Shoppers cross Post Street in San Francisco on Aug. 10, 2016. (David Paul Morris/Bloomberg)
On May 8, 2017, Max Ehrenfreund writes in The Washington Post:
America is getting richer every year. The American worker is not.
Far from it: On average, workers born in 1942 earned as much or more over their careers than workers born in any year since, according to new research — and workers on the job today shouldn’t expect to catch up with their predecessors in their remaining years of employment.
Stagnant or falling earnings have put a squeeze on working- and middle-class households. The trend has also widened the gap between the rich and everyone else as, overall, the economy has continued to grow overall but the bulk of those gains have ended up in the pockets of the affluent.
These are some of the conclusions from a new working paper by a group of economists investigating the reasons for the decline of the American middle class. While economists have been concerned about recent data on earnings, the new paper suggests that ordinary Americans have been dealing with serious economic problems for much longer than may be widely recognized.
The new paper includes some “astonishing numbers,” said Gary Burtless, an economist at the nonpartisan Brookings Institution who was not involved in the research. “The stagnation of living standards began so much earlier than people think,” he said.
In the study, the economists — from the University of Minnesota, the University of Chicago, Princeton University and the federal government — examined career earnings for workers born in every year since 1932. They did not include those who didn’t work or only rarely worked, instead concentrating on those who spent at least 15 years in the labor force. Using wage and salary data from the federal Social Security Administration, they calculated the career earnings of the median worker born in each year.
For instance, the typical 27-year-old man’s annual earnings in 2013 were 31 percent less than those of a typical 27-year-old man in 1969. The data suggest that today’s young men are unlikely to make up for that decline by earning more in the future.
Women have done much better than men. More women have entered the labor force and taken on more prestigious and remunerative careers. Still, women are making less than men over their working years, and women’s rising earnings have not made up for the decline in men’s incomes for the population as a whole.
Recently, women’s progress has stalled, in part due to the financial crisis. The typical female worker who was 27 in 2013 made no more than the typical woman of that age did in 1980.
As more women entered the labor force, median household incomes rose even as incomes of individual workers of a given age stagnated, with families using extra workers to bring home more money. But that climb ended in 1999, and since then, median household incomes have fallen, according to the census.
“Overall, this is a pretty bleak picture,” said Fatih Guvenen, an economist at the University of Minnesota and one of the authors of the new paper.
The study, published Monday by the National Bureau of Economic Research, has not been peer reviewed, so other economists may yet challenge both specific results and the paper’s general conclusions. All the same, the research offers an answer to a couple of important questions that have been nettling economists.
In particular, the results show that more unequal incomes are not just a result of a widening gap between younger and older workers. Even among older workers, typical incomes have been falling while the wealthiest have been enjoying more and more of the economy’s gains. Poorer workers — who tend to be younger — will earn more as they get older, but they are not likely to earn enough to make up the difference.
“This idea that we’re having this progression of increasing incomes over time — I think that might be true for the upper regions of the income distribution but not for the median,” said Nathaniel Hendren, a Harvard University economist who was not involved in the study.
Among workers of a given age, some will climb the ladder quickly. Medical students and interns, for example, might begin their careers with incomes near poverty and then get rich in middle age. Incomes might even decline for other workers, such as professional athletes, musicians or technology entrepreneurs who never manage to build on an initial success.
Those cases are unusual, however. The new research shows that in the past, a good guide to forecasting typical career earnings among Americans of a given age has been their average income they were 25.
The implication, Guvenen argues, is that economists should search for explanations for households’ current financial woes in the youth and childhood of today’s workers.
“We are maybe looking at the wrong place for the solution to stagnation in wages and rising inequalities,” Guvenen said. “To understand higher inequality, we should turn and take a closer look at youth.”
It remains to be seen whether the situation will improve in the future for younger workers today, but their prospects seem dim. Young workers’ incomes are still declining today, suggesting that their trajectories over the rest of their careers will be lower as well.
