On June 24, The Editorial Board of The New York Times write:
America’s business leaders once bragged about how well they looked after their employees, and how much they contributed to society in taxes.
But in recent decades— as the U.S. economy expanded and CEO salaries skyrocketed—workers have been left behind.
Over the past four decades, American workers have suffered a devastating loss of economic power, manifest in their wages, benefits and working conditions. The annual economic output of the United States has almost tripled, but, with the help of policymakers from both political parties, the wealthy hoarded the fruits.
In the nation’s slaughterhouses, the average worker in 1982 made $24 an hour in inflation-adjusted dollars, or $50,000 a year. Today the average meatpacker processes significantly more meat — and makes less than $14 an hour.
The hundreds of thousands of home health care aides, often female, often minorities, who care for a nation of aging baby boomers rarely receive paid time to care for their own families.
Even in the high-flying technology sector, companies have found ways to leave their workers behind. More than half of the people who work for Google do not actually work for Google. They are classified as contractors , which means they do not need to be treated as employees.
Picture the nation as a pirate crew: In recent decades, the owners of the ship have gradually claimed a larger share of booty at the expense of the crew. The annual sum that has shifted from workers to owners now tops $1 trillion.
Or consider the power shift from the perspective of an individual worker. If income had kept pace with overall economic growth since 1970, Americans in the bottom 90 percent of the income distribution would be making an extra $12,000 per year, on average. In effect, every American worker in the bottom 90 percent of the income distribution is sending an annual check for $12,000 to a richer person in the top 10 percent.
American workers need a raise. But it is not enough to transfer wealth from the rich to the desperate. In confronting the Great Depression, President Franklin Delano Roosevelt understood that a sustainable improvement in the quality of most American lives required an overhaul of the institutions of government.
“These economic royalists complain that we seek to overthrow the institutions of America,” Roosevelt said in 1936. “What they really complain of is that we seek to take away their power.”
Now as then, the profound inequities of American life are the result of laws written at the behest of the wealthy and public institutions managed in their interest. Now as then, the nation’s economic problems are rooted in political problems. And now as then, the revival of broad prosperity — and the stability of American democracy — require the imposition of limits on the political influence of the wealthy. It requires the government to serve the interests of the governed.
Americans especially need to confront the fact that minorities are disproportionately the victims of economic inequality — the people most often denied the dignity of a decent wage. That inequity is the result of historic and continuing racism, and it should be addressed with the same sense of fierce urgency that has motivated the wave of protests against overt displays of racism.
The Rev. Dr. William Barber II, a civil-rights leader who emphasizes the foundational importance of economic justice, has pointed to the constitution that North Carolina adopted after the Civil War. The document affirms the rights of life, liberty and the pursuit of happiness. But African-Americans were among the state’s legislators for the first time, and the former slaves got another principle enshrined as well: that workers are entitled to “the fruits of their own labor.” They understood that economic security makes other freedoms meaningful.
It is time to ensure that all Americans can share in the nation’s prosperity.
In February 1970, student protesters broke into a Bank of America branch near the University of California, Santa Barbara. They scattered the bank’s files and pushed a burning dumpster into the lobby, setting the building on fire.
One protester explained, “It was the biggest capitalist thing around.”
California’s governor, Ronald Reagan, condemning the protesters as “cowardly little bums,” sent in the National Guard. For Reagan and others, the bank fire was more than an isolated act of vandalism. Lewis F. Powell, a prominent corporate lawyer, described it as part of a larger assault on the business of America in a 1971 memo for the U.S. Chamber of Commerce.
Powell listed threats including Ralph Nader’s campaign for consumer safety regulations, the rise of the environmental movement and the expansion of social welfare programs. Warning that “business and the enterprise system are in deep trouble, and the hour is late,” he urged businesses to fight.
Corporations began to invest in politics on an unprecedented scale. The beer magnate Joseph Coors said Powell’s memo prompted him to create the Heritage Foundation , a conservative think tank that greatly influenced Reagan’s presidential policy agenda. The National Association of Manufacturers moved to Washington from New York. Blue chips including General Electric, Exxon and IBM funded a “boot camp” where economists lectured federal judges on free enterprise. By 1990, 40 percent of the judiciary had been re-educated.
Powell continued his corporate advocacy as a member of the Supreme Court, which he joined in 1972, writing important decisions removing restraints on corporate concentration and campaign spending.
The counterrevolutionaries embraced a radical view of the role of corporations: “The social responsibility of business is to increase its profits,” as the economist Milton Friedman wrote in an influential 1970 essay in The New York Times Magazine.
