On March 12, 2015, Robert Reich writes on Salon:
1. The “job creators” are CEOs, corporations, and the rich, whose taxes must be low in order to induce them to create more jobs. Rubbish. The real job creators are the vast middle class and the poor, whose spending induces businesses to create jobs. Which is why raising the minimum wage, extending overtime protection, enlarging the Earned Income Tax Credit, and reducing middle-class taxes are all necessary.
2. The critical choice is between the “free market” or “government.” Baloney. The free market doesn’t exist in nature. It’s created and enforced by government. And all the ongoing decisions about how it’s organized – what gets patent protection and for how long (the human genome?), who can declare bankruptcy (corporations? homeowners? student debtors?), what contracts are fraudulent (insider trading?) or coercive (predatory loans? mandatory arbitration?), and how much market power is excessive (Comcast and Time Warner?) – depend on government.
3. We should worry most about the size of government. Wrong. We should worry about who government is for. When big money from giant corporations and Wall Street inundate our politics, all decisions relating to #1 and #2 above become rigged against average working Americans.
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I cannot believe that Robert Reich does not understand the flaws in the system that perpetuates economic inequality.
The demand for physical capital goods, that which results from technological invention and innovation, is a derived demand. In other words, demand for physical capital, which grows the economy’s productive capacity, is derived from the demand for consumer products and services, the latter of which depends on consumption income.
The paradox is that the more people try to save, the less physical capital is produced. But the more people spend on consumption, the greater the incentive for businesses to form new physical capital, as in manufacturing capability and equipment and create jobs. Thus, the expansion of the economy depends on consumer demand.
The reality is that consumer demand depends on consumption income, which the vast majority people earn through a job, their ONLY income source (other than redistributive welfare) provided by the businesses producing the products and services needed and wanted by their end users.
The problem is that on-going tectonic shifts in the technologies of production destroy jobs and make many forms of labor unnecessary, while also devaluing the worth of labor, which results in less consumption income to support economic growth. With “machines” replacing jobs and/or lessening the prospects for wage growth, people are experiencing less opportunity to earn an income.
Economic growth is further enslaved by a system that requires savings, which means a denial of consumption and thus demand for products and services. The system thus creates no new owners of newly formed physical capital because the ONLY people eligible to “invest” are those who have past savings. This constitutes an exclusionary approach to financing physical capital expansion and private sector growth.
What is needed is to reform the system to employ pure, interest-free credit, that is credit that does not depend on exiting accumulations of “past” savings, to ease disparities in wealth. We need to use “future” savings (or future profits generated by newly added capital assets). We need to properly use the Federal Reserve System to finance private sector growth, not government spending as Robert Reich would have us do. The power already exists in the Federal Reserve System to meet our projected capital needs and for democratizing capital ownership in the process.
As my colleague Michael D. Greaney of the Center for Economic and Social Justice (www.cesj.org) states: “Because the ownership of productive capital is so crucial to freedom and human happiness, discriminating among citizens as to who has access to capital credit constitutes as gross a violation of equal protection of the laws as discrimination in access to the ballot. Americans are beginning to discover that such a violation of our fundamental constitutional rights takes place daily under the present system.
“This violation of equal opportunity is institutionalized in the present system of corporate finance, and is exacerbated by our own Federal Reserve System. Today’s financial system channels capital credit to the already rich and extends ever-more burdensome consumer credit to propertyless workers. It is not surprising that many people who misunderstand the workings of the central bank advocate the abolition of the Federal Reserve, rather than its reform.”
If Reich really wants to provide a solution that does not entail “big government debt,” he would engage in the study of the way credit is used, the persons to whom it is made available, and the purposes for which it is used. Reich would then realize that the solution is not never-ending government spending.
I have no disagreement with Reich on his second point. A primary responsibility of government is to set and maintain standards and ensure inclusive opportunity. But, as presently structured, the violation of equal opportunity is institutionalized in the present system of corporate finance, and is exacerbated by the Federal Reserve System.
I disagree with Reich’s third statement that we should not worry about the size of government. The present system results in preferential privilege compounded by unjust money, tax and inheritance laws, and institutions that have concentrated economic power. As a result, over 99 percent of Americans, and for that matter world citizens, have been turned into wage slaves, welfare slaves, charity slaves, and consumer debt slaves in order to survive.
The end result we should seek is that citizens would become empowered as owners to meet their own consumption needs and government would become more dependent on economically independent citizens, thus reversing current global trends where all citizens will eventually become dependent for their economic well-being on the State and whatever elite controls the coercive powers of government.
