Germany Shows The Way On Labor

Worker Michael Keil checks a Golf VII during a 2012 press tour of Volkswagen’s plant in Zwickau, Germany. (Jens Meyer/Associated Press)

On April 29, 2015, Harold Meyerson writes in The Washington Post:

“Policy,” says David Rolf, the Seattle union official chiefly responsible for the first successful campaigns for a $15 minimum wage, “is just frozen power.” By which measure, the problem with U.S. trade policy for the past quarter-century is that it reflects the growing imbalance of power between investors, able to profit from global markets, and workers, who have lost the institutions that once enabled them to improve or at least maintain their jobs and incomes.

Beyond question, the entry of China, India and the former Soviet bloc into the world labor market has exerted downward pressure on jobs and wages throughout the advanced industrial world. In the United States, that pressure has been particularly intense and widespread. As one paper published last year in the Review of Economics and Statistics concluded, U.S. workers forced out of their jobs by globalization between 1984 and 2002 saw their wages decline by between 12 percent and 17 percent. And that was before the full weight of Chinese competition descended on American manufacturing and an additional 55,000-plus U.S. factories shuttered their gates.

But globalization has not had so grim an aspect in every advanced economy. Like the United States, Germany is home to a large number of iconic manufacturers — Volkswagen, Daimler, Siemens, to name a few — that have factories all over the world. Yet Germany frequently has the world’s largest trade surplus while the United States perennially runs the world’s largest trade deficit. More remarkably, German manufacturing workers make a good deal more than their American peers: Their hourly compensation averaged $46 in 2012, $10 more than the U.S. average, according to a Labor Department survey.

To be sure, Germany’s advantage is partly due to the euro’s undervaluation of German goods. But the fundamental difference between Germany’s experience of globalization and our own is the result of a vastly different balance of power between capital and labor. German worker organizations wield power in ways that would astound their U.S. counterparts — above all, by virtue of the legal requirement that the boards of all sizable corporations be equally divided between workers and management.

On Tuesday, I met with eight leaders of IG Metall — the union of Germany’s manufacturing workers, and by most measures the most powerful union on the planet. Like workers throughout the advanced industrial world, they’ve not been able to stop the decline of some of their older industries. “We’ve lost jobs every day in steel and shipbuilding,” said Horst Mund, the union’s international director.

But in auto, aerospace, electronics, high-speed rail and defense technology, their experience has deviated completely what we’ve seen in the United States.

The strategy of the German unions has been to allow, often reluctantly, their globe-trotting corporations to perform the less skilled, lower-value work in lower-paying nations but to insist on keeping the most highly skilled and compensated work in Germany. With world-class worker training, the union and the companies “continually upgrade our productivity,” said Reinhard Hahn, a union leader who also is a member of Siemens’s board. Workers in China do the final assembling of the Airbus A320, but that constitutes just 3 percent to 5 percent of the plane’s total value: The precision parts are made in Germany, many by small firms linked to the global production chain through the union’s own efforts, Hahn said.

With Airbus soon to open a similar assembly plant in Alabama, U.S. workers now compete not with Germans but with Chinese for low-end jobs. As predicted some years ago by the Boston Consulting Group, low-wage Southern labor has begun to erode the Chinese advantage in low-cost production, and foreign firms are flocking there. The role of the South in the global production chain increasingly resembles that of the pre-Civil War era, when it provided the cheapest labor in a chain that created the millionaire clothing manufacturers of Manchester, England.

Congress is poised to vote on a measure that would ease the passage of a massive trade deal, the Trans-Pacific Partnership. My Post colleague Dana Milbank has written that any such deal should be linked to major increases in infrastructure projects, to compensate for the lost jobs, and in worker training programs. I’d go Dana one further:

When we set the standards for globalization, we need to ensure benefits flow to workers as well as investors, and that won’t happen absent the kind of fundamental shift in power from shareholders and management to labor that the German system embodies. Like earlier trade deals, the Pacific pact offers no such rebalancing. It freezes policy — and the rewards of globalization — to reflect our massive imbalances of power and income.

This article is yet another in a continuous stream of articles focused on “jobs as the ONLY means to be productive and earn an income.” In particular, this article is about the balance of management (representing the ownership class) and labor (the non-owner worker contingent of a corporation). The workers are represented by unions (where they still exist), always focused on contract negotiations that will result in higher and higher wages and better benefits, without a corresponding increase in worker productivity. It is technological change that makes tools, machines, structures, and processes ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). 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. Capital, in binary economist Louis Kelso’s terms, does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary. Because of this undeniable fact, Kelso asserted that,  “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 union bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.”