General Electric, the quintessential American
industrial conglomerate, had boasted in a 1953 report that it
paid a lot of money in federal taxes.
It also boasted about its payments to
suppliers, its spending on wages and benefits and its
investments in long-term research.
The report was explicit: The company’s
income was shared among “those whose services of
various kinds made this output possible.” GE
understood its success as intertwined with the health
of the government, the prosperity of its workforce
and the growth of the U.S. economy.
Under Jack Welch, GE’s chairman from
1981 to 2001,the company’s primary objective shifted
from making light bulbs to making money.
There was no more boasting about paying taxes.
During the first three years of Mr. Welch’s tenure, G.E. recorded $6.5 billion in profits and didn’t pay the federal government a single penny in corporate income taxes. Instead of boasting about paying workers, Mr. Welch boasted about layoffs.
This unapologetic pursuit of profit reached new heights with the deregulation of financial markets.
Lending surged as the federal government lifted strict limits on interest rates and on foreign investment in the United States. Investors bought companies and squeezed them like lemons, while surviving firms scrambled to keep shareholders happy. In 1982, the Securities and Exchange Commission — led by a Wall Street banker for the first time since the Great Depression — provided a new way for corporations to shovel money to shareholders by voting to let companies buy back shares of their own stock.
Companies also began to compensate executives primarily with options to purchase stock. The chief executives of large American corporations made about 20 times more than the median worker at those companies in the mid-1960s. By 2018, the gap was some 278 times.Meanwhile, the union movement declined, removing an important counterweight to corporate power. Unions lost traction partly under the weight of their own shortcomings, including endemic corruption and a focus on preserving employment in declining industries rather than expanding membership in growing industries.
Companies also became more militant in their opposition to unions. Kate Bronfenbrenner, a professor at Cornell University, surveyed workers who had participated in unionization drives between 1999 and 2003 and found 57 percent of their employers had threatened to close the business if a union was formed; 47 percent threatened to cut wages or benefits; and 34 percent fired workers who supported unionization.
To sustain the goals of the private sector at the expense of the public interest, corporations poured money into lobbying. They told policymakers that the decline in the fortunes of American workers was the tough-but-fair result of market forces.
“People will get paid on how valuable they are to the enterprise,” John Snow, an economist then serving as Treasury secretary under President George W. Bush, explained in 2006. On this theory, thanks to new technologies and increased foreign competition, most Americans just weren’t worth what they used to be.
Gary Reber Comments:
According to this New York Times editorial, the world will be saved if fixed wages and benefits are increased to a level beyond the dreams of avarice of a century ago. The irony that the higher fixed wages go, the worse off workers become seems to escape them as the price level rises more than the wage increase, and workers get replaced by less expensive machinery and/or the controlling business owners shift production to low cost slave-wage labor countries.
The reason American workers have suffered a devastating loss of economic power over the past four decades, is two-fold: 1) As unions and workers demanded increases in wages and benefits for the same worker input, the controlling owners of corporations began to automate their production and in the process, they owned greater asset values; 2) they also sought to significantly lower the cost of labor and other cost factors, such as regulations and taxes, by shuttering manufactories in our homeland and investing in developing countries, such as Communist China and other slave-wage Asian countries, who welcomed the American investment, technology-sharing, and opportunity to develop their manufacturing capabilities.
This transformation was largely ignored by the American public, who as consumers welcomed lower-priced non-American-made goods, ignoring or not realizing that globalization would destroy their only means to produce –– a job –– and thus their means to consume.
The editorial states that during this time, economic output of the United States has almost tripled. They attribute this to an increase in labor productivity. But the investment in productive capital (the non-human factor of production) 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 as does the globalization of production to slave-wage labor countries.
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 and create consumption demand.
The sole focus of government and the leadership that is supposed to represent our, the people’s best interests is job creation stimulated by investment in the businesses owned by the already wealthy capital ownership class.
Advocates for a job guarantee as the sole solution to when the economy contracts are promoting endless wage slavery, albeit to provide socially useful work
The editorial fails to address that in the United States, and for that matter, everywhere in the world, productive capital is increasingly the source of economic growth. Logically, if this is an undeniable fact, shouldn’t productive capital become the source of added property ownership incomes for all? If one simply postulates 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. This is the logical approach to prevent costs and prices from rising due to inflated fixed wages and benefits. Yet, sadly, the editorial board of The New York Times, and for that matter, the American people and its leaders, still pretend to believe that labor is becoming more productive and couch all policy directions in the name of job creation and wage increases, while envying the wealthy capital asset ownership class. Americans ignore the necessity to broaden personal ownership of wealth-creating, income-producing capital asset portfolios simultaneously with the growth of the economy, and create consumption demand.
