The Federal Reserve’s Artful Compassion For Households In ‘Sobering’ Condition

On September 26, 2014, Timothy J. Barnett writes on The Huffington Post”

If President Obama is the U.S. military’s Commander-in-Chief, the chairwoman of the Federal Reserve, Janet Yellen, is the finance sector’s “Money-Power-in-Chief.” Building on Ben Bernanke’s legacy-like resurrection of a wounded economy, Yellen now hopes to burnish the image of central banking. Widening its mission, the Fed moves further into its role as the nation’s economic engine. In so doing, it strengthens impressions of a post-congressional era where the idea of demo-plutocracy has more explanatory power than the term democratic republic. Now, Fed chair Yellen hopes to remedy social injustice through the bank’s money-power. Perhaps the Fed chair ought to consider what China has wrought with its money power.

In China, the state has shrewdly created new capital and applied it to endeavors that heighten worker productivity and new business efficiencies through applications of advanced technology and infrastructure development. China’s strategy has produced an economic transformation unheralded in global history. This is not to say, however, that China’s growth policies should be emulated beyond the pursuit of productivity gains and enhanced business efficiency. China’s environmental troubles are serious as are other problems such as soaring economic inequality and an iniquitous, non-merit based concentration of wealth and power by means of crony capitalism. In short, China’s system looks like ours in rewarding disingenuously labeled merit and outright undeservedness (as ethically and prudently construed).

It is true that economic growth is helping tens of millions of Chinese move from near-poverty into lower-middle class standing. This is good. Nonetheless, this trend reflects extensive investment from the West as well as what was, until recently, a considerable competitive wage advantage held by the Chinese. Economic growth in the U.S. cannot be similarly stimulated by low wages, as American consumers are already strapped by cost of living overhead. In a consumer-driven economy, low wages are a prescription for slow growth. Consequently, some business people, like Seattle’s entrepreneurial investor, Nick Hanauer, advocate for large increases to minimum wages in high cost metropolitan areas.

For Hanauer, higher wages will create a self-propelling virtuous cycle, as long as rising consumer costs don’t swallow up the gains. (There is a lot to applaud here.) Fortuitously, American industry has spare capacity, suggesting that rising demand may not drive higher inflation. Perhaps this is why Fed chairwoman Janet Yellen believes the Fed’s stimulation of the economy will support increased business profitability so as to foster continued hiring and higher wage opportunities.

There is, however, a different lens through which to see the Fed’s hope, or perhaps Machiavellian strategy. The Fed has implemented its 1977 congressional mandate on maximum employment and stable prices for 37 years. Where has it gotten us? If one considers the data provided by Robert Reich in his Inequality for All docu-drama, a detrimental side effect of this distribution-blind focus is a growing economic inequality gap. Indeed, it is within this period of astonishing growth for corporate profits that the financial sector has enlarged its share of national income while the condition of lower-income families in America has become sobering, to use Janet Yellen’s term.

Now, with QE3 winding down, Yellen pledges that the Fed will further help ‘the large share of American families with very few assets and extraordinary vulnerability’ by continuing with the asymmetrical policies that have transferred the earnings of the many into the vaults of the few. Her statement on the matter, offered September 18 in the nation’s capital, is this: “The Federal Reserve’s mission is to promote a healthy economy and strong financial system, and that is why we have promoted and will continue to promote asset-building.”

Whose assets are being built? The top 5 percent of the nation’s households hold about 80 percent of the nation’s publically traded stock. Indeed, across all categories of important assets, the top 1 percent hold the lion’s share. Once Fed-speak is decoded, Yellen’s rationalization does not approach noblesse oblige. Yes, the trickle-down economy is building momentum, but the inequality gap grows wider as high returns on mega-assets for elites trump low returns on micro-assets for working class people — individuals with little risk tolerance or ability to meaningfully diversify, as explained by Thomas Piketty.

Regular folks struggle to save for investment because the overhead costs of trying to live a decent life are rising much faster than the Fed’s calculation of consumer price inflation. If the Fed did not favor the financial sector with cheap money, the CPI measure of the cost of living would decline, thus increasing people’s buying power even without wage increases. But this does not happen, in the aggregate, because the spillover effects of asset inflation contribute to “rising stable prices” — a way of describing the Fed’s desire for controlled inflation as a means of subsidizing the profitability of banks’ leveraged investment portfolios and the security of their large corporate loans. After all, modest, steady CPI inflation reduces the chance of corporate failure, thus helping establishment wealth hold its place and transmit hereditary and fraternal advantage across generations.

Glaringly absent in the Fed’s policy platform is a commitment to a fair architecture for capitalism that equitably distributes the fruits of enterprise by providing incentives for ethically pricing each person’s contributions to the sustainable public good. The Fed is all too willing to reward the financial sector, using its faulty congressional mandate to exonerate its actions. It’s just that the paternalistically correct thing for central bankers to do is feel “sobered” by the condition of working class families, while enabling policies that keep the proletariat in their place. If this is noblesse oblige, the economic inequality gap will just get wider.

It’s important and necessary to ask the question, as Timothy Barnett asks, “Whose assets are being built?” The underlying foundation of this inquiry is an investigation into “Who Owns” the wealth-creating, income-producing capital assets that are formed by the growth of the economy each year? As Barnett points out regular folks struggle to make enough income to survive weekly and monthly; forget saving for investment. And the Federal Reserve constantly ignores this reality and does nothing to empower regular propertyless folks to benefit from cheap money that could be issued to finance insured, interest-free capital credit loans for regular folks to acquire ownership shares in growth corporations on the basis that the investment will generate earnings used firstly to pay off the loans and thereafter produce an income stream from the full-payout of corporate dividend earnings.

The Federal Reserve System needs to be reformed to act as a purveyor of economic growth.

Influential economists and business leaders, as well as political leaders, should read Harold Moulton’s The Formation Of Capital, in which he argues that it makes no sense to finance new productive capital out of past savings. Instead, economic growth should be financed out of future earnings (savings), and provide that every citizen become an owner. 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. Chairman janet Yellen and other 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 where there isn’t enough savings in the system 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 growth.

http://www.huffingtonpost.com/timothy-j-barnett/the-federal-reserves-artf_b_5884384.html

Robert Reich On What’s Really Destroying The American Middle Class

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On September 29, Robert Reich writes on AlterNet:

I was in Seattle, Washington, recently, to congratulate union and community organizers who helped Seattle enact the first $15 per hour minimum wage in the country.

Other cities and states should follow Seattle’s example.

Contrary to the dire predictions of opponents, the hike won’t cost Seattle jobs. In fact, it will put more money into the hands of low-wage workers who are likely to spend almost all of it in the vicinity. That will create jobs.

Conservatives believe the economy functions better if the rich have more money and everyone else has less. But they’re wrong. It’s just the opposite.

The real job creators are not CEOs or corporations or wealthy investors. The job creators are members of America’s vast middle class and the poor, whose purchases cause businesses to expand and invest.

America’s wealthy are richer than they’ve ever been. Big corporations are sitting on more cash they know what to do with. Corporate profits are at record levels. CEO pay continues to soar.

But the wealthy aren’t investing in new companies. Between 1980 and 2014, the rate of new business formation in the United States dropped by half, according to a Brookings study released in May.

Corporations aren’t expanding production or investing in research and development. Instead, they’re using their money to buy back their shares of stock.

There’s no reason for them to expand or invest if customers aren’t buying.