The union movement, even in Germany, is entirely focused on wage-related protections and increased compensation, as this article attests. The labor union movement really should transform to a producers’ ownership union movement and embrace and use its collective bargaining advantage for represented workers to become capital owners in the growth of the corporations they are employed by. Unions should play the part that they have always aspired to––that is, a better and easier life through participation in the nation’s economic growth and progress. As a result, labor unions will be able to broaden their functions, revitalize their constituency, and reverse their decline.

Kelso argued that unions “must adopt a sound strategy that conforms to the economic facts of life. If under free-market conditions, 90 percent of the goods and services are produced by capital input, then 90 percent of the earnings of working people must flow to them as ‘wages’ of their capital and the remainder as wages of their labor work…If there are in reality two ways for people to participate in production and earn income [their labor and their ownership of capital assets], then tomorrow’s producers’ union must take cognizance of both…The question is only whether the labor union will help lead this movement or, refusing to learn, to change, and to innovate, become irrelevant.”

Unions are the only group of people in the whole world who can demand a real Kelso-designed Employee Stock Ownership Plan (ESOP), who can demand the right to participate in the expansion of their employer by asserting their constitutional preferential rights to become capital owners, be productive, and succeed. The ESOP can give employees access to credit so that they can purchase the employer’s stock, pay for it in pre-tax dollars out of the assets that underlie that stock, and after the stock is paid for earn and collect the capital worker income from it, and accumulate it in a tax haven until they retire, whereby they continue to be capital workers receiving income from their capital ownership stakes. This is a viable route to individual self-sufficiency needing significantly less or no government redistributive assistance.

The unions should reassess their role of bargaining for more and more income for the same work or less and less work, and embrace a cooperative approach to survival, whereby they redefine “more” income for their workers in terms of the combined wages of labor and capital on the part of the workforce. They should continue to represent the workers as labor workers in all the aspects that are represented today –– wages, hours, and working conditions –– and, in addition, represent workers as full voting stockowners as capital ownership is built into the workforce. What is needed is leadership to define “more” as two ways to earn income.

When labor unions transform to producers’ ownership unions, opportunity will be created for the unions to reach out to all shareholders (stock owners) who are not adequately represented on corporate boards, and eventually all labor workers will want to join an ownership union in order to be effectively represented as an aspiring capital owner. The overall strategy should assure that the labor compensation of the union’s members does not exceed the labor costs of the employer’s competitors, and that capital earnings of its members are built up to a level that optimizes their combined labor-capital worker earnings. A producers’ ownership union would work collaboratively with management to secure financing of advanced technologies and other new capital investments and broaden ownership. This will enable American companies to become more cost-competitive in global markets and to reduce the outsourcing of jobs to workers willing or forced to take lower wages.

Kelso stated, “Working conditions for the labor force have, of course, improved over the years. But the economic quality of life for the majority of Americans has trailed far behind the technical capabilities of the economy to produce creature comforts, and even further behind the desires of consumers to live economically better lives. The missing link is that most of those unproduced goods and services can be produced only through capital, and the people who need them have no opportunity to earn income from capital ownership.”

Walter Reuther, President of the United Auto Workers, expressed his open-mindedness to the goal of democratic worker ownership in his 1967 testimony to the Joint Economic Committee of Congress as a strategy for saving manufacturing jobs in America from being outcompeted by Japan and eventual outsourcing to other Asian countries with far lower wage costs: “Profit sharing in the form of stock distributions to workers would help to democratize the ownership of America’s vast corporate wealth, which is today appallingly undemocratic and unhealthy.

“If workers had definite assurance of equitable shares in the profits of the corporations that employ them, they would see less need to seek an equitable balance between their gains and soaring profits through augmented increases in basic wage rates. This would be a desirable result from the standpoint of stabilization policy because profit sharing does not increase costs. Since profits are a residual, after all costs have been met, and since their size is not determinable until after customers have paid the prices charged for the firm’s products, profit sharing [through wider share ownership] cannot be said to have any inflationary impact on costs and prices.”

Unfortunately for democratic unionism, the United Auto Workers, American manufacturing workers, and American citizens generally, Reuther was killed in an airplane crash in 1970 before his idea was implemented. Leonard Woodcock, his successor, nor any subsequent union leader never followed through.

But ESOPs are designed for those who are employed. What about the majority of the population who are not represented by unions where they are employed and those who are not employed at all?

The answer is in the law of contracts. Under “modern” methods of finance it is possible — even preferable — to form new capital using the present value of the anticipated future stream of income embodied in a contract. This contract (called a “bill of exchange”) enables corporations with “feasible capital projects” (meaning they pay for themselves out of their own profits) to grow without having to retain earnings (and reinvest) — earnings can be paid out to the people to whom they belong: the shareholders. People have financed capital projects this way from the dawn of civilization.

New capital asset formation should not rely on “past savings,” that is, on past reductions in consumption held in the form of money. As Dr. Harold Glenn Moulton pointed out in his 1935 classic, “The Formation Of Capital,” however, past savings are actually the least efficient to finance new capital formation.