No matter how much labor is necessary or unnecessary in the economy, it is imperative that the issue of concentrated capital ownership is addressed, and policies are enacted to simultaneously create new capital owners of the corporations growing the economy, both established and viable start-ups,as the economy grows.
Why is it that educated people cannot see the weakness of the wage slave system? How is it that the vast majority of Americans virtually never learn about why the rich get so much richer every year while everyone else gets left behind?
There is no question that we need to get big money out of politics, which allows the wealthy to control policy-making to the benefit of their ownership interests. As well, we need to set social responsibilities for the controlling owners of corporations that regulate their operations. Political democracy can only be meaningful if supported by economic democracy. Benjamin Watkins Leigh and Daniel Webster understood this when they stated a simple fact: power follows property. “Property” will either seize power, or “power” will take over property. The real solution is to open up access to the opportunity and means for everyone to become capital owners.
We need to simultaneously ensure equal opportunity for EVERY child, woman, and man to acquire ownership stakes in the wealth-creating, income-producing productive assets as they are formed and our economy grows, not just focus only on job creation. This can be achieved without the requirement of holding a job or past saving to risk using insured, interest-free capital credit, solely repayable with the full pre-tax earnings of the investments. The loans would be insured using private capital credit insurance or public insurance. Government guarantees all sorts of things: loans, contracts. It’s not novel for the public sector to provide guarantees.
Citizen-Owned Federal Reserve
The Federal Reserve Bank should be used to provide interest-free capital credit (including only transaction and risk premiums) and monetize each capital formation transaction, determined by the same expertise that determines it today — management and banks — that each transaction is viably feasible so that there is virtually no risk in the Federal Reserve. The first layer of risk would be taken by the commercial credit insurers, backed by a new government corporation –– the Capital Diffusion Reinsurance Corporation (CDRC) –– through which the loans would be guaranteed. The CDRC would reinsure any portion of any financing risk assessed as reasonable and insurable but not already insured by the commercial capital credit insurance underwriters. In establishing the CDRC, the federal government would not be undertaking a new responsibility but merely simplifying and rationalizing an existing one. This entity would fulfill the government’s responsibility for the health and prosperity of the American economy.
The Capital Diffusion Reinsurance Corporation would function similar to the Federal Housing Administration, generally known as “FHA”, which provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. The FHA insures mortgages on single family and multifamily homes including manufactured homes. FHA borrowers pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan. While pay-downs on home mortgages require a separate source of income, capital credit for productive capital formation is self-liquidating, with the earnings from the investment the source of the pay-down.
The fact is money power rules. When money power is broadly distributed in the hands of the citizens, not the politicians or bankers, the people shall rule. Ensuring that money power is broadly distributed should be the primary role of the Federal Reserve.
The Federal Reserve Board is already empowered under Section 13 of the Federal Reserve Act to reform monetary policy to discourage non-productive uses of credit, to encourage accelerated rates of private sector growth, and to promote widespread individual access to productive credit as a fundamental right of citizenship. The Federal Reserve Board needs to re-activate its discount mechanism to encourage private sector growth linked to universal capital ownership opportunities for all Americans.
The Federal Reserve, which has been largely responsible for the powerlessness of most American citizens, should set an example for all the central banks in the world. Members of the Federal Reserve need to wake-up and implement Section 13 paragraph 2, which directs the Federal Reserve to create credit for local banks to make loans to finance economic growth. We should not destroy the Federal Reserve or make it a political extension of the Treasury Department, but instead reform it so that the American citizens in each of the 12 Federal Reserve Regions become the owners, who would regulate the monetization process. The result will be that money power will flow from the bottom up, not from the top down, not for consumer credit, not for credit that doesn’t pay for itself or non-productive uses of credit, but for credit for productive uses to expand the economy’s rate of socially responsible and environmentally enhanced growth.
By implementing Section 13 of the Federal Reserve Act the central bank can be used as a means to make every American a productive capital owner, serving as the only alternative to the two twin oligarchies of capitalism and socialism.
System Reform
As we conquer the COVID-19 virus and push forward, we will need to put into place a reformed monetary and tax system designed to facilitate building a future economy and society that provides equal opportunity for EVERY citizen to participate as owners of productive capital assets. Together we can achieve universal general affluence, based on our core values of fairness, respect, kindness, equal opportunity, courage, persistence, resilience, accountability and justice –– values that can unite us.