Consumer spending has grown more  slowly in this recovery than in any previous one because consumers don’t have enough money to buy.

All the economic gains have been going to the top.

The Commerce Department reported last Friday that the economy grew at a 4.6 percent annual rate in the second quarter of the year.

So what? The median household’s income continues to drop.

Median household income is now 8 percent below what it was in 2007, adjusted for inflation. It’s 11 percent below its level in 2000.

It used to be that economic expansions improved the incomes of the bottom 90 percent more than the top 10 percent.

But starting with the “Reagan” recovery of 1982 to 1990, the benefits of economic growth during expansions have gone mostly to the  top 10 percent.

Since the current recovery began in 2009, all economic gains have gone to the top 10 percent. The bottom 90 percent has lost ground.

We’re in the first economic upturn on record in which 90 percent of Americans have become worse off.

Why did the playing field start to tilt against the middle class in the Reagan recovery, and why has it tilted further ever since?

Don’t blame globalization. Other advanced nations facing the same global competition have managed to preserve middle class wages. Germany’s median wage is now higher than America’s.

One factor here has been a sharp decline in union membership. In the mid 1970s, 25 percent of the private-sector workforce was unionized.

Then came the Reagan revolution. By the end of the 1980s, only 17 percent of the private workforce was unionized. Today, fewer than  7 percent of the nation’s private-sector workers belong to a union.

This means most workers no longer have the bargaining power to get a share of the gains from growth.

Another structural change is the drop in the minimum wage. In 1979, it was $9.67 an hour (in 2013 dollars). By 1990, it had declined to $6.84. Today it’s $7.25,  well below where it was in 1979.

Given that workers are far more productive now – computers have even increased the output of retail and fast food workers — the minimum wage should be even higher.

Robert Reich continues to be confused and restricted in his labor-only focused thinking with respect to addressing economic inequality.

While it is true that “customers with money” who purchase products and services cause businesses to expand and invest, without “customers with money” there can be no demand for investment in companies who can grow the economy. The problem is that modern technology is so efficient, and getting more efficient constantly, and as a consequence is removing jobs from the economy at an exponential rate.

In Reich’s world, the reality that JOBS  are the ONLY way to earn an income is why he advocates for coerced minimum wage legislation. His other notion is that workers are entitled to higher wages because “workers are far more productive now.” What Reich fails to understand is that workers are not more productive now than they have ever been as human productiveness largely has unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). Reich fails to grasp the significant of understanding that fundamentally, economic value is created through human and non-human contributions and the fact 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.  As a result, increasingly productive technological advancement makes many forms of labor unnecessary.

Because of this undeniable fact, 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. This is in essence what Reich advocates. Reich only sees advancing the 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.

Reich continues to be obvious (or controlled politically and financially) to institutionalized greed (creating concentrated capital ownership, monopolies, and special privileges) and the ability of greedy rich people to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then 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 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. 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.

So why doesn’t Robert Reich see this? Why does he not see that 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 products and services, the production of products and services should rise to unprecedented levels as well as the quality and craftsmanship of such, freed of the cornercutting imposed by the chronic shortage of consumer purchasing power?

Reich should realize that 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.

Reich should realize that the solution is broadening personal ownership of wealth-creating, income-producting capital assets (the source of wealth and income that empowers America’s wealthy to become more richer than they’ve ever been. If a man or woman  owns something that will produce a second income other than a job, he’ll or she’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.

The question that requires an answer by Robert Reich is now timely before us. It was first posed by binary economist Louis Kelso in the 1950s but has never been thoroughly discussed on the national stage. Nor has there been the proper education of our citizenry that addresses what economic justice is and what ownership is. Therefore, by ignoring such issues of economic justice and ownership, our leaders are ignoring the concentration of power through ownership of productive capital, with the result of denying the 99 percenters equal opportunity to become capital owners. The question, as posed by Kelso is: “how are all individuals to be adequately productive when a tiny minority (capital owners) produce a major share and the vast majority (labor workers), a minor share of total goods and services,” and thus, “how do we get from a world in which the most productive factor—physical capital—is owned by a handful of people, to a world where the same factor is owned by a majority—and ultimately 100 percent—of the consumers, while respecting all the constitutional rights of present capital owners?”

The answers can be found in the open platform of the Unite America Party, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change at http://www.nationofchange.org/platform-unite-america-party-1402409962 and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.

http://www.alternet.org/economy/robert-reich-whats-really-destroying-american-middle-class

http://www.salon.com/2014/09/30/robert_reich_trickle_up_economics_are_killing_americas_middle_class_partner/?source=newsletter

Nevada Overstating Economic Benefits Of Tesla factory, Analysts Say

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Surrounded by lawmakers and staff members, Nevada Gov. Brian Sandoval signs into law an unprecedented package of incentives to bring Tesla Motors’ $5-billion battery factory to the state. (Cathleen Allison / Associated Press)

On September 27, 2014, Chris Kirkham writes in the Los Angeles Times:

When Nevada Gov. Brian Sandoval announced a $1.3-billion package of public subsidies to lure a Tesla Motors battery factory, he stressed that the huge sum would be dwarfed by an economic windfall for local residents.

The electric car maker will create $100 billion in economic benefits, he said, and “change Nevada forever.”

“Even the most skeptical economist would conclude that this is a strong return for us,” Sandoval said during a news conference this month with Tesla Chief Executive Elon Musk.

Economists who reviewed Nevada’s economic benefit estimates for the Los Angeles Times concluded something quite different. They pointed to flawed assumptions and inflated projections in the state’s promises of job creation, tax revenue and overall spending created by the $5-billion lithium-ion battery facility.

The projection, for instance, counts all future tax revenue, but makes no allowance for government spending to serve the influx of residents. It counts every dollar of workers’ salaries as if they were unemployed or lived out of state before Tesla arrived. And more than half of the estimated economic jolt relies on the assumption that the bulk of the factory’s supply chain will relocate to Nevada.

Tesla plans to hire 6,500 workers, and the estimate counts a projected 16,000 additional jobs from suppliers and other local business to serve the new workforce.

Beyond concerns over the estimate’s accuracy, some experts say it’s misleading to frame economic benefits as a payoff of taxpayers’ investments. The $100-billion figure, they say, distracts from the central questions underlying any such deal: Do the lost tax dollars ever come back? Do local residents get wealthier?

“It’s an incredibly distorting value,” said David Swenson, an economic analysis expert at Iowa State University. “It’s a mechanism of presenting economic information in a way that produces something like a return-on-investment ratio, but it’s not. It’s like kudzu. I can’t chop it down fast enough.”

Tesla officials, for their part, say the factory will supercharge the local economy of Nevada. While economists have scrutinized the incentive package, the automaker should be credited for a commitment to manufacturing in the U.S. rather than lower-cost markets such as Mexico, they say.

“The idea that this is some kind of giveaway to a private corporation, at the expense of taxpayers, is fallacious,” said Diarmuid O’Connell, Tesla’s vice president of business development. “The bottom line is that this project, and other projects like it, are huge economic multipliers.”

Nevada’s offer was “not the richest deal” the company was offered during months of discussions with officials in Texas, New Mexico, Arizona and California, he said. The decision also hinged on proximity to rail lines and freeways, along with a less complicated regulatory regime.

“We are obligated to obtain the best arrangement that we can — as are the economic development officials for the taxpayers of their state,” O’Connell said. “This is the essence of free-market behavior.”

