Nobel prize-winning economist Paul Klugman in his op-ed piece on May 3, 2012 in the New York Times writes:
“Before the Great Recession, I would sometimes give public lectures in which I would talk about rising inequality, making the point that the concentration of income at the top had reached levels not seen since 1929. Often, someone in the audience would ask whether this meant that another depression was imminent.”
“Well, whaddya know?”
“Did the rise of the 1 percent (or, better yet, the 0.01 percent) cause the Lesser Depression we’re now living through? It probably contributed. But the more important point is that inequality is a major reason the economy is still so depressed and unemployment so high. For we have responded to crisis with a mix of paralysis and confusion — both of which have a lot to do with the distorting effects of great wealth on our society.”
Klugman continues:
“For the past century, political polarization has closely tracked income inequality, and there’s every reason to believe that the relationship is causal. Specifically, money buys power, and the increasing wealth of a tiny minority has effectively bought the allegiance of one of our two major political parties, in the process destroying any prospect for cooperation.”
“And the takeover of half our political spectrum by the 0.01 percent is, I’d argue, also responsible for the degradation of our economic discourse, which has made any sensible discussion of what we should be doing impossible.”
Klugman concludes:
“Many pundits assert that the U.S. economy has big structural problems that will prevent any quick recovery. All the evidence, however, points to a simple lack of demand, which could and should be cured very quickly through a combination of fiscal and monetary stimulus.”
“No, the real structural problem is in our political system, which has been warped and paralyzed by the power of a small, wealthy minority. And the key to economic recovery lies in finding a way to get past that minority’s malign influence.”
President Obama stated: “What’s at stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home, and secure their retirement.” 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. 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 (the non-human factor) increases, the gap between labor workers and capital owners will increase, which will result in continued resentment at labor workers and the middle class marginalization until it reaches a climactic boiling point.
This condition will worsen with the continued exponential growth of job-displacing and job-destroying productive capital––the non-human factor contributing to the making and delivery of products and services. Thus, the focus on “full employment” and “real wage gains” is a dead-end approach. Why, because, given the distributive principle “to each according to his production,” when the primary distribution through the free market economy delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor, the growth in earnings belongs rightfully to those who own the productive capital assets. What has been transpiring is redistribution of the rightful earnings of productive capital owners, achieved by the rigging of labor prices, by taxation to support redistribution and job “creation,” or subsidization by inflation and by all kinds of welfare, open and concealed. Our leaders and conventional economists still believe full employment will solve our income distribution problems. Realistically “full employment” or “real wage gains” will not. What needs to be adjusted is the opportunity to produce, not the redistribution of income after it is produced.
The purpose of production in a market economy is the consumption of products and services by the consumers who make up the economy. But without income, the non-capital or under-capialized ownership class, the 99 percenters, cannot afford to purchase the products and services they desire. But when incomes rise among consumers who have the need and desire to improve their material standard of living, the market demand for products and services strengthens, which in turn increases production and results in 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.”
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.”
Without a policy shift to broaden productive capital ownership simultaneously with economic growth, further development of technology and globalization will undermine the American working class and middle class and make it impossible for more than a minority of citizens to achieve middle-class status.
Through economic democratization reforms, economic growth can be freed from the slavery of past savings, while creating a domestic source of new asset-backed, interest-free money and expanded bank credit to finance new capital formation repayable out of future savings (earnings).