The bottom line is that American prosperity must be inclusive, with equal opportunity for EVERY citizen to gain ownership stakes in the corporations growing the economy and to share profits and productivity gains across the economic spectrum. We must include non-managerial and managerial workers, current shareholders, workers not employed in corporations and non-employed citizens –– of every age, race, color and ethnicity.
We must now reform the system and prevent those at the top of the income and wealth scale from exclusively benefiting from economic growth at the expense of the vast majority, and see to it that EVERY citizen, including all workers, enjoy the fruits of economic growth as we, following our triumphal containment of the virus, build an economy that can support general affluence for EVERY child, women and man.
One thing is certain, we have the opportunity to affect necessary system reform before the pandemic disruption has a permanent negative effect, and to embrace the development of tectonic shifts in the technologies of production to grow our economy responsibly and sustainably, and protect and enhance our environment so that EVERY child, woman and man can enjoy a healthy and prosperous future.
Economic stimuli in the moment must focus on emergency government spending and worker income restoration to stimulate investment and consumption. Once the pandemic ends, however, we must immediately shift to long-term systemic reform. The priority must be to create capital ownership estates for EVERY citizen. In the interim, planning for systemic reform and execution is essential and mandatory.
While policy makers and aware citizens know that unlocking the economy will be a difficult and painful process, no one knows exactly what the post-COVID-19 economy will look like.
The key issue in the post economic crisis will not be a lack of new money, but a lack of new owners of productive capital, resulting from a lack of a monetary system that universalizes equal opportunities for every person to access and acquire ownership stakes in the productive capabilities to be developed to meet future economic needs. Had stimulus packages in previous years been designed to create new owners along with new capital formation, our economy would have experienced sustainable and non-inflationary growth. More resources would have been available, and more people would have been economically secure and not dependent solely on jobs to deal with disasters such as the COVID-19 pandemic.
Collateralized by capital credit insurance, self-liquidating capital credit should, as a fundamental right, be made available on an equal basis to all citizens. This would turn today’s non-owners into economically independent owners of productive capital. Such credit would finance the purchase of new or existing productive assets needed by businesses. Future earnings on the shares would pay off the acquisition loans.
What’s needed is an immediate restoration of consumer household spending power and a protective floor under incomes that may soon also collapse should mass layoffs emerge once again in another two or three months.
In the immediate short term, strictly as an emergency measure, massive government debt will be required, which will add substantially to the national debt now exceeding over $26 trillion (or about $72,000 per citizen) and increasing. Such debt results when the government spends money created and regulated by the central bank that has nothing of value behind it other than the government’s promise to pay in the future via taxation. Those measures, however, should cease immediately after the crisis is over. Future taxes should be collected to repay the government’s increasing debt from deficit spending.
Capital Homestead Act
As a matter of national policy, immediately enact the Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) proposed by the Center for Economic and Social Justice (www.cesj.org). The act would establish citizen tax-sheltered Capital Homestead Accounts (CHAs) for each citizen (see http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/).
The Act provides for the post-pandemic response to reform the system for inclusive growth and prosperity, broadening capital ownership simultaneously. The financial instruments and tools provided in the Act would empower EVERY citizen to transition from a non-owning wage or welfare slave, beholden to those who are owners or the government, into an economically independent owner of wealth-creating, income-generating productive capital.
To build a future economy, self-liquidating zero percent interest capital credit loans, collateralized by capital credit insurance, would be equally allocated, on an annual basis based on the projected capital needs of businesses, to EVERY citizen (children, women and men, from birth to death) exclusively for the purpose of investing in the new growth and transferred capital of the economy. These loans would cover all costs of purchasing voting, full-dividend payout shares of corporations and cooperatives that produce goods and services for potential national and global consumers.
The access to insured, self-liquidating zero percent interest capital credit loans would have to be truly universal to remove the stigma attached to means-tested programs such as food stamps. An equal amount of annual capital credit would go to everyone, whether they’re employed or not. No strings attached. No means test. No politicians demanding that you seek out even a menial job before getting the loans.
Each citizen’s capital acquisition loans would be wholly repayable with the full pre-tax stream of future profits earned on the shares, without any requirement to pledge past personal savings or reduce salaries, wages or benefits to invest.
The new monies would be used to invest in responsible and sustainable, environmentally sound growth projects and infrastructure, including alternative energy expansion and other climate crisis mitigation. These new development projects would hire workers in addition to creating new owners. This will be necessary since the current crisis will mean conventional private business investment will collapse across the board and such much needed investment will no longer be forthcoming from the private sector to revive the economy and create general affluence for EVERY citizen.