Officials with the Nevada Governor’s Office of Economic Development declined to comment beyond what was in the report.

Tesla’s “gigafactory” is a bid to bring down the cost of the automaker’s batteries enough to produce the world’s first mainstream electric car. The $1.3-billion incentive package is one of the largest such deals ever struck by a state, according to data compiled by Good Jobs First, a Washington think tank that focuses on government subsidies.

Tesla, which recorded $2 billion in revenue last year, is one of the smallest companies to receive such a hefty incentive package. By comparison, Chrysler — which received a deal of roughly the same value, $1.3 billion, from Michigan in 2010 — had revenue of more than $72 billion in 2013.

Boeing won the largest-ever such package last year, netting $8.7 billion from Washington state. The aerospace and aircraft manufacturer posted sales of more than $86 billion.

Nevada’s estimates rely heavily on the assumption that almost all of Tesla’s supply chain will relocate to the state, which some experts find far-fetched, particularly for an area with no such history of industrial production.

Such estimates are typically modeled using historical supply chain data for various industries. Since Tesla’s production strategy is new and untested, economists say that undercuts the validity of any long-term projections.

“You don’t really know for a fact what will happen,” said Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich.

The Tesla factory is expected to produce $37.5 billion in economic benefits over 20 years, but the report estimates even more gains from 16,000 additional jobs tied to Tesla suppliers and other local businesses. Such indirect jobs are projected to produce an additional $59.4 billion in economic activity over 20 years — more than half the total estimated effect.

The money that Tesla pays workers will circulate through other local businesses in a process the report calls “the recycling of local spending.”

The state’s analysis assumed that almost all of the plant’s supplies would be met by companies based in the local area. The report calls this the “most likely scenario” in one section, but then later says it is “somewhat unlikely that this very high supplier concentration would be achieved” in the region.

Sarah Murley, a principal at Applied Economics, the Phoenix firm that performed the analysis, is confident that the factory will attract suppliers to Nevada.

“For really large operations like this one, it’s much more common for suppliers to co-locate,” she said. “If you get that kind of an operation in Reno, we can all agree that it’s going to be a fundamental change in their economy.”

The report counts the full salary of each projected worker, but it doesn’t account for what those workers may already be contributing to Nevada’s economy.

“To assume that the economic impact is $100 billion assumes that everybody who was ever going to work at that battery plant was unemployed,” said Enrico Moretti, an economics professor at UC Berkeley.

Choosing a 20-year time frame to analyze also makes the projected economic effect look huge compared with any benefits given to Tesla. But that’s misleading, said Swenson, the Iowa state economist.

“It doesn’t mean anything,” he said. “Let’s assume I made $50,000 over the last 20 years. Therefore, I’m a millionaire, right?”

To truly gauge the benefits, economists said, studies would have to look at ways in which lives are improved: Do property values go up? Do current residents see their incomes rise, or are the benefits going to outsiders? Does the average wage in the community rise? Are government services better than they were before?

Economists see a similar flaw with the report’s analysis of tax revenue.

Peak Debt—-Why The Keynesian Money Printers Are Done

On September 26, 2014, David Stockman writes in Contra Corner:

Bloomberg has a story today on the faltering of Draghi’s latest scheme to levitate Europe’s somnolent socialist economies by means of a new round of monetary juice called TLTRO—–$1.3 trillion in essentially zero cost four-year funding to European banks on the condition that they expand their business loan books. Using anecdotes from Spain, the piece perhaps inadvertently highlights all that is wrong with the entire central bank money printing regime that is now extirpating honest finance nearly everywhere in the world.

On the one hand, the initial round of TLTRO takedowns came in at only $100 billion compared to the $200 billion widely expected. It seems that Spanish banks, like their counterparts elsewhere in Europe, are finding virtually no demand among small and medium businesses for new loans.

“Many small and medium-sized businesses are wary of the offers from banks as European Central Bank President Draghi prepares to pump more cash into the financial system to boost prices and spur growth. The reticence in Spain suggests demand for credit may be as much of a problem as the supply.

“The monthly flow of new loans of as much as 1 million euros for as much as a year — a type of credit typically used by small and medium-sized companies — is still down by two-thirds in Spain from a 2007 peak, according to Bank of Spain data.”

On the other hand, Spain’s sovereign debt has rallied to what are truly stupid heights—with the 10-year bond hitting a 2.11% yield yesterday (compared to 7% + just 24 months ago). The explanation for these parallel developments is that the hedge fund speculators in peripheral sovereign debt do not care about actual expansion of the Spanish or euro area economies that is implicit in Draghi’s targeted promotion of business lending (whether healthy and sustainable, or not). They are simply braying that  “T” for targeted LTRO is not enough; they demand outright sovereign debt purchases by the ECB—-that is, Bernanke style QE and are quite sure they will get it. That’s why they are front-running the ECB and buying the Spanish bond. It is a patented formula and hedge fund speculators have been riding it to fabulous riches for many years now.

But don’t call these central bankers crooked patsies—-they are just dimwitted public servants trying to grind jobs and growth out of the only tool they have. Namely, buying government debt and other existing financial assets in the hopes that the resulting flow of liquidity into the financial markets and the sub-economic price of money and debt will encourage more borrowing and more growth. This is the core axiom of today’s unholy alliance between financial speculators and central bank policy apparatchiks.

Stated differently, today’s Spanish anecdote is just another proof that central banks are pushing on a string; that is, aggressively and incessantly pumping money into financial markets even though the result is wildly inflated asset prices, not expanded business activity. But as is always the case with central bank created financial bubbles, the beneficiaries are happy to pocket the windfalls while the apparatchiks blunder on—– pretending not to notice the drastic financial distortions, malinvestments and mis-pricings all around them.

Admittedly, Draghi is one of the duller tools in the shed of today’s central banking line-up. But surely even this monetary marionette might possibly wonder about a 2% Spanish bond yield.  After all, virtually nothing has changed there since Spain’s 2012 fiscal and economic crisis. The nation’s unemployment rate is still above 20%, national output is still 7% below where it was six years ago and soaring government debt will soon slice through the 100% of GDP mark.

 

Moreover, Spain is still saddled with the wreckage of a massively bloated development and construction industry, its government is led by corrupt fools who apparently believe their own lies about “recovery”, and its most prosperous province is next for secession voting.

Needless to say, Draghi and his compatriots in Frankfurt have no clue that they are being played for fools by the carry trade gamblers who have piled into peripheral debt ever since the ECB chairman’s foolish “anything it takes” pronouncement. Yet it is only a matter of time before the growing German political revolt triggers a day or reckoning. When it becomes clear that Germany has vetoed once and for all a massive spree of government debt buying by the ECB, it will be katie-bar-the-door time. The violent scramble of speculators out of Spanish, Italian, Portuguese etc. debt will be a day of infamy for the ECB and today’s destructive central banking regime generally.

But pending that it might also be wondered why the apparatchiks who run our central banks seem to believe that the capacity of households and businesses to carry debt is virtually unlimited—–that there is no such thing as “peak debt” or a law of diminishing returns with respect to the impact of cumulative borrowing on economic activity. Thus, the Bloomberg article notes that the total stock of Spanish business loans (above $1m) is almost 470 billion euros or 25% below the 2008 record of 1.87 trillion euros. The implication is that there is plenty of room for lending to “recover”—-the exact predicate behind Draghi’s program.

