On February 22, 2015, Robert J. Samuelson writes in The Washington Post:
Given the obsession with economic inequality, you might think it’s the main force squeezing the middle class. It isn’t. We have this not from some right-wing think tank but from President Obama’s top economists. The bigger culprit, they show, is the slow growth of productivity — that messy process by which the economy improves efficiency and living standards. Greater inequality is a distant second in assaulting middle-class incomes.
So concludes the annual report of the White House Council of Economic Advisers. The CEA, as it’s known, performed a fascinating “what if” exercise. Assume that the most favorable post-World War II trends had continued, it said. Specifically: Productivity maintained its rapid growth of the 1950s and 1960s; inequality stayed at lower levels; and labor-force participation didn’t drop.
What happens then to middle-class incomes?
Answer: They double. The income of the median household goes from roughly $50,000 to $100,000 after inflation. The biggest increase, about $30,000, would stem from faster productivity growth. Less economic inequality would account for $9,000 and higher labor-force participation — more workers — for $3,000. (Yes, that’s only $42,000; the rest reflects the favorable interaction of the three trends.)
Just why this didn’t happen is a central economic story of our time. The CEA doesn’t offer a comprehensive theory. It merely divides the postwar era into three subperiods based on the economy’s changed performance. For example, the years from 1948 to 1973 are labeled “The Age of Shared Growth,” because the economy grew rapidly and gains were widely distributed.
I’d tweak the CEA’s approach slightly. Here’s how I’d characterize the different phases of the postwar economy.
● The Postwar Boom, 1945-1964: It was unexpected. Memories of the 1930s endured. A 1946 Gallup poll found that 60 percent of Americans feared a depression within a decade. But underlying conditions favored expansion. There was a huge pent-up demand for consumer goods as a result of weak spending in the Depression and World War II; also, a backlog of new technologies to be exploited (television, synthetic fibers, air conditioning, jet travel); and low household debt. Suburbanization was in full swing. As the CEA notes, income gains were widely shared.
● The Great Inflation, 1965-1982: We couldn’t let well enough alone. Economists argued that deft policies could keep the economy close to “full employment” (defined as a 4 percent unemployment rate). The experiment backfired. Inflation — virtually nonexistent in 1960 — hit 6 percent in 1969 and 13 percent in 1979. This led to four recessions (1969, 1973, 1980 and 1981). Because no one seemed capable of subduing inflation, people lost faith in national leaders. Rising foreign competition deepened pessimism.
● The Great Moderation, 1983-2007: A period of brutally tight money, engineered by Federal Reserve chairman Paul Volcker, crushed inflationary psychology and started a 25-year boom. There were only two mild recessions (1990, 2001). As inflation fell, so did interest rates; and as interest rates fell, stocks and home prices rose. People spent or borrowed against newfound wealth. The personal savings rate dropped from 10.6 percent of disposable income in 1980 to 2.5 percent in 2005.
● The Big Scare, 2008-????: The boom’s confidence turned self-destructive. People overborrowed; lenders over-lent. What was scary about the ensuing crisis was that it was supposedly made impossible by modern economics and financial regulation. The fact that it happened anyway made consumers and business managers extra cautious. They are now protecting themselves against both known and unknown risks. We remain in the grip of “the big scare,” though it may be loosening.
What this history teaches is that we have less control over our economic destiny than is often assumed. At every juncture in the chronology, people — including “experts” — did not foresee the next major change. In the early 1960s, they didn’t anticipate high inflation; in the late 1970s, they didn’t expect its demise. In this respect, the surprise 2008-2009 financial crisis was typical.
The same ignorance inhibits what we can do for the middle class. Government — a.k.a., politicians — can address some middle-class wants by redistributing income from the rich through tax breaks and subsidies. But this approach has limits and not merely because the rich will resist.
Recall, as the CEA found, that inequality isn’t the main cause of sluggish middle-class incomes. It’s poor productivity. There are always rhetorical solutions: more infrastructure spending; better schools; simpler taxes; more research. Though some policies may be desirable, there’s no guarantee they will improve productivity. Influencing productivity is hard because it depends on so much (management and workers, technology, market behavior, government policies and more).
We simply don’t know how to orchestrate predictable productivity increases. If it were easy, it would already have been done. Saving the middle class, though popular, is qualified by economic reality. Our ambitions often exceed our powers.
The White House Council of Economic Advisors (CEA) should ALL be fired! Their whole premise is couched in non-reality and based on a one-factor labor perspective, oblivious to the reality that people invent “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 CEA and author Robert Samuelson fail to understand that most changes in the productive capacity of the world since the beginning of the Industrial Revolution can be attributed to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. The reason that “productivity maintained its rapid growth of the 1950s and 1960s [while] inequality stayed at lower levels; and labor-force participation didn’t drop” is because production during that time was still balanced toward labor intensiveness. Also, because they believe technological improvements “enhance” labor productivity (labor’s ability to produce economic goods) they conclude that it is the slow growth of productivity that is the problem why people’s wages are stagnant. The fact is, the opposite is true. Technological invention and innovation makes many forms of labor unnecessary. 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.
Because productive capital is increasingly the source of the world’s economic growth it should become the source of added property ownership incomes for all. But “OWNERSHIP” is not addressed. Instead, they pretend to believe that labor is becoming more productive and thus the need for a more rapid growth of productivity, but ignore the necessity to broaden personal ownership of wealth-creating, income-producing capital assets simultaneously with the growth of the American economy.
At the Rand Corporation, the statistic was 98 percent, to represent the productive capital factor input to creating products and services. In concentrated capital ownership terms, today 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. Technology is an easier and faster way to get a job done. Because technology increases the profitability of companies throughout the world, technology always has the advantage over human labor when the costs of them are the same. 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 physical capital while distributing the earning capacity of physical capital’s work (via capital ownership of stock in corporations) to non-owners through jobs, minimum wage, and welfare. Such policies do not function effectively.
The CEA doesn’t offer a comprehensive theory to abate economic inequality. But there are solutions that have yet to be recognized by established power elite, which would result in a democratic growth economy. Based on binary economics (human and non-human contributions), 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.
While Samuelson also does not know how to influence productivity or orchestra predictable productivity, he and the CEA he writes about need to WAKE UP and understand that the system, as structured, is enriching the capital wealth of a tiny minority who then have the financial and political power to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities. It is the wealthy ownership class that continues to benefit from a rigged system and accumulate the bulk of the money through monopolized productive capital ownership. 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 made possible by “customers with money.”
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.
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 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.
In Kelso’s words, “a democratic capitalist economy is a private-property, free-market economy in which goods and services are produced through the voluntary and universal cooperation of concurrent labor workers and ‘capital workers’ [those who own the “tools”] under a politically democratic government.” At present the United States economy, nor for that matter any other economy does not operate as a private-property democratic-capitalist, free-market economy. What needs to transpire is an understanding of binary economics along with instituting credit mechanisms that will implement the goal of broadening productive capital ownership in ways wholly compatible with the U.S. Constitution and the protection of private property.
The solutions to put us on the path to inclusive prosperity, inclusive opportunity, and inclusive economic justice are available for one to study and act upon by sharing them with the people you know, and demanding that politicians support and advocate them.
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 at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/. See http://cesj.org/learn/capital-homesteading/ and http://cesj.org/…/uploads/Free/capitalhomesteading-s.pdf.
