On May 16, 2019, Robert Reich posts a video:
The crisis of income inequality in America is well-known, but there is another economic crisis developing much faster and with worse consequences. I’m talking about inequality of wealth. We must address this crisis for the sake of our economy and democracy.
Gary Reber Comments:
Robert Reich has yet to define wealth as ownership, whether personal consumption assets (homes, vehicles, boats, furniture, electronics, cash, savings, etc. — all non-income producing) or physical capital assets (productive land; structures; infrastructure; tools; machines; robotics; computer processing and apps; artificial intelligence, certain intangibles that have the characteristics of property, such as patents and trade or firm names the like which are owned by people individually or in association with others).
The reason the wealthy are wealthy is because they OWN wealth-creating, income-producing productive capital assets. Yet Reich vaguely associates “own more wealth than…” without really defining just what wealth is. Instead he uses phrases such as “having more wealth” and “concentrated wealth.” It is important to educate that wealth is the product of OWNING productive capital assets, whose ownership has become concentrated among a few Americans due to a system that presents barriers to broadening ownership simultaneously with the growth of the economy. Instead, the system facilitates the accumulation of more and more capital asset ownership by the wealthy capital assets ownership class because they are able to secure capital credit to finance the growth of the economy, leaving the vast majority of Americans propertyless (in capital asset terms) because they cannot pledge assets as security against default. Thus, the rich get richer and richer, as well as their heirs, as they finance the formation of new productive capital assets.
Capital acquisition takes place on the logic of self-financing and asset-backed credit for productive uses. People invest in capital ownership on the basis that the investment will pay for itself. The basis for the extension of capital credit and commitment of loan guarantees is the fact that nobody who knows what he or she is doing buys a physical capital asset or an interest in one (existing or to be formed) unless he or she is first assured, on the basis of the best advice one can get, that the asset in operation will pay for itself within a reasonable period of time — five to seven or, in a worst case scenario, 10 years. And after it pays for itself within a reasonable capital cost recovery period, it is expected to go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development. The beneficiaries are those few people who become the OWNERS of the capital asset formation, and who are organized as a for-profit-structured business corporation.
There is always a theoretical chance, and sometimes a very real chance, that an investment might not pay for itself, or it might not pay for itself in the projected time period. So, there is a business risk. Commercial banks who make capital credit loans for productive uses always determine that the investment is viable and that the business corporation or an individual(s) is creditworthy and reliably expected to make loan repayments. In addition, banks require security against default. Thus, for the lender to make the loan the corporation’s owners or an individual must provide the security.
The solution to empowering EVERY child, woman, and man to acquire stakes in the formation of productive capital assets that are viable and will pay for themselves, is 1) to unleash the power under Section 13(a) of the Federal Reserve Act to provide capital credit for EVERY citizen to acquire ownership in the formation of productive capital uses and 2) to accept capital credit insurance or commercial risk insurance as a substitute for the pledging of past savings (which only the rich have) as collateral security.
Thus, in order to achieve national economic democracy and put a stop to the hoarding of capital asset wealth, we need a way to handle risk management in finance by broadly insuring the risks. Such capital credit insurance would substitute for the security 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 the non-halves from access to wealth-creating, income-generating productive capital.
Thus, to significantly broaden capital ownership simultaneously with the responsible growth of the economy we need to lift ownership-concentrating Federal Reserve System credit barriers and other institutional barriers that have historically separated owners from non-owners and link tax and monetary reforms to the goal of expanded capital ownership. Removing barriers that inhibit or prevent ordinary people from purchasing capital that pays for itself out of its own future earnings is paramount as an actionable policy. This can be done under the existing legal powers of each of the 12 Federal Reserve regional banks, and will not add to the already unsustainable debt of the federal government or raise taxes on ordinary taxpayers. We need to free the system of dependency on Wall Street and the accumulated savings and money power of the rich and super-rich who control Wall Street. The Federal Reserve System has stifled the growth of America’s productive capacity through its monetary policy by monetizing public-sector growth and mounting federal deficits and “Wall Street” bailouts; by favoring speculation over investment; by shortchanging the capital credit needs of entrepreneurs, inventors, farmers, and workers; by increasing the dependency with usurious consumer credit; and by perpetuating unjust capital credit and ownership barriers between rich Americans and those without savings. 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 could 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 the “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.
Reich is right to state 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(a) 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. 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 responsible and environmentally enhanced growth.
Through such economic democratization reforms, economic growth would 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 earnings (savings).
While a wealth tax is a redistributive measure, at death, individuals should be discouraged from passing on their wealthy estates to their heirs. As a substitute for inheritance and gift taxes, impose a transfer tax on the recipients whose holdings exceed $1 million in value, thus encouraging the super-rich to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes, teachers, health workers, police, other public servants, military veterans, artists, the poor and the disabled. I like to think of this as reminiscent of The Millionaire TV show, which aired from 1955 to 1960 in which a multi-millionaire indulges himself giving away one million dollars apiece to persons he feels deserving.
The capitalism practiced today is what, for a long time, I have termed “Hogism,” propelled by greed and the sheer love of power over others. “Hogism” institutionalizes greed (creating concentrated capital ownership, monopolies, and special privileges). “Hogism” is about the ability of greedy rich people to manipulate the lives of people who struggle with declining labor worker earnings and well-paying job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership. The rich and politically powerful sell every capital project on the basis that it will create jobs,when the real wealth-building benefits are vested in the already wealthy capital ownership class who seek to OWN more capital wealth.
Some would argue that the rich are not greedy and yet there is plenty of evidence that the wealthiest refuse to share their secrets to acquire productive capital with the self-financing earnings of capital, and without the requirement of past savings (or past reductions in consumption). While the rich, innately, are not any greedier as a group than other people, however much they have better and more opportunities to indulge that vice, they have failed to focus any discussion on what policies and system reforms are necessary to create inclusive prosperity by universally broadening the ability to generate income through personal ownership of productive capital and the inclusive opportunity to become a capital owner, thus creating consumers for their own economy.
We need to reevaluate our tax, monetary and central banking institutions, as well as, labor and welfare laws. We need to innovate in such ways that we lower the barriers to equal economic opportunity and create a level playing field based on anti-monopoly and anti-greed fairness and balance between production and consumption. In so doing, every citizen can begin to accumulate a viable capital estate without having to take away from those who now own by using the tax system to redistribute the income of capital owners. What the “haves” do lose is their capital ownership monopoly, which they enjoy under the present unjust system they have created. A key descriptor of such innovation is to find the ways in which “have nots” can become “haves” without taking from the “haves.” Thus, the reform of the “system,” as binary economist Louis O. Kelso postulated, “must be structured so that eventually all citizens produce an expanding proportion of their income through their privately owned productive capital and simultaneously generate enough purchasing power to consume the economy’s output.”
For a more in-depth overview for eliminating economic inequality and creating economic democracy, see my article Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy at http://www.foreconomicjustice.org/?p=11.
Support the Agenda of The JUST Third WAY Movement (also known as “Economic Personalism”) 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/ 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 enactment of the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment 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/. And The Capital Homestead Act brochure, pdf print version at http://www.cesj.org/wp-content/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts (CHAs) at http://www.cesj.org/learn/capital-homesteading/ch-vehicles/capital-homestead-accounts-chas/