But as shown below, that glib assumption simply ignores the history of what has gone before—-namely, that the temporary prosperity leading up to the 2008 financial crisis was a one-time Keynesian parlor trick that used up the available balance sheet headroom and then some. It resulted in a collision with “peak debt” that has fundamentally changed the macro- economic dynamics.

In the case of non-financial business debt, for example, the balance outstanding soared by a factor if 4X in Spain during the 9-year construction and investment boom that preceded the crash. About one-fourth of that unsustainable debt explosion has been liquidated since 2009, but even then business debt has grown at a CAGR of 8.0% since 2000—-a rate significantly higher than Spain 3.5% rate of nominal GDP growth over that 14-year period.

Likewise, household debt nearly doubled as a share of GDP in the 7 year boom before the financial crisis. The household debt ratio has now backed off marginally, but relative to history and the rest of the world it is still unsustainably high. The idea that there is major headroom for a robust recovery of household borrowing is simply wrong. Indeed, Spanish household debt today would amount to $14 trillion on a US scale GDP—a level that is 20% higher than the unsustainable burden still being lugged around by main street households in shop-until-you-drop America.

Needless to say, Spain is but a microcosm of a worldwide condition under which maniacal money printers in the central banks are smacking up against peak debt in their domestic economies. As shown in the graph below, outside of Germany the debt disease has been universal. During the eight years after the turn of the century, the leverage ratio for all industrial economies combined ex-Germany—-that is, total public and private credit outstanding relative to GDP—rose from 260% to 390% of GDP. That incremental debt burden in round terms amounted to about $50 trillion.

And despite all the official palaver about how economies have sobered up and begun to delever—-the data make clear that nothing of the kind has happened. Owing to massive expansion of government borrowing and debt ratios since 2009, total credit outstanding has now soared to 415 percent of GDP for the ex-Germany industrialized world. This figure is so far off the historical charts that it could not have even been imagined 15 years ago when worldwide central banks went all-in for money printing.

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Nevertheless they have continued to push on a string. At the turn of the century, the six major central banks had combined balance sheets of $2 trillion. Today the figure is $16 trillion and is therefore 8X larger. That compares to world GDP growth of about 2X during the same period.

Self-evidently, all the major economies are saturated with debt. Accordingly, central bank balance sheet expansion has lost its Keynesian magic entirely. Now the great sea of freshly minted liquidity simply fuels the carry trades as gamblers everywhere load up with any asset that generates a yield or short-run capital gain, and fund these bloated positions with cheap options and repo style finance.

But here’s the obvious thing. Central banks can’t normalize interest rates—-that is, allow the money markets to rise off the zero-bound—-without triggering a violent unwind of the carry trades on which today’s massive asset inflation is built. On the other hand, they can no longer stimulate GDP growth, either, because the credit expansion channel to the main street economy of households and business is blocked by the reality of peak debt.

So they end up like the pathetic Mario Draghi—-energetically pounding square pegs into round holes without a clue as to the financial conflagration lurking just around the corner. Yes, the era of Keynesian money printing is over and done. But don’t wait for the small lady at the Fed to sing, either.

The Federal Reserve System needs to be reformed to act as a purveyor of economic growth.

Influential economists and business leaders, as well as political leaders, should read Harold Moulton’s The Formation Of Capital, in which he argues that it makes no sense to finance new productive capital out of past savings. Instead, economic growth should be financed out of future earnings (savings), and provide that every citizen become an owner. 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. Chairman Benjamin Bernanke and other 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 where there isn’t enough savings in the system 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 growth.

America Out Of Whack

On September 25, 2014, Thomas B. Edsall writes in The Opinion Pages of The New York Times:

There is something out of whack in America. Instead of promoting equality, public policy has left millions locked into lives of restricted opportunity while bestowing the benefits of growth on the very few.

We know this and yet we let it continue. On Sept. 18, the Federal Reserveannounced what sounded like good news: in the United States,

“the net worth of households and nonprofits rose by $1.4 trillion to $81.5 trillion during the second quarter of 2014. The value of directly and indirectly held corporate equities increased $1.0 trillion and the value of real estate expanded $230 billion.”

Taking a somewhat longer view, the Fed reported that since 2000, household wealth in the United States has grown by $37 trillion — from $44.45 trillion to $81.49 trillion at the end of the second quarter of this year, but these spectacular gains in wealth are mostly benefiting upper-incomeAmericans.

The September Federal Reserve Bulletin graphically demonstrates how wealth gains since 1989 have gone to the top 3 percent of the income distribution. The next 7 percent has stayed even, while the bottom 90 percent has experienced a steady decline in its share.

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Figure 1. Wealth shares by wealth percentile, 1989–2013 surveys.

Not only has the wealth of the very rich doubled since 2000, but corporate revenues are at record levels. From 2000 to the present, quarterly corporate after-tax profits have risen from $529 billion to $1.5 trillion. On an annual basis, growth was from $2.1 trillion to $6 trillion in annual after-tax profits.

In 2013, according to Goldman Sachs, corporate profits rose five times faster than wages.

Business Insider reports more bluntly that

“America’s companies and company owners — the small group of Americans who own and control America’s corporations — are hogging a record percentage of the country’s wealth for themselves.”

The September 2014 Fed Bulletin provides data on income as well as wealth. Figure 2 shows that the share of income going to the bottom 90 percent has been on a downward path since 1992, while the share flowing to the top 3 percent has grown.

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Figure 2. Income shares by income percentile, 1989–2013 surveys.

The question is: Why don’t we have redistributive mechanisms in place to deploy the trillions of dollars in new wealth our economy has created to shore up the standard of living of low- and moderate-income workers, to restore financial stability to Medicare and Social Security, to improve educational resources and to institute broader and more reliable forms of social insurance?

I asked Shawn Fremstad, a senior fellow at the Center for American Progress, a pro-Democratic think tank, to address current income and wealth disparities, and he wrote back by email:

“a big-picture solution involves higher marginal income tax rates for the top 1 percent and some sort of wealth tax on the top of the top, combined with stronger labor market institutions (minimum wage, unions, paid leave/sick days/vacations, etc.).”

But not only are Republicans adamantly opposed to redistributive public policy, there are also strong pro-wealth forces in the upscale wing of the Democratic Party.

Many center-left economists are wary of raising taxes on wealth, as opposed to income. They cite their fear of creating disincentives to innovation, the flight of wealth to low-tax havens, and the establishment of new tax avoidance schemes here in America.

Daron Acemoglu, an economist at M.I.T. who supports more public investment in education, infrastructure and social services, wrote to me that a wealth tax could prove “very distortionary and naturally discouraging of saving, not a good thing in the current U.S. context.”

How bad has it gotten? Most recently, beginning roughly in 2000, a critical mass of adverse economic developments has gained momentum.

The labor force participation rate rose steadily from 58.4 percent in 1963 to 67.3 percent in April 2000, but it has steadily fallen since then, dropping to 62.8 percent in August 2014, back to where it was in January 1978.

Until 1999, median household income (as distinct from wealth) rose in tandem with national economic growth. That year, household incomeabruptly stopped keeping pace with economic growth and has fallen steadily behind then.

One of the bright spots in the national economy – the growth in high skill, well-paying jobs – came to an end in 2001.

In 2001, what had been a slow decline in the share of total national income going to labor took a sharp downward turn that became a precipitous fall.