Why? Because reducing consumption cuts demand for consumer goods (obviously), and the demand for new capital goods relies on there being an increase, not a decrease, in the demand for consumer goods, or no rational person would finance new capital — if it’s not going to pay for itself out of future profits (which won’t materialize if people aren’t consuming the increased goods and services), you’d just be throwing your money away.

What’s the solution?  Finance using “future savings” –– not past reductions in consumption turned into money, but future increases in production turned into money. World leaders need to know that, given the right tax and monetary reforms, every family, and every child, woman, and man can become an owner of capital without taking anything from anybody else — and everybody can be better off.

To use the “future earnings” method of finance on a universal scale that will empower EVERY child, woman, and man to acquire capital ownership shares representing the growth assets of American corporations, the Federal Reserve will need to perform what they were invented to do: 1) provide adequate liquidity to the private sector 2) in the form of an elastic, asset-backed currency with a stable and uniform value for 3) qualified capital projects. Regulating clearinghouse operations also legitimately comes under a central bank.

Louis Kelso’s breakthrough was to tie the money creation powers of a commercial and central banking system to the need for expanded capital ownership, thereby emancipating humanity from “the slavery of savings” that presumably dictated either that only the rich could as a rule own new capital, or that “ownership” must become meaningless in a State-controlled economy that redistributes earnings.

Using the function of the Federal Reserve we would be able to give to EVERY child, woman, and man an opportunity to individually share in the growth of the economy. By adopting expanded expanded ownership proposals with a reformed Federal Reserve system, we can make it possible for people without existing savings to purchase capital and secure the wellbeing and independence of the American family.

Because the Federal Reserve was hijacked by the very people it was intended to keep in check, the money power became even more concentrated under the Federal Reserve Act of 1913 than under the National Banking Act of 1863, and State control of the economy — and élite control of the State — became the orthodox political and economic position within a generation.

With the Just Third Way and Capital Homesteading platforms of the Center for Economic and Social Justice (, however, we have the opportunity to turn things around through a new vision of an economically just future for all that restores the sovereignty of the human person and the family as the fundamental unit of society.

Universal capital ownership will also defuse political power. “Power,” as Daniel Webster pointed out nearly two centuries ago in 1820, “naturally and necessarily follows property.”

The institutional barriers preventing people from becoming owners are not necessarily specific laws (those can be changed almost at will), but a tax system that discourages widespread ownership, and a monetary system that is not open to use by all qualified people. It’s access to money and credit that determines who owns, not a specific law. We need to reform institutions to make it possible for ordinary people to own capital. The key is capital ownership, not more government or private sector control of ordinary people.

Under the Just Third Way’s more just and simple tax system, access to ownership of the means of production in the future would by provided to every child, woman and man by requiring the government to lift all existing legal and institutional barriers to private property stakes as a fundamental human right. The system was made by people and can be changed by people. Guided by the right principles of economic justice, “we the people” can organize and demand that the system be reorganized to make true economic democracy the new foundation for true political democracy. The result of this movement of new justice-committed leaders and activists will be inclusive prosperity, inclusive opportunity, and inclusive economic justice.

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U.S. Senate Sells Out American Workers By Passing Fast Track Trade Bill 62-37


On May 23, 2015, Keith Brekhus writs on Politicus USA:

A Trade Promotion Authority bill passed the U.S. Senate 62-37 Friday night, with 48 Republicans and 14 Democrats voting for the measure. The bill now heads to the U.S. House where it faces an uncertain future. The measure gives Congress the ability to vote up and down major international trade agreements negotiated by the White House but strips Congress of the ability to amend or filibuster such agreements. Fast track authority is designed to make it easier to push through trade agreements, and the bill was seen as a necessary step towards approving the controversial twelve nation Trans-Pacific Partnership (TPP) trade agreement.

President Obama favors the agreement, as do a majority of Senate Republicans. However, liberal pro-labor Senators likeSherrod Brown (D-OH), Elizabeth Warren (D-MA) and Bernie Sanders (I-VT) have argued that the bill will make it easier for corporations to avoid worker protections and to lower wages by moving jobs overseas.

Organized labor has argued that fast track authority undermines American workers. The AFL-CIO issued a recent statement, that read:

We’ve seen the devastating cost of bad trade deals over the years, so we know that fast track trade promotion authority is not the way to ensure that the American public receives the full and thorough debate on the vast implications of the Trans-Pacific Partnership.

In stark contrast to the AFL-CIO’s assessment, President Obama described the agreement in glowing terms, stating:

Today’s bipartisan Senate vote is an important step toward ensuring the United States can negotiate and enforce strong, high-standards trade agreements. If done right, these agreements are vital to expanding opportunities for the middle class, leveling the playing field for American workers, and establishing rules for the global economy that help our businesses grow and hire by selling goods made in America to the rest of the world.