With the new monies, all manner of environmentally enhanced and sustainable projects can be planned and executed such as clean energy expansion, carbon pollution elimination, public transit development, robust infrastructure construction, smart grid expansion, green building, new “smart” cities, urban redevelopment, housing developments, homeland manufacturing capabilities, etc.
Immediate Response –– Capital Credit And Government Loan Guarantees
We need to use the powerful and proper function of commercial banks to create money by making loans and canceling money once loans are repaid. For this, commercial banks charge a one-time service fee (not interest) to cover administrative costs. Therefore, creating money can be entirely interest free (but not cost free). In addition to the principal to be repaid on interest-free capital credit loans to citizens, there would be a one-time premium to cover the risk of loan default as well as reasonable charges for the services of the Federal Reserve and commercial bank lenders.
Instead of printing trillions of dollars and giving it away, we need to make the money available as commercial loans with repayment guaranteed by the federal government.
In the immediate short term while the pandemic has the economy locked down, any corporation that receives an interest-free capital credit loan from a commercial bank “sold” to the Federal Reserve through the Discount Window with a federal government loan guarantee (loan default insurance via a Capital Diffusion Reinsurance Corporation or CDRC) would be required to issue full-dividend payout, voting shares in the amount of the proceeds of the loan and allocate the shares equally to each employee. The shares would be put into an escrow account until such time the capital credit loan is repaid. For the duration of the emergency, all debt service payments would be suspended.
Throughout the pandemic, the corporation benefiting from the federal government-backed grants, loans and loan guarantees would pay EVERY one of its employees an equal amount of emergency wage income sufficient to meet subsistence needs. These subsistence wages could not be used for acquiring capital. Payments for consumption needs should be in the form of grants that are passed through dollar for dollar to employees during the duration of the crisis to support purchase demand and enable the economy to keep functioning. The emergency capital credit loans would be used to finance broadly owned new productive capital investment to restart production and expand productive capacity.
Once the interest-free (but not cost free) working capital and new long-term capital loans are repaid with a reasonable capital cost recovery period, the money that was created to operate and purchase the capital and then repaid would be cancelled, avoiding both inflation and deflation. The capital itself would continue to produce wealth and generate consumption income for its new owners from ongoing full-dividend payouts from profits distributed as dividends tax deductible by the corporation but treated as regular income by the recipients. The capital would produce income indefinitely with proper maintenance and with restoration in the technical sense through research and development.
When normal operations resume, the corporation would cease emergency subsistence payments, with employees paid at market-determined rates, with any increases coming from profits instead of increasing fixed wages and benefits.
Under this proposal, when a corporation becomes profitable, pre-tax profits paid out as dividends (tax-deductible to the corporation) would be paid through tax-sheltered employee ownership accounts to the loan-issuing commercial bank, thus canceling the corporation’s indebtedness. As the loans are repaid, shares would be released from escrow and put into each employee’s individual Employee Capital Homestead Account (ECHA), a vehicle similar to today’s tax-sheltered Employee Stock Ownership Plan (ESOP) accounts. (ECHAs could later transition to full CHAs when the Capital Homestead Act for all citizens is passed and implemented.) Full-dividend payouts would be passed through (after reasonable deductions for bank administration costs) to each employee to use for consumption.
A politically practical alternative to creating a new legal vehicle (the ECHA) would be to channel government-guaranteed loans made through local banks to a company’s Employee Stock Ownership Plan Trust. ESOPs, which are tax-advantaged corporate finance vehicles, are already recognized under United States law, and thus would not require additional Congressional approval. ESOPs can be used by any company incorporated as a C-Corporation or an S-Corporation. For purposes of receiving government-guaranteed loans for working capital or long-term growth capital, ESOPs should be required to issue and allocate new, full-dividend, voting shares to all employees on an equal basis.
The law allows a company to deduct from its taxable income any future profits used by the ESOP to pay for shares or distributed to employees through the ESOP. Banks assess the feasibility of a company’s loan on the basis of the future stream of pre-tax profits, projected to be earned by the company within a reasonable period of years. The company’s cash contributions and dividend payments to the ESOP repay the acquisition loan. Participants sell their shares to the ESOP for cash when they leave the company.
In a worst case scenario, in the event of loan default on the part of the corporation, the federal government making the emergency loan guarantee would repay the balance of the loan to the issuing commercial bank, in which case the loan is extinguished and the proceeds are used to redeem the commercial bank’s paper (promissory note) from the Federal Reserve.