From 1990 to 2000, productivity grew at an annual rate of 2.1 percent, and workers’ compensation rose by 1.5 percent. In the period from 2000 to 2009, workers’ annual productivity rate rose 2.5 percent, but raises got smaller, with compensation rising by only 1.1 percent annually. In practical terms, this means that a worker whose productivity was substantially higher in 2000-2010 than in 1990-2000 – raising his employer’s profit margin – received a smaller raise despite his improved performance.

To explore these developments, I spoke by phone to Paul Beaudry, an economist at the University of British Columbia, whose research showing that high-skill job growth came to a halt around 2000 has successfully forced a major change in the debate over employment.

Beaudry theorizes that it was in 2000 that advances in technology and automation, in trade, especially with China, and in the outsourcing of American jobs abroad came together to produce an inflection point.

The net result, Beaudry said, is that a significantly smaller fraction of the population benefits from growth.

Beaudry places the strongest emphasis on rapidly accelerating technological advances that are displacing workers so fast that new job creation can’t catch up.

The current apportionment of economic rewards in the United States, Beaudry notes, is similar to the pattern in America and England during the Industrial Revolution from 1780 to 1830, when workers struggled while factory owners flourished.

With companies making record profits, one would expect a surge in new firms, Beaudry says. In normal times, new firms would compete for workers and drive up wages. In fact, the rate of new business formation in the United States has been cut in half over the past 35 years, according to a Brookings Institution study that was released in May.

Beaudry also raised the question of whether the putative advantages of free market capitalism are failing in the context of global competition and the information revolution. “Something has been going wrong with the competitive system,” he told me.

Other economists cite findings supportive of Beaudry’s thesis that the United States is undergoing a fundamental transformation.

Loukas Karabarbounis, a professor of economics at the University of Chicago and co-author of “The Global Decline of the Labor Share,” wrote in an email “that it is worthwhile to think about trends in these objects jointly. 2000 seems to be a year where the labor share [of national income] decline started accelerating in the United States.”

Similarly, Ezra Oberfield, a professor of economics at Princeton who hasfocused on the division of income between capital and labor, wrote that labor’s share of manufacturing income “fell about three times faster in the 2000-2010 period than the 1970-1999 period.”

Further support for the inflection point thesis can be found in a Brookings paper, “The Decline of the U.S. Labor Share,” by three economists, Michael Elsby of the University of Edinburgh, and Bart Hobijn and Aysegul Sahin, both of the Federal Reserve. They write:

“The substantial recent decline in the labor share that emerged at the turn of the 21st century appears wholly due to a slow-down in growth marked by a profound, and unprecedentedly sharp, stagnation of hourly compensation growth.”

The authors argue that import competition is the driving factor:

“Our data yield one robust correlation: that declines in payroll shares are more severe in industries that face larger increases in competitive pressures from imports.” This accounts for “3.3 percentage points of the 3.9 percentage-point decline in the U.S. payroll share over the past quarter century.”

Their predictions of future trends are not optimistic:

“If globalization continues during the next decades, the labor share will continue to decline, especially in sectors that face the largest increases in foreign competition.”

The trends in globalization, wealth concentration, corporate profits, income and employment together raise a crucial question, one I first explored in a column a couple of years ago: Is the “legitimacy of free market capitalism in America facing fundamental challenges?”

This question is even more salient now.

A CNBC/Burson-Marsteller international survey released on Sept. 22 found that in the United States, the world’s free market leader, only 36 percent of the public described corporations as a source of hope, just under the 37 percent who described them as a source of fear. In China, a decisive 84 percent described corporations as a source of hope and only 7 percent said corporations were a source of fear.

In addition, half (51 percent) of the United States sample said “’strong and influential’ corporations are ‘bad,’ even if they are promoting innovation and growth,” according to a summary of the survey by Don Baer, chairman and C.E.O. of Burson-Marsteller.

Globalization and technological innovation have diminished the power of elected officials to control national economic trends, although politicians retain substantial influence over the allocation of the costs and benefits of those trends.

At the moment, Republicans have the whip hand, empowered to prevent Democratic intervention to alter what is now a decisively upward redistribution of the benefits of economic growth.

It is uncertain, however, whether the Democratic Party, even if it were empowered to set the agenda, would adopt policies to restructure the distribution of wealth. Those advocating such initiatives might well face an internal veto exercised by the party’s financial elite and by the party’s affluent constituencies.

Discontent with central elements of capitalism is not limited to liberal elites, and it extends far beyond this nation’s borders.

One of the most striking findings in the CNBC/Burson-Marsteller survey is that corporations and the free market are viewed far more favorably in developing countries, where capitalism is just emerging, than in advanced countries.

On a basic question, “How favorable are you toward corporations?” the general public in emerging economies was markedly favorable, 72-24, while those in advanced economies were far more ambivalent, 52-40.

Strong majorities, ranging from 58 to 65 percent of those surveyed in emerging nations, agreed that corporations pay their fair share of taxes, help achieve equality and encourage the government to treat citizens fairly. In developed nations, less than half of poll respondents held these positive views.

Asked if corporations were humbled by the financial crisis and now act more responsibly, citizens of emerging nations were split, 44 yes, 41 no. Among those living in advanced economies, a strong majority, 55 percent, said no, while only 23 percent said yes. What this suggests is that free market capitalism arguably remains a vital source of growth and opportunity in nations like China and India, where people emerging from generations of poverty through the advance of global capitalism often see the problem differently.

In developed countries like the United States, however, there are legitimate and growing doubts about the beneficence of the market and the ability of the system to distribute the rewards of growth to those who make growth possible.

INFOGRAPHIC: KEYNESIAN VS. AUSTRIAN ECONOMICS

Economics-Infographic

On September 18, 2014, Sean Arands writes in The Austrian Insider:

There has been an unsettled debate among economists for a century now of whether government intervention is beneficial to an economy.  The heart of this debate lies between Keynesian and Austrian economists (though there are other schools as well).

In order to get a full understanding of the two schools of economic thought, please refer to the infographic above.  Open the image in a new tab for a larger version.

If anyone feels I did a misrepresentation of either school, let me know!

The Federal Reserve System needs to be reformed to act as a purveyor of economic growth.

Most of the economic problems can be tied to the notion that exclusively “capital goods come into existence by [past] saving.”

Influential economists and business leaders, as well as political leaders, should read Harold Moulton’s The Formation Of Capital, in which he argues that it makes no sense to finance new productive capital out of past savings. Instead, economic growth should be financed out of future earnings (savings), and provide that every citizen become an owner. 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. Chairman Benjamin Bernanke and other 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 where there isn’t enough savings in the system 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 growth.

http://theaustrianinsider.com/infographic-keynesian-vs-austrian-economics/

The Fed’s Credit Channel Is Broken And Its Bathtub Economics Has Failed

On September 23, 2014, David Stockman writes on Contra Corner:

Among the many evils of monetary central planning is the conceit that 12 members of the FOMC can tweak the performance of a $17 trillion economy on virtually a month to month basis—using the crude tools of interest rate pegging and word cloud emissions (i.e. “verbal guidance”). Read the FOMC meeting minutes or the actual transcripts (with a five-year release lag) and they sound like an economic weather report. Unlike the TV weatherman, however, our monetary politburo actually endeavors to change the economic climate for the period immediately ahead.