President Obama’s rosy optimism sounded hauntingly similar to Bill Clinton’s positive appraisals for the North American Free Trade Agreement (NAFTA) before he pushed it through Congress with bi-partisan support in the 1990s. However, a briefing paper by Robert E. Scott at the Economic Policy Institute noted that the optimistic predictions of President Clinton and pro-NAFTA economists never came to pass.

In his publication, “Heading South: U.S.-Mexico trade and job displacement after NAFTA“, Scott estimated that by the year 2010, U.S. trade deficits with Mexico totaled over 97 billion dollars and he estimated that the negative effects of NAFTA had displaced over 680,000 U.S. jobs. Trade agreements that encourage more imports and fewer exports tend to displace domestic workers and tighten an already tough job market while pushing manufacturing jobs out of the country where employers can exploit cheaper labor.

Unfortunately, President Obama seems to be following the path taken by former President Clinton, by aligning with multinational corporations and “free trade” Republicans rather than with organized labor. Multinational corporations who exploit cheap labor overseas, such as the Nike shoe company, will benefit from the agreement. Meanwhile, American manufacturing jobs could continue to shrink, as domestic plants find themselves unable to compete with companies who pay lower wages overseas.

The U.S. House has an opportunity to reject the bill, but given the bill’s popularity with Republican Senators, it is difficult to envision the GOP-controlled House defeating the bill. That difficulty is compounded because some Democrats are also likely to back the President in supporting the bill.

Still, the individual votes could be unpredictable. In the Senate,48 of 54 Republican Senators voted YES. Mike Enzi of Wyoming did not vote. Of the five Republicans who voted no, Susan Collinsof Maine is traditionally regarded as a moderate, but the other four are hard-line conservatives, which means the more conservative GOP House could also offer up some surprise votes. Republican Senators Rand Paul (KY), Mike Lee (UT), Jeff Sessions (AL) and Richard Shelby (AL) were the four conservatives who voted against fast track trade authority.

30 Democrats opposed the measure, along with the two Independent Senators who caucus with the Democrats, Angus King of Maine and Bernie Sanders of Vermont. 14 Democrats backed the proposal. Those 14 Democrats were Michael Bennet(CO), Maria Cantwell (WA), Ben Cardin (MD), Tom Carper (DE),Chris Coons (DE), Dianne Feinstein (CA), Heidi Heitkamp (ND),Tim Kaine (VA), Claire McCaskill (MO), Patty Murray (WA), Bill Nelson (FL), Jeanne Shaheen (NH), Mark Warner (VA) and Ron Wyden (OR).

While the fast track agreement appears to be a raw deal for American workers, there is the possibility that even if it passes, President Obama will negotiate good faith agreements with other nations, that safeguard worker protections and do not undermine American workers. Some of the more liberal Senators who voted to permit fast track authority may be operating under that assumption. However, that authority will likely be extended to future presidents as well, and there is no guarantee that fast track authority, once passed, will not empower the next Republican president to negotiate a terrible deal for American workers.

The Senators should have voted this bill down. Now the responsibility for protecting American jobs from future bad trade deals has been passed into the hands of the U.S. House. Sadly, it is hard to feel optimistic about the fate of the American worker, if he or she is now depending upon John Boehner’s Republican-controlled House to do the right thing.

This agreement will promote the interests of giant, multinational corporations over the interests of labor, environmental, consumer, human rights, or other stakeholders in democracy, AND FURTHER CONCENTRATE OWNERSHIP OF THE NON-HUMAN PRODUCTIVE CAPITAL MEANS OF PRODUCTION! It will export production and jobs to countries with far lower labor wages and standards while enriching the OWNERSHIP interests of the already wealthy ownership class.

The REAL STORY is a story about the collusion among a globally wealthy ownership class to further concentrate private sector ownership in ALL FUTURE wealth-creating, income-generating productive capital asset creation on a global scale. A sorta FREE TRADE ON STEROIDS!

This is a battle between two property system choices: economies such as China in which the productive capital assets are primarily state-owned or state-sponsored communism or socialism and economies such as the United States, Great Britain, Canada, Mexico, Australia, Japan, etc in which the productive capital assets are primarily privately owned, although also largely concentrated among less than 10 percent of the population so as to require massive earnings redistribution, and thus welfare support open and disguised.

But there is another alternative, a balanced Just Third Way (, based on an understanding of binary economics, by which over time the economy’s productive capital assets will become almost entirely individually owned by 100 percent of the citizens. Such an economy would produce efficiencies of production fully using ever-advancing technologies of production that will fuel a greater growth of the world economies by eliminating the problematic condition of the exponential disassociation of production and consumption through ordinary citizens gaining access to FUTURE productive capital ownership to improve their economic well-being, without taking anything away from those who already own.