Since 1985 in the United States, commercial bank loans for industry, commerce, and agriculture that have gone bad typically have been between 1 and 5 percent (https://www.federalreserve.gov/releases/chargeoff/delallsa.htm). Assuming that 5 percent of all government-insured commercial bank loans may default, a $2 trillion+ loan guarantee package would cost the government a lot less –– $100 billion or more depending on the total trillions of dollars guaranteed. The government can waive an insurance premium or, for example, charge a 1 percent premium, in which case the government would collect $20 billion and reduce the loss by that amount.
In immediate and future time frames, we must ensure that federal government grants and loans do not end up with corporations whose controlling owners would buy back their stock, in order to reduce the number of shares so the remaining shareholders can consolidate more ownership, and buy up the assets auctioned off by corporations that go out of business during the pandemic. Otherwise, without ownership-broadening stipulations tied to grants and loans, the result will be the ownership of our nation’s wealth will become even more concentrated than before the pandemic struck. Consequently, there will be more Americans poorer as poverty spreads while multi-millionaires and billionaires become wealthier.
Recovery Money Creation
As the economy recovers, all money backed by government debt should be gradually retired and replaced with money backed by private-sector productive capital assets.
After termination of emergency financing, EVERY citizen would be able to establish a Capital Homestead Account (CHA) that is legally advantaged to acquire new qualified full-dividend payout, voting shares of any corporation with fully insured, interest-free capital credit. A one-time premium to cover the risk of loan default as well as reasonable charges for the services of the central bank and bank lenders would be in addition to the principal to be repaid on capital credit loans to citizens. The corporations eligible would be both established and startups, and would use the money exclusively to fund viable projects to grow the economy. CHAs, as with the temporary ECHAs, would make the debt service payments with pre-tax dividends to Federal Reserve-backed commercial banks issuing the capital credit, and afterwards, upon liquidation, paid to citizen beneficiaries as regular taxable personal income.
As part of the normal money creation process, Federal Reserve policies should allow for covering reasonable and fair financing costs of the central bank and commercial banks providing interest-free capital credit loans annually and equally to EVERY citizen for the exclusive purpose of financing future capital expansion via corporations. If a corporation rejects citizen financing, they would not qualify for interest-free capital credit through the Federal Reserve/commercial banking system. Political and media pressure will help to persuade corporations to do the right thing and have ALL citizens share in our collective prosperity.
The grants or alternatively preferred government insured capital credit would finance the purchase of new or existing productive assets needed by businesses. Future earnings on the shares would pay off the grants or loans. Once the grants or loans are repaid, the money created to purchase the capital would be cancelled, avoiding both inflation and deflation. The capital itself would continue to be a source of wealth and generate consumption income for its new owners.
Capital Credit Insurance
A note about insurance: Once the economy has recovered, capital credit loans would be insured and guaranteed against loan default by private capital credit insurers, commercial risk insurers or a federal government reinsurance agency (á la the Federal Housing Administration mortgage insurance concept) –– the Capital Diffusion Reinsurance Corporation (CDRC) –– through which the loans would be guaranteed. The CDRC would reinsure any portion of any financing risk assessed as reasonable and insurable but not already insured by the commercial capital credit insurance underwriters. In establishing the CDRC, the federal government would not be undertaking a new responsibility but merely simplifying and rationalizing an existing one. This entity would fulfill the government’s responsibility for the health and prosperity of the American economy.
Such capital credit insurance would substitute for the security now demanded by lenders to cover the risk of non-payment, thus enabling the poor and others with no or few assets (the 99 percent) to overcome the collateralization barrier that excludes them from access to the means to finance their ownership of wealth-creating, income-generating productive capital. (A portion of their capital credit allotment will be used to cover the one-time cost of capital loan insurance and bank service charges.)
Before the loan is made, the lender, risk insurance company, and other entities will first determine the “feasibility” of each particular loan. (“Feasibility” means that the enterprise’s new capital investment is expected to generate enough profits to pay for itself within a reasonable capital cost recovery period. Such a feasibility analysis will judge the soundness of the enterprise that needs to purchase the new capital assets, including the quality of its management and workforce, its current and future markets, etc.)
Self-liquidating capital credit, collateralized by capital credit insurance, is critical for stimulating the economy’s recovery and responsible growth. Insured, interest-free capital credit should be made available annually on an equal basis to ALL citizens exclusively for investment, turning today’s non-owners into economically independent owners of productive capital simultaneously with the responsible growth of the economy. This credit would finance the purchase of new or existing productive capital assets needed by businesses. Future share earnings generated by the investments would pay off the acquisition loans –– in other words, past savings or reductions of current consumption income would not be necessary to finance capital formation.