Accordingly, the Fed is pre-occupied with utterly transient and frequently revised-away monthly release data on retail sales, housing starts, auto production, business investment, employment and inflation. But its always about the latest ticks in the data—never about the larger patterns and the deeper longer-term trends. And of course that’s the essence of the Keynesian affliction. The denizens of the Eccles Building—-overwhelmingly academics and policy apparatchiks—-rarely venture into the real economic world, and, therefore, do believe that the US economy is just a giant bathtub that must the filled to the brim with “aggregate demand” and all will be well.

Filling the economic bathtub is accomplished through something called “monetary accommodation”, which essentially means credit expansion. That is, market capitalism left to its own devices is inherently suicidal—or at least a chronic underperformer. Households and businesses almost always spend too little and therefore need to be induced to become more exuberant in the shopping aisles and on the factory floor.

In this framework, the blunt instrument of artificially depressed interest rates is the natural policy tool of choice. If cautious households are saving too much for a rainy day or even their children’s education or their own retirement, why club them with ZIPR (zero interest rates); get them shopping until they drop. Likewise, if businessmen do not see the case for opening another store or buying a new lift truck for their warehouse (or expanding same), bribe them with cheap debt financing.

In short, the primary route of  monetary policy transmission for Keynesian central bankers is the credit expansion channel. Using that economic plumbing system they endeavor to goose aggregate demand and thereby fill the economic bathtub to its brim—otherwise know as potential output and full employment. Furthermore, by a Keynesian axiom—-known as the Phillips Curve trade-off between inflation and employment—there is no possibility of serious goods and services inflation until the tub is fall and all capital and labor resources are fully employed.

So the whole gig amounts to a simple mandate: Keep pumping aggregate demand through the credit channel until potential GDP is fully realized because, ipso facto, that means that the Fed Humphrey-Hawkins mandate of price stability and maximum employment have also been achieved.  So in effect, the Fed heads watch the ticks and blips of the “in-coming data” with such intensity because they believe their job will be done when the US economy finally reaches its brim.

This entire Keynesian bathtub model is nonsense, of course, not the least because the US economy is not a closed system, but functions in a rambunctious, open global economy where massive flows of trade, investment and finance impinge heavily on prices, costs, wages and productive asset returns, and therefore the daily behavior of millions of domestic workers, businesses, investors and financial intermediaries. So the Fed’s Keynesian model is fundamentally flawed—-a reality that perhaps explains its stubborn adherence to policies that do not achieve their stated macro-economic objectives, but fuel serial financial bubbles instead.

However, even apart from the fundamental flows of its basic economic model, the Keynesian pre-occupation with the economy’s mythical full-employment brim and the short-run business cyclical fluctuations related to it cause our monetary central planners to ignore the obvious. Namely, that the credit transmission channel is broken and done, and that the massive resort to money printing—especially since the dotcom bust in 2000—have been accompanied by sharply deteriorating economic trends.

Stated differently, the growth rate and general health of the US economy has drastically down-shifted during the last decade and one-half and now stands at only a fraction of its historic trends.  Specifically, real GDP grew at a 4.0% rate during the golden age of sound money and fiscal rectitude between 1950 and 1970. Then it dropped to about 3% during the next 30 years after Nixon defaulted on our Bretton Woods obligation to redeem the dollar in a constant weight of gold; and since the dotcom bust in 2000 when the Greenspan Fed went all out with printing press monetary expansion, real GDP growth has amounted to only 1.7% annually.  That is just 42% of its golden age rate, and in truth probably even worse if inflation were to be honestly measured by the government statistical mills.

Faltering growth, in turn, has meant job market deterioration and declining investment in productive assets. Indeed, during the last 175 months of intense economic weather watching the Fed has never once noticed that since the turn of the century breadwinner jobs have declined by 5%, real net investment in business plant and equipment is down by 20% and the median household income is not only sharply lower, but actually only at levels first achieved in 1989.

Breadwinner Economy Jobs- Click to enlarge

 

Real Business Investment - Click to enlarge

Needless to say, these failing trends in the fundamental measures of macroeconomic health occurred at a time when the Fed balance sheet virtually exploded, rising from $500 billion to nearly $4.5 trillion—or by 9X—during the same 14 year period. Yet it keep attempting to shove credit into the economy notwithstanding this self-evident failure because at the end of the day there is nothing else in its playbook. We have reached peak debt in both the household and business sector, meaning that the fed’s massive flood of liquidity never get out of the canyons of Wall Street.

In short, believing they are filling the macroeconomic bathtub, Janet Yellen and her merry band of Keynesian money printers are simply blowing chronic, giant, dangerous bubbles on Wall Street. If they are beginning to become fearful of a Wall Street hissy fit, perhaps they should look at the two charts below.

Easy money is always the wrong medicine, but most especially for an economy that is already and self-evidently saturated with too much debt.

 

Household Leverage Ratio - Click to enlarge

The Federal Reserve System needs to be reformed to act as a purveyor of economic growth.

Influential economists and business leaders, as well as political leaders, should read Harold Moulton’s The Formation Of Capital, in which he argues that it makes no sense to finance new productive capital out of past savings. Instead, economic growth should be financed out of future earnings (savings), and provide that every citizen become an owner. 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. Chairman Benjamin Bernanke and other 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 where there isn’t enough savings in the system 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 growth.

http://davidstockmanscontracorner.com/the-feds-credit-channel-is-broken-and-its-bathtub-economics-has-failed/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+AM+Tuesday

Why Ordinary People Bear Economic Risks And Donald Trump Doesn’t

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On September 22, 2014, Robert Reich writes on Nation Of Change:

Thirty years ago, on its opening day in 1984, Donald Trump stood in a dark topcoat on the casino floor at Atlantic City’s Trump Plaza, celebrating his new investment as the finest building in Atlantic City and possibly the nation.

Last week, the Trump Plaza folded and the Trump Taj Mahal filed for bankruptcy, leaving some 1,000 employees without jobs.

Trump, meanwhile, was on Twitter claiming he had “nothing to do with Atlantic City,” and praising himself for his “great timing” in getting out of the investment.

In America, people with lots of money can easily avoid the consequences of bad bets and big losses by cashing out at the first sign of trouble.

The laws protect them through limited liability and bankruptcy.

But workers who move to a place like Atlantic City for a job, invest in a home there, and build their skills, have no such protection. Jobs vanish, skills are suddenly irrelevant, and home values plummet.

They’re stuck with the mess.

Bankruptcy was designed so people could start over. But these days, the only ones starting over are big corporations, wealthy moguls, and Wall Street.

Corporations are even using bankruptcy to break contracts with their employees. When American Airlines went into bankruptcy three years ago, it voided its labor agreements and froze its employee pension plan.

After it emerged from bankruptcy last year and merged with U.S. Airways, America’s creditors were fully repaid, its shareholders came out richer than they went in, and its CEO got a severance package valued at $19.9 million.

But American’s former employees got shafted.

Wall Street doesn’t worry about failure, either. As you recall, the Street almost went belly up six years ago after risking hundreds of billions of dollars on bad bets.

A generous bailout from the federal government kept the bankers afloat. And since then, most of the denizens of the Street have come out just fine.

Yet more than 4 million American families have so far have lost their homes. They were caught in the downdraft of the Street’s gambling excesses.

They had no idea the housing bubble would burst, and didn’t read the fine print in the mortgages the bankers sold them.

But they weren’t allowed to declare bankruptcy and try to keep their homes.