“Things just keep looking worse,” Hendren said.
Of course America is getting richer every year while the American worker is not. It should be obvious to so-called conventional “economists” but it is obviously not.
There are two reasons: tectonics shifts in the technologies of production and globalization of production, both resulting in few job opportunities and downward pressure to lower worker wages.
Our politicians and academics have created an unjust economic system that violates the principal that economic power has to be universally distributed amongst individual citizens and never allowed to concentrate.
Unfortunately conventional economists, other academics and politicians think ONLY in terms of one factor – “labor” contributions to the economy, while binary economists, who understand the economics of reality, recognize that there are two independent factors of production: humans (labor workers who contribute manual, intellectual, creative and entrepreneurial work) and non-human capital (land; structures; infrastructure; tools; machines; robotics; computer processing; certain intangibles that have the characteristics of property, such as patents and trade or firm names; and the like which are owned by people individually or in association with others). Fundamentally, economic value is created through human and non-human contributions.
This is a simple concept but extremely important to grasp and to view the world of economic from the perspective of these to independent contributions.
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 in order to generate profits and thus return on investment (ROI).
Over the past century there has been an ever-accelerating shift to productive capital — which reflects tectonic shifts in the technologies of production.
People invented “tools” to 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 and innovation. The father of binary economics, Louis Kelso, attributed 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. Capital, in Kelso’s terms, 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, Kelso asserted that, “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.”
Furthermore, according to Kelso, productive capital is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. Kelso postulated that 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, the American people and its leaders still pretend to believe that labor is becoming more productive, and ignore the necessity to broaden personal ownership of wealth-creating, income-producing capital assets simultaneously with the growth of the economy.
In a democratic growth economy, based on Kelso’s binary economics (human and non-human productive inputs), 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 (children, women and men), 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.
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.
Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment – thus the political focus on job creation and redistribution of wealth rather than on equal opportunity to produce, full production and broader capital ownership accumulation. This is manifested in the myth that labor work is the ONLY way to participate in production and earn income, and that individual talent and effort are what distinguish the wealthy from the non-wealthy. Long ago that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Physical capital provides not less than 90 to 95 percent of the input. Full employment as the means to distribute income is not achievable, except while building a future economy that can support general affluence for EVERY citizen. When the “tools” of capital owners replace labor workers (non-capital owners) as the principal suppliers of products and services, labor employment alone becomes inadequate. Thus, we are left with government policies that redistribute income in one form or another.
Thus, as Kelso asserted, “the government continues to discharge its responsibility for the health and prosperity of the economy through coerced trickle-down; in other words, through redistribution 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.”
Employment in the brave new world, Kelso proposed, starts at the time one “enters the economic world as a labor worker, to become increasingly a capital worker as you go along, and at some point to retire as a labor worker and continue to participate in production and to earn income as a capital worker until the day you die.”
Kelso once wrote: “It doesn’t make any difference what’s going on in the scientific world or the business world or the industrial world, we still believe full employment will solve our income distribution problems. This is what major political figures have always maintained.”
Kelso also 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, robotics 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.”
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 corner-cutting 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, 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 result in turmoil and upheaval, if not revolution.
I am not going to elaborate further, as I have already written extensively in other writings about solutions that create universally equal opportunity for EVERY child, woman, and man be become a capital owner in successful corporations growing the economy and put our nation on the path to inclusive prosperity, inclusive opportunity, and inclusive economic justice.
Support the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797, http://www.cesj.org/resources/articles-index/the-just-third-way-basic-principles-of-economic-and-social-justice-by-norman-g-kurland/, http://www.cesj.org/wp-content/uploads/2014/02/jtw-graphicoverview-2013.pdf and http://www.cesj.org/resources/articles-index/the-just-third-way-a-new-vision-for-providing-hope-justice-and-economic-empowerment/.
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
Support the Capital Homestead Act (aka Economic Democracy Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/.