It is critical that private property ownership in productive capital be extended to ALL people because of the increasing power of productive capital to produce more and more of the wealth or products and services needed and wanted by society. Because productive capital––the non-human factor of production––is an independent productive power separate from human labor power, and represents an increasing role in creating wealth, the question to be addressed is: Who has the right to acquire ownership of productive capital?

While people have private property rights in their own labor, due to tectonic shifts in the technologies of production it is not enough for individual survival if people cannot get jobs, or if jobs, in reality are no longer doing a substantial part of the wealth creation. As exponential technology shifts destroy jobs and devalue the worth of labor, people need not only private property rights in their own labor, but also private property rights in the productive capital assets that are doing ever more of the work.

We as a nation, and other nations, can no longer limit people to personal rights while restricting ownership acquisition rights in wealth-creating, income-producing productive capital assets to those already well-capitalized. To be a just society, all individuals MUST have effective property rights not only in their labor and personal use possessions but also in FUTURE productive capital asset creation. Because of this imbalance, the result has been that the consumer populous is not able to get the money to buy the products and services produced increasingly by the non-human factor––physical productive capital––as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption.

Broadened, private sector individual ownership of FUTURE productive capital assets as a societal objective is the ONLY individual private property-rights approach that will provide solutions to income inequality, unemployment, underemployment and anemic GDP growth––all of which is rooted in the tectonic shift in the technologies of production and its concentrated ownership. This reality, as a practical matter, is destroying jobs and devaluing the worth of labor, widening the income gap between the rich and poor and struggling (each resentful and suspicious of the other), and resulting in our inability to achieve double-digit GDP growth in the United States and other countries.

To solve this challenge, several policies must be implemented in the United States:

1. Tax reform is needed to incentivize broadened individual ownership of corporations by their employees. As an incentive, provide a tax deduction to corporations for dividend payouts, which would tighten-up the right of each owner to his or her full share of profits, a basic and historic right of private property. It would eliminate double and triple taxes on corporate profits, shifting the burden of taxation to personal incomes after exempting initial incomes that would allow low and middle class citizens not to pay taxes on incomes needed to cover basic living expenses. It will also encourage corporations to finance their growth through the issuance of new full voting, full dividend payout shares for financing their productive capital growth needs through Employee Stock Ownership Plans (ESOPs) and Capital Homestead Accounts (CHAs). Politically we need to insist that politicians lift barriers to the democratization of future ownership opportunity based on sound principle, rather than redistributive taxation.

2. As increasingly more workers acquire ownership stakes in FUTURE corporate productive capital assets using ESOP financing mechanisms, workers will build second incomes to support their living expenses, which in turn means they will be better “customers with money” to support demand for the products and services that the economy is capable of producing. By reason of the higher marginal spending rate on the part of workers second incomes, more of the additional income earned by the new capitalists (who have many unsatisfied consumer needs and wants) will be spent on consumption than if the income had been earned by those capitalists who now have concentrated the ownership of productive capital exclusively, and who have few, if any, consumer needs and wants. Such broadened incremental consumption will fuel a demand for more consumer products and services, which in turn will provide incentive for greater productive capital investment.

3. For all Americans, the Federal Reverse needs to create an asset-backed currency that can enable every man, woman and child to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income. The CHA would process an equal allocation of productive credit to every citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets. The shares would be purchased using essentially interest-free credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable products and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy. Risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and, if necessary, government reinsurance, but would not require citizens to reduce their funds for consumption to purchase shares.

4. Reform the tax code such that the tax rate would be a single rate for all incomes from all sources above an established personal exemption level (for example, an exemption of $100,000 for a family of four to meet their ordinary living needs) so that the budget could be balanced automatically and even allow the government to pay off the growing unsustainable long-term debt. The poor would pay the first dollar over their exemption levels as would the stock fund operator and others now earning billions of dollars from capital gains, dividends, rents and other property incomes.

5. As a substitute for inheritance and gift taxes, a transfer tax should be imposed on the recipients whose holdings exceeded $1 million, 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.

6. Eliminate all tax loopholes and subsidies.

These polices would result in rapid and substantial economic growth with the GDP rate in double digits. As a result of the stimulus effect, more REAL, decent paying job opportunities and further technological advancement would be created while simultaneously broadening private, individual ownership of FUTURE wealth-creating, income-generating productive capital assets, which would support second and primary incomes for ALL Americans.

In this new FUTURE economy, a citizen would start to benefit financially at the time he or she enters the economic world as a labor worker, to become increasingly a capital owner, whose productive capital assets contribute as a non-human worker earning a second income, and at some point to retire as a labor worker and continue to participate in production and to earn income as a capital owner until the day you die.