When some members of Congress tried to amend the law to allow homeowners to use bankruptcy, the financial industry blocked the bill.

There’s no starting over for millions of people laden with student debt, either.

Student loan debt has more than doubled since 2006, from $509 billion to $1.3 trillion. It now accounts for 40 percent of all personal debt – more than credit card debts and auto loans.

But the bankruptcy law doesn’t cover student debts. The student loan industry made sure of that.

If former students can’t meet their payments, lenders can garnish their paychecks. (Some borrowers, still behind by the time they retire, have even found chunks taken out of their Social Security checks.)

The only way borrowers can reduce their student debt burdens is to prove in a separate lawsuit that repayment would impose an “undue hardship” on them and their dependents.

This is a stricter standard than bankruptcy courts apply to gamblers trying to reduce their gambling debts.

You might say those who can’t repay their student debts shouldn’t have borrowed in the first place. But they had no way of knowing just how bad the jobs market would become. Some didn’t know the diplomas they received from for-profit colleges weren’t worth the paper they were written on.

A better alternative would be to allow former students to use bankruptcy where the terms of the loans are clearly unreasonable (including double-digit interest rates, for example), or the loans were made to attend schools whose graduates have very low rates of employment after graduation.

Economies are risky. Some industries rise and others implode, like housing. Some places get richer, and others drop, like Atlantic City. Some people get new jobs that pay better, many lose their jobs or their wages.

The basic question is who should bear these risks. As long as the laws shield large investors while putting the risks on ordinary people, investors will continue to make big bets that deliver jackpots when they win but create losses for everyone else.

Average working people need more fresh starts. Big corporations, banks, and Donald Trump need fewer.

Yes, the playing field is tilted to benefit the rich. That’s a big reason why we need to reform the system to provide equal opportunity for EVERY citizen to become affluently wealthy.

But what always amazes me about Robert Reich, who writes extensively on economic inequality, is that while he addresses the statistics and unjust policies defining inequalities and consistently concludes that there is a policy failure, he NEVER points out that the reason that the RICH are RICH is that these people OWN wealth-creating, income-producing capital assets, and the other 80-plus percent of the population do not own.

Reich continues to think in terms of one-factor economics which is centered on a JOB as the ONLY means to earn income, or redistributive government programs that seek to provide a security net for those in absolute poverty, or those near-poverty due to job loss or other costly circumstances.

Reich, who is paid more than $200,000 for a single lecture as a professor at the University of California, Berkeley, is either “controlled” or is simply ignorant of the reality that the wealthy are rich because they OWN the non-human means of production executed by the formation and operation of corporations, all of which are essentially narrowly OWNED by an already wealthy ownership class, who controls America.

Never has Reich starkly pointed this reality out to his blog followers, nor has he ever advocated that EVERY citizen should be empowered with the equal opportunity to acquire personal ownership shares in FUTURE capital asset formation using the financial mechanism of insured, interest-free capital credit loans repayable out of the FUTURE earnings of the investments (the same financial mechanism used by the wealth ownership class to get richer and richer).

What’s up with Reich is endemic on the part of those who write in the national media, who teach in academia, and who run for political positions of policy-making. They either are totally ignorant of the realities of why there is economic inequality or they are “controlled” and censored from telling the truth.

50 Things About Millennials That Make Corporate America Sh*t Its Pants

bros

On September 16, 2014, Lauren Martin writes in Elite Daily:

In 2013, Joel Stein deemed Millennials the “ME Generation.” The TIME contributor called Generation-Y selfish, egotistical and lazy. He also noted, however, that we may just be the generation that will save us all.

Per usual, no one knows what to make of us. Our parents scorn us, then praise us. They lament over our technological dependency, then ask us to set up their iPads. They tell us we’re lazy, then ask us for a loan.

Our generation is an anomaly. We refuse to do things their way, so they call us entitled. We refuse to sit in cubicles, so they call us spoiled. We refuse to follow their plans, so they call us stubborn. What they are slowly realizing, however, is we’re not lazy, stubborn or entitled. We just refuse to accept things as they’re given to us.

We refuse to accept that life must be dictated by a job we hate. We refuse to go to work in suits and ties when we’re more productive in sneakers and graphic tees.

We refuse to adhere to work schedules that don’t work. We refuse to allow the corporate culture to suffocate our creativity. We no longer see adulthood as the end of our childhood, but the beginning of something even more liberating.

We’re not going to hand our souls over to men in suits or women in pencil skirts. We’re not going to work for companies we don’t respect. We’re not going to wake up every morning dreading the 9-to-5. But we’re not going to sit back and sulk either.

We’re going to innovate. We’re going to change the game. We’re gonna show our parents, Corporate America and everyone else who refuse to take us seriously that we’re not lazy, entitled nor egotistical. In fact, we’re the kids who are going to take your jobs and throw them away.

Like that girl you can’t understand, Corporate America has gone from scorning us to fearing us. The bosses don’t understand why we’re not pleading to work with them, why we’re not wearing suits to interviews and why the hell we’re not trying to make a good impression on them.

They don’t understand why we’re not lining up after college for a spot on their factory lines. They don’t understand why we don’t want to make five figures under fluorescent lighting or why we’d rather be broke than bored.

They don’t understand why we’re not chasing them with our legs spread. Sorry Corporate America, we’re just not interested.

We gave you a shot, tried you out and decided you weren’t for us. We saw how you treated our parents, grandparents and the bottom percents and realized you weren’t that good of a guy.

Much like why our generation is full of more singles than any before, we’re just not willing to settle. We’re going to keep doing things our way, keep striving for that ideal life, even if it makes everyone else uncomfortable.

1. We play by our own rules.

2. We don’t take the first answer given to us.

3. We don’t care about getting into trouble.

4. We’re willing to work for nothing if it means being happy… Despite being in debt.

5. We know how to beat the system.

6. We’re always trying to change the game.

7. We have social media on our side.

8. We like a good fight.

9. We don’t care about the perks.

10. We hate that “old boys club” sh*t.

11. We’re not about climbing the ladder, we’re about circumventing it.

12. We ask for what we want rather than implying it.

13. We’re not afraid to quit if we don’t like what’s going on.

14. We’re not on that suit and tie.

15. We’d rather start work at 10 and finish at 10.

16. We’ve got youth on our side.

17. We don’t have a chip on our shoulders.

18. We know technology a hell of a lot better.

19. We’re more educated, by the book and the street.

20. We’re not interested in office politics.

21 . We have less to lose and everything to gain.