Once the commercial bank loans are repaid, the money created to form the new productive capital would be cancelled, avoiding both inflation and deflation, and continue to generate consumption income for its new owners.
Every new productive capital increment added to the economy would generate future earnings to pay for its financing. Consequently, normal market forces would synchronize effective demand and supply for economic growth. This would continue as long as the new capital assets serve as an additional source of consumption income for today’s non-owning citizens, particularly the poor and others who do not have sufficient and secure incomes, thus reducing the need for government taxpayer redistribution and dependency on welfare, open and concealed. In this way, workers and other current non-owner citizens would help sustain economic growth and secure their own financial independence as they grow their wealth by becoming owners of the future increase in capital productiveness.
Further Economic Measures
Further economic measures will be needed to address the recession and recovery.
To meet the full costs of the government and start paying down its debt, a single tax rate should be imposed for all incomes from all sources above personal and family exemption levels so that the budget could be balanced automatically and even allow the government to pay off the growing unsustainable long-term national debt. The exemption should be sufficient to meet each citizen’s or family’s common domestic needs. The poor would pay the first dollar over their exemption levels as would the hedge fund operator and others now earning billions of dollars from capital gains, dividends, rents and other property incomes which under some tax proposals would be exempted from any taxes. Other personal taxes, such as payroll taxes, should be phased out. Remove all tax loopholes to eliminate corporate and personal tax avoidance, and business subsidies. Pay out of general revenues for all promises for Social Security, Medicare, government pensions, health, education, rent and subsistence vouchers for the poor until their new jobs and ownership accumulations provide new incomes to substitute for the taxpayer dollars to fill these needs.
To encourage full payout of corporate pre-tax earnings and finance new capital formation through the issuance and sale of new shares, dividends should be tax-deductible at the corporate level, enabling corporations to reduce their tax liability to zero. Dividends should be taxed as personal consumption incomes, except when used to pay for “qualified” shares (i.e., shares meeting required standards) held within each citizen’s tax-sheltered trust account. To pressure corporations to finance their growth, other than with retained earnings and corporation debt (neither of which creates any new owners), and pay out their full earnings as dividends to their actual owners, the corporate tax rate should be raised to at least 90 percent.
Leadership And Resolve
To overcome the COVID-19 coronavirus pandemic threatening our lives and our economy will require leadership, resolve, scientific knowledge, planning and resources. We must adopt laws promoting major reforms in monetary policy, central banking, tax and other laws for establishing a sustainable, resilient and just economy. Through a new visionary political and economic paradigm, we can build for EVERY person a more environmentally sound and sustainable economy that secures and enhances our personal futures, with preparedness to deal with future crises.
One sign of hope is the pandemic has turned millions of people into good neighbors with a sense of realization that we are all interdependent on each other. Hopefully that can translate to reforming the system so that ownership and power concentration can be reversed with EVERY child, woman, and man having the right to property and equal opportunity access to the means of acquiring and possessing property to enhance the economic security, safety, and well-being of ALL. This will ensure inclusive prosperity and economic justice as our nation progresses into the future in harmony with all the people on Earth.
Note: Some of the opinions expressed in this article are mine and not CESJ’s. Dawn Brohawn, Michael D. Greaney, and other CESJ colleagues contributed to this article.
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Gary Reber is the founder and Executive Director of For Economic Justice (www.foreconomicjustice.org), a critic of economic policy and economic inequality, and an advocate and author for economic justice through broadened ownership of wealth-creating, income-producing physical productive capital. Mr. Reber is a board member of the Center for Economic and Social Justice (CESJ) and a founding member of the Coalition for Capital Homesteading. In 1967, Mr. Reber founded with binary economist, ESOP inventor, financial lawyer and universal citizen ownership theorist Louis O. Kelso, Agenda 2000 Incorporated to advocate policies and programs to broaden productive capital ownership in urban and economic development projects.
The following letter from the Center for Economic and Social Justice (www.cesj.org) was published on our blog site by CESJ’s Research Director, Michael D. Greaney.