As we ALL contribute to the building of a FUTURE economy that can support general affluence for EVERY man, woman and child, at some point as the technologies of production further advance there will be far less need for human workers and productive capital asset ownership will become the primary income source for most people. As general affluence becomes more widespread people will be free and economically secure to pursue their creative desires and pleasures, further contributing to the cultural and societal development of the country.

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See “Financing Economic Growth With ‘FUTURE SAVINGS': Solutions To Protect America From Economic Decline” at and “The Income Solution To Slow Private Sector Job Growth” at


New Study Proves U.S. Is Controlled By Rich And Powerful Elite


It’s not exactly breaking news that the United States is an Oligarchy and that Democracy in this country has gone the way of the dinosaur and the Dodo Bird. But when other countries are looking at us and pointing their fingers, the problem has gone beyond just being anecdotal.

On May 22, 2015, Richard Zombeck writes  on Liberals Unite:

Former Labor Secretary, Robert Reich, has been railing about it for years, warning of the dire consequences of an elite few pouring billions into our political process in order to sway legislation, regulation and inevitably profits their way.

“When billionaires supplant political parties, candidates are beholden directly to the billionaires. And if and when those candidates win election, the billionaires will be completely in charge.”

Reich writes extensively on his blog and also manages to find his way all over the internet. He even produced a film, “Inequality for All,” documenting how the wealthiest 1% siphoned trillions of dollars from hard working Americans. It’s not clear how many people have watched it, but it’s clear that those who did aren’t sufficiently pissed off enough.

In another article, “The Rise of the Working Poor and the Non-Working Rich,” Reich points out that what despite many in Congress would have us believe, the rich really don’t work for their money.

“It’s also commonly believed, especially among Republicans, that the rich deserve their wealth because they work harder than others.

“In reality, a large and growing portion of the super-rich have never broken a sweat. Their wealth has been handed to them.

“The rise of these two groups — the working poor and non-working rich — is relatively new. Both are challenging the core American assumptions that people are paid what they’re worth, and work is justly rewarded.”

Last month the BBC in England (that’s a different country) reported that Princeton University Prof. Martin Gilens and Northwestern University Prof. Benjamin I Page concluded a study showing that the “U.S. is dominated by a rich and powerful elite.”

The report was picked up by mostly Liberal media in the U.S. never really making it to an outlet as relatively substantial by comparison as the BBC. Here’s the extended interview with the authors of the study on the Daily Show talking about the 10 years of research.

You might think, “Big deal. Everyone knows that,” but in the case of this study, the two professors have actually, after extensive and exhaustive research, come up with data to prove this.

Gilens and Page reviewed answers to 1,770 survey questions on public policy issues. They broke the responses down by income level and then examined how often certain income levels and interest groups saw those policies come to light.

They found that policy changes supported by only one in five rich folks was adopted about 18% of the time, while changes with high support (four out five) were adopted about 45% of the time. One could assume that a policy raising the income for low wage workers might be one of those policy questions and lowering the taxes on people making more than $500,000 per year might be another.

The resulting consensus to the survey?

“When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the US political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.”

They then end with this:

“Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association and a widespread (if still contested) franchise. But we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.”

This might be a great big “Duh” to most people, but prior to any data actual being collected all we had were theories and rhetoric – regardless of how accurate we thought they were or how painful obvious we might have felt it was.

As Eric Zuess, of Counterpunch writes:

“American democracy is a sham, no matter how much it’s pumped by the oligarchs who run the country (and who control the nation’s ‘news’ media.) The US, in other words, is basically similar to Russia or most other dubious ‘electoral’ ‘democratic’ countries. We weren’t formerly, but we clearly are now.”

Maybe we, as Americans, just need to stop pretending that we have some sort of equal opportunity in this country and that, for at least the last few decades, we’ve been fooling ourselves. England has a House of Lords and House of Commoners right out there in the open and for all intents and purposes embraces their classist system. It’s only a matter of time before we allow it right out there in the open as if it’s the way it’s always been.

This is an important article to read. While not directly stated political power has always and continues to follow property OWNERSHIP  The rich are rich, not because they work harder but because they OWN the technologies that make their tools, machines, structures, and processes ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). The vast majority of Americans are ignorant of the fact that  fundamentally, economic value is created through human and non-human contributions, and only understand the labor contribution in the form of jobs.

The scheme of things is the wealthy ownership class stays unseen by the masses and keeps the 99 percent ignorant of the means the 1 percent use to enhance their wealth. I am not talking about the thinking and creative entrepreneur who nurtures his or her ideas and builds a start-up business to produce a product(s) or service(s) founded on his or her ideas. I am talking about ALL the rich who have experienced success but NEVER talk about why they are rich. I am talking about expanding and broadening the capital asset ownership shares of successful, viable corporations growing our economy, which at present are narrowly OWNED in the sense that a tiny few OWN the majority of stock and thus control decision-making.