22. We don’t pursue the paycheck, we pursue the passion.

23. We have that “f*ck you” attitude.

24. We are trying to beat the system, not just work with it.

25. We don’t have to go to college to get ahead.

26. We’re getting married later and working younger.

27. We’re listening to our women.

28. We want freedom more than anything else.

29. We would rather die a slow death than sit in cubicles.

30. We know they need us more than we need them.

31. We distribute the news, not the other way around.

32. We don’t care as much about profit as we do the product.

33. We’re willing to listen to one another.

34. We understand whom we’re talking to.

35. We don’t do drug tests.

36. We’re open to any gender, sexual orientation and race.

37. We know what makes us happy.

38. We know what doesn’t make us happy.

39. We learned from our parents mistakes.

40. We’ve defined them, they haven’t defined us.

41. We’d rather travel and be poor than be rich and never see the world.

42. We don’t take life too seriously.

43. We understand we’re all going to die someday.

44. We’d rather have experiences than bank statements.

45. We refuse to hate what we do.

46. We know there’s always a better way.

47. We want careers, not jobs.

48. We have passion.

49. We have morals.

50. We have each other.

But will the Millennial Generation seek to empower EVERY citizen with the equal opportunity to acquire personal ownership shares in FUTURE capital asset formation using the financial mechanism of insured, interest-free capital credit loans repayable out of the FUTURE earnings of the investments (the same financial mechanism used by the wealth ownership class to get richer and richer)? Will the Millennial Generation Be Owned as are their parents, or will they OWN broadly as individual share owners the wealth-creating, income-producing capital assets of the FUTURE and build an economy that can support general affluence for EVERY citizen?

http://elitedaily.com/life/50-things-millennials-make-corporate-america-uncomfortable/758330/

Why Mandating Higher Minimum Wage Isn’t Best Way To Address Poverty

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On Labor Day, Mayor Eric Garcetti announced his proposal to raise the minimum wage in Los Angeles from the current $9 per hour to $13.25 in 2017. (Richard Vogel / AP)

On September 20, 2014, in an Op-Ed in the Los Angeles Times, Allen R. Sanderson writes:

Los Angeles Mayor Eric Garcetti and Chicago Mayor Rahm Emanuel, among other city and state officials across the country, have recently proposed raising the minimum wage well beyond the current state-mandated levels of $9 an hour in California and $8.25 in Illinois. And public opinion polls generally show widespread support for these actions.

At first blush, what’s not to like: Low-income workers could take home from $1,000 to $5,000 more a year, and in an era of increasing inequality of income and poverty rates that hover around 15% nationally, that is not an insignificant boost.

Yet this advocacy raises some troubling questions, among them whether it’s an appropriate government intervention in the free market. In general, except for temporary measures to prevent, say, price gouging in the aftermath of a unexpected disaster, we as a nation generally regard price controls as bad social and economic policy.

Instead, we allow businesses to charge whatever the market will bear and rely on competitive market forces to keep prices in line with costs. Thus, we don’t tell Nike what price to put on its sneakers or McDonald’s how much to charge for a Quarter Pounder. The presence of competitors for their products, along with reasonably informed consumers, keeps McDonald’s and Nike from marking up their burgers and shoes unconscionably. And in the 21st century, thanks to huge drops in the costs of communications and transportation, coupled with increased international competition, businesses arguably have less power over consumers than they have ever had.

The same pressures of competition also affect the other side of the market — that is, wages. Businesses are under pressure not to unilaterally cut wages, because workers, like customers, have alternatives; they can quit if an employer isn’t paying market rate and look for employment elsewhere. This very real threat keeps firms from reducing pay. Even without minimum wage laws, the interaction of supply and demand would conspire to keep wages about what they are today, based on workers’ experience, productivity and discipline.

The argument made in some quarters is that raising wages has little downside for businesses. Higher pay, the theory goes, would allow them to attract higher-quality workers and make even higher profits. But such hypotheses ring hollow. If a well-oiled corporation such as McDonald’s or Nike could make more money by paying out more in wages to higher-skilled employees, they would have already made that conversion. And even if it were true, the current crop of workers would inevitably lose their jobs as firms substituted more productive employees.

And the fact remains that far from taking advantage of their employees, most businesses pay most workers more than the minimum. Electricians, junior accountants, chefs, store managers, to name only a few, are all paid well over the minimum wage, as are most workers in America.

Why? If firms have so much market power, and they’re looking to maximize profits, why does anyone make more than the legal minimum? Because the value of the contributions higher-paid employees make to their employers justifies their pay.

Mandating above-market wages for workers whose contributions aren’t as valuable can have unintended consequences. Affected firms might well consider substituting machines for workers whenever possible, or relocating to a more welcoming environment. The lure of Indiana and Wisconsin for Illinois firms, or Nevada and Texas for California-based companies, could prove irresistible. Moreover, families might choose to shop, recreate or retire in nearby communities with more favorable prices and tax systems.

But the chief argument against this new trend in cities and states of mandating a higher minimum wage is that it’s not the best way to achieve the goal of pulling hardworking people out of poverty.

In the short run there are more efficient, less intrusive avenues to improve the economic lot of unskilled workers in this country. Tweaks to the federal government’s Earned Income Tax Credit program would be one way to put more money into the pockets of those who need it. Longer term, the goal should be to improve human capital prospects for those at the bottom of the economic ladder, ensuring that all people have opportunities to develop the skills and knowledge that will make them worth far more than the current wage rate or poverty standard. That would be a happy outcome not only for low-wage workers but for businesses, for families and for the larger economy.

University of Chicago economics teacher Allen Sanderson dishes out some straight talk on the false promise of hiking wages (as in a job), but fails to address the most efficient solution to improve the lot of America’s majority dependent on JOBS and/or redistributive welfare assistance put on taxpayers. Sanderson focuses on JOBS, particularly “ensuring that all people have opportunity to develop the skills and knowledge that will make them worth far more than the current wage rate or poverty standard.”

Sanderson needs to realize that earning an income, and thus the ability to be a viable “customer with money” in an economy, is not limited to being a worker and having a job that pays wages. It can also mean that an income can be earned by contributing to the economy’s productive sector one’s tools, machines, super-automation, robotics, digital computerized operations or what economist define as productive capital owned by individuals. This is the REAL key to wealth-building and a life of affluence. As a teacher of economics, Sanderson should know that capital asset OWNERS earn the bulk of the income generated in a growth economy.

I agree with Sanderson analysis that the raising the minimum wage solution to closing the income gap is not the most efficient solution. I also believe that such a policy would necessarily add to the costs of food and other necessities for poor and middle income Americans and would increase the outsourcing of jobs when higher labor costs are added to U.S.-produced goods and services.

A better, far more efficient and just solution would be to enact the Capital Homestead Act ( 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/). Capital Homesteading would grow the U.S. economy faster in a non-inflationary way, create new private sector jobs (with the “opportunity to develop the skills and knowledge that will make them worth far more than the current wage rate or poverty standard”) , finance new productive capital and provide capital incomes for all Americans from the bottom-up by enabling them to own trillions annually in new capital formation and transfers in current assets . . . without taking private property rights away from the already wealthy ownership class over their existing assets. The wage system is the cancer. The ownership system is the answer to address the problem Sanderson addresses and wants to solve.

If you want to change this gross economic inequality support the Platform of the Unite America Party.

What Sanderson should be teaching and advocating is how to put America on a path based on a paradigm shift to an equal opportunity economic democracy.

The JUST Third Way is a radical overhaul of the economic system (i.e., the Federal tax system, Federal Reserve policy, inheritance law, welfare and entitlement system, etc.) that will achieve genuine economic democracy, based on the Platform of the Unite America Party and its links and the proposed Capital Homestead Act. The Platform is a call for a vision of political economy that can unite the left and the right, based on Louis Kelso’s ownership-based paradigm. Now is the time to cure America’s political cancer (Crony Capitalism) and restore America to again becoming a model for global citizens in all countries.

For a new vision see http://www.foreconomicjustice.org/?p=12331andwww.facebook.com/uniteamericaparty. Support the Unite America Party Platform, published by The Huffington Post athttp://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change athttp://www.nationofchange.org/platform-unite-america-party-1402409962and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.

http://www.latimes.com/opinion/op-ed/la-oe-sanderson-minimum-wage-20140921-story.html