
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
Support the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm. See the full Act at http://cesj.org/homestead/strategies/national/cha-full.pdf.
http://www.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html?_r=0