Fundamentally, the reason people are rich is because they own wealth-creating, income-producing capital assets––whether entrepreneurially created by them or inherited. It is OWNERSHIP, not a job, except in the rare case of athletes, movie stars, or CEOs of corporations, that generates personal wealth. Thus, they effectively keep this “secret” from the 99 percent, who are relegated to job slavery as their ONLY means of earning an income.

Our education system has failed the 99 percent because it has not taught the ordinary citizen about basic principles of private property, finance and advanced financial mechanism that can empower one to acquire capital asset wealth using pure, insured, interest-free capital credit on the basis that the earnings from the investment will pay off the loan. Once payed off, the capital asset will then be OWNED by the person who benefited from the loan, and continue to produce income for that person. This vital knowledge is not taught in our educational system at any level. Yet, those who have stumbled upon or have been tutored by another, or read enough books that provide such insight, books that are not part of any school curriculum, are the people who use the knowledge to build financially profitable portfolios of diversified corporate stock..

If the 99 percent really understood the paramount importance of OWNING in an economic system based on private property, as is the foundation of the United States of America, they would be focused on broadening the opportunity and personal ownership of productive capital assets simultaneously with the growth of the economy. This should be the primary political focus, not job creation or minimum wage boosting, or stronger safety nets and poverty programs, all which are not the individual empowerment solutions to economic inequality.

The Not-So Nordic Bernie Sanders

On May 22, 2015, Paul Street writes on CounterPunch:

Speaking to George Stephanopoulus on ABC News’ “This Week” three weeks ago, the recently declared Democratic Party presidential candidate Bernie Sanders identified himself with the “the democratic socialism” of Scandinavia. In Denmark, Norway, and Sweden, Sanders told Stephanopoulos, politics and society are “very democratic…health care is the right of all people…college education, graduate school is free…retirement benefits, childcare are stronger than in the United States of America. And in those countries, by and large, government works for ordinary people and the middle class, rather than, as is the case right now in our country, for the billionaire class.”

“I can hear the Republican attack ad right now,” Stephanopolous said, “He wants American to look more like Scandinavia.” Sanders shot back: “And what’s wrong with that? What’s wrong when you have more income and wealth equality? What’s wrong when they have a … higher minimum wage than we do, and they are stronger on the environment…? Look…we can learn from other countries. We have the highest rate of childhood poverty of any major country on earth, at the same time as we are seeing a proliferation of millionaires and billionaires. Frankly, I don’t think that is sustainable. I don’t think that’s what America is about.”

One could certainly argue with Sanders about how democratic and socialist his “Nordic model” countries really are and about whether or not savage inequality is “what America is about” (maybe it is). Still, it’s nice, I suppose, to see a major party presidential candidate look past the doctrinal blinders of American Exceptionalism to embrace the social and democratic accomplishments of people in other nations and to advance the notion that the U.S. might (imagine) have something to “learn from other countries.”

Revealing Comparisons

Nearly nine years ago, any lingering doubts that I might have harbored about the reactionary nature of the soon-to-announced Democratic presidential candidate Barack Obama were undone by reading numerous American-exceptionalist passages in Obama’s 2006 campaign book The Audacity of Hope. There Obama mused rhapsodically on “just how good” even “our [the United States’] poor…have it” compared to their more destitute counterparts in Africa and Latin America. Obama took this comparison to be evidence for his argument in Audacity that US capitalism – “the logic of the marketplace” and “private property at the very heart of our system[s] of liberty [and] social organization” – had brought Americans “a prosperity that’s unmatched in human history.” Obama omitted considerably less American-friendly contrasts between the US and its fellow rich nations in Western Europe and Asia (Japan), where capitalism comes with
paulstreetconsiderably more social equality and security than can be found in militantly hierarchical nations like Haiti, Nigeria, South Africa, and the United States.

This was a very different approach from that of Dr. Martin Luther King, Jr., who Obama has claimed as a major influence and whose bust sits behind the “first Black president” in the Oval Office. A “democratic socialist” like Sanders, King challenged American Exceptionalism in the summer of 1966, when he noted the greater poverty that existed in the United States compared to other First World states. “Maybe something is wrong with our [capitalist] economic system,” King told an interviewer, observing that there was no or little poverty, slums, and unemployment in “democratic socialist” countries like Sweden. The “beacon to the world” and “city on a hill” had something to “learn from other countries” King was suggesting. The learning process, King felt, meant “question[ing] the capitalistic economy” since “an edifice which produces beggars needs restructuring.”