“The Jobs We Need”
A while back, toward the end of June (the twenty-fourth, to be exact), The New York Times ran an editorial on “The Jobs We Need,” although it was evident from the fact that the piece was written by staff that they didn’t include themselves as part of us. Anyway, we got to work and sent a letter to the editor that was never published, a slightly edited version of which we post here today:
Dear Sirs:
Regarding your June 24, 2020 editorial, “The Jobs We Need,” we would like to offer a few comments that might shed some light on the subject. First, we would agree with President Franklin Delano Roosevelt that it is a matter of power. The question is, whose power over what?
As long as people are powerless and depend on others for their income, they are going to be vulnerable to economic downturns, cheaper labor, displacement by advancing technology, sickness, disability, old age, and death that leaves them and those dependent on them helpless. Increased government assistance, private charity, and job creation, while it may be necessary in the short-term, are not the answer, as the underlying problem remains.
When workers have only their labor to sell, they will be replaced as soon as there is a cheaper alternative. If they cannot work, they cannot produce. If they cannot produce, they cannot consume unless others give them what they need, or they take what others have by force.
Raising wages is not the answer. That simply increases the costs of production, which in turn raises the price level. As experience has taught us, the rise in prices usually more than offsets the increase in wages, leaving workers worse off than before.
As Louis O. Kelso and Mortimer J. Adler pointed out in The Capitalist Manifesto (1958), there is only one sustainable solution to the growing disparity of productive power between human labor and capital. That is for workers to become direct owners of capital as well as of their own labor.
This was recognized in Article 17 of the UN Declaration of Human Rights that states everyone has the right to be an owner, individually or in free association with others. What we today call “the Just Third Way of Economic Personalism” offers a just, free market, private property-based alternative to both capitalism and socialism.
UAW president and civil rights advocate Walter Reuther noted this in his testimony before Congress in 1968 when advocating the adoption of Kelso’s ideas to counter the loss of autoworkers’ jobs to other countries. As Reuther explained, workers as capital owners receiving a part or all of their income from profits would increase pay and benefits without adding to production costs. This would keep prices low and increase the purchasing power of the additional income.
As to how workers and everyone else could afford to purchase capital, they could do as Kelso proposed and pay for the capital with the future earnings of the capital itself, collateralizing with insurance instead of existing wealth. People as disparate as Ronald Reagan and Hubert Humphrey were in favor of a program of expanded capital ownership for all citizens — “Capital Homesteading” — financed in this way.
Nor is it a pipe dream. Kelso’s technique has been used successfully in the Employee Stock Ownership Plan (ESOP) he invented. Today more than 11 million workers in over 8,000 companies are part owners of the companies that employ them without having put up existing savings.
Making displaced workers as well as all citizens owners of America’s corporate wealth would have another benefit, particularly valuable in these days of quarantine and isolation. Factories could be automated without affecting family income.
A few tax and monetary reforms could easily be implemented with only a few legal changes in the system. One, all dividends could be made tax-deductible at the corporate level and treated as ordinary income unless used to make tax-deferred purchases of newly issued equity representing new capital growth.
Two, by paying out all earnings as dividends, a corporation could legally avoid all corporate income tax. At the same time, the personal tax base would increase and entitlements and transfer payments reduced as people’s incomes became sufficient to meet their needs.
Three, new growth could be financed by issuing equity instead of debt, while the commercial banking system backed up by the Federal Reserve could monetize private sector growth instead of government debt — which was the original function of the Federal Reserve. The result would be an elastic, stable, uniform, and asset-backed currency and a shift away from government debt as the backing of the money supply.
Judging by how long it took to achieve full employment in World War II, as well as the tremendous amount of unmet consumption needs in this country alone, it is possible that there could be a complete economic turn-around very soon after the passage of a Capital Homestead Act. Full employment would probably follow in short order.
Keeping in mind the average payback of new capital of three to seven years, full dividend payout would increase effective demand exponentially after the new capital repaid its financing. This would further increase the demand for labor and more new capital. There would no longer be a shortage of jobs, but a shortage of workers, and a consequent rise in wages naturally as employers bid up the market price of labor.
The increase in taxable income would increase tax revenues and at the same time reduce the need for entitlements and transfer payments. This would reduce government deficits with the possibility over the long-term of eliminating both the deficit and the outstanding debt as more people met their own needs through their labor and capital ownership. Government borrowing could then be restricted to short-term loans out of existing savings to meet temporary shortfalls in tax revenues.
As Daniel Webster reminded us two-hundred years ago in 1820, “Power naturally and necessarily follows property.” Reparation could be made in this way to everyone who has suffered from the effects of an unjust system. By making every citizen a direct owner of America’s future corporate wealth without redistributing existing wealth, every person would be empowered and face a more peaceful and secure future.
Yours,
Blah, blah.