Against Spiritual Death

But here the parallel between Sanders today and the mid-late 1960s King drops off in a critical way. King’s increasingly open left sentiments (he ended his life advocating mass civil disobedience on behalf of “the radical reconstruction of society itself”) were intimately connected to his righteous and eloquent criticism of the American military empire. For King by at least 1966, the Black-led poor people’s struggle against American poverty and inequality was inextricably bound up with radical criticism of the mass-murderous US war on Vietnam and the US Empire more broadly. King referred repeatedly to what he called the nation’s “triple evils that are interrelated”: racism, economic exploitation (capitalism), and militarism/imperialism. As King explained in a 1967 speech titled “Where Do We Go From Here”: “The problem of racism, the problem of economic exploitation, and the problem of war are all tied together. A nation that will keep people in slavery for 244 years will ‘thingify’ them – make them things. Therefore they will exploit them, and poor people generally, economically. And a nation that will exploit economically will have to have foreign investments and everything else, and will have to use its military might to protect them.”

At New York City’s Riverside Church on April 4, 1967 (one year to the day before he was killed), King described the United States as “the leading purveyor of violence in the world today.” He mentioned some of the horrible things he had learned about US actions in Southeast Asia:

“[The Vietnamese] must see Americans as strange liberators…the people read our leaflets and receive regular promises of peace and democracy – and land reform. Now they languish under our bombs….as we he herd them off the land of their fathers into concentration camps. They know they must move or be destroyed by bombs. They watch as we poison their water, as we kill a million acres of their crops. They must weep as the bulldozers roar through their areas preparing to destroy the precious trees. They wander into the hospitals, with at least twenty casualties from American firepower for one ‘Vietcong’-inflicted injury. So far we may have killed a million of them – mostly children… What do they think as we test out our latest weapons on them, just as the Germans tested out new medicines and new tortures in the concentration camps of Europe?”

King broke with both sides of the American Exceptionalist coin: (A) the notion that the United States is so breathtakingly splendid that it has nothing to learn from the rest of the world and everything to teach others and (B) the notion that the United States is unique among world history’s great powers in the fundamentally benevolent, democratic, humanitarian, and non-(and even anti-) imperial intention and nature of its foreign policies.

For King, it was both immoral and impractical to break with only the first side of the coin. Explaining why he had turned openly and loudly against the Vietnam War, King noted that “a burden of responsibility was placed upon me in 1964: I cannot forget that the Nobel Prize for Peace was also a commission – a commission to work harder that I had ever worked before for ‘the brotherhood of man.’ This is a calling which takes me beyond national allegiances …to the making of peace” (Barack Kill List Obama had a different take on his Nobel Peace award).

In a series of lectures on the Canadian Broadcasting System, King reflected on the remarkable wave of race riots that washed across U.S. cities in the summers of 1966 and 1967. He made no apologies for Black urban violence. He blamed “the white power structure…still seeking to keep the walls of segregation and inequality intact” for the disturbances. He found the leading cause of the riots in the reactionary posture of “the white society, unprepared and unwilling to accept radical structural change,” which” produc[ed] chaos” by telling Blacks “that they must expect to remain permanently unequal and permanently poor.”

King also blamed the riots to no small degree on Washington’s “war in [here he might have better said “on”] Vietnam.” The military aggression against Southeast Asia, King noted, sent poor blacks to the front killing lines to a disproportionate degree. It advanced the notion that violence was a reasonable response and even a solution to social and political problems. It also stole resources from the federal government’s briefly declared and barely fought “War on Poverty.” As King ruefully observed at Riverside Church:

“There is…a very obvious and almost facile connection between the war in Vietnam and the struggle I, and others, have been waging [against poverty and racism] in America. A few years ago, there was a shining moment in that struggle. It seemed as if there was a real promise of hope for the poor – both black and white – through the poverty program. There were experiments, hopes, new beginnings. Then came the buildup in Vietnam and I watched the program broken and eviscerated as if it were some idle plaything of a society gone mad on war, and I knew America would never invest the necessary funds or energies in rehabilitation of its poor so long as adventures like Vietnam continued to draw men and skills and money like some demonic destructive suction tube. So I was increasingly compelled to see the war as an enemy of the poor and to attack it as such.”

Budgetary matters and the particulars of Vietnam aside, King added that “a nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual death.”

In answering his “call…beyond national allegiances,” King stood to the portside of leading U.S. 1960s social democrats like Bayard Rustin, A Phillip Randolph, and Michael Harrington.  These and other left leaders (e.g. Max Shachtman and Tom Kahn) were unwilling to forthrightly oppose the US-imperial assault on Indochina because of their misplaced faith in pursuing the fight against poverty in alliance with the pro-war Democratic Party and the AFL-CIO.

Rustin, Harrington, and Randolph were practical as well as moral fools on this score. Besides opposing the war on moral grounds, King understood very well that the expenses of empire precluded serious anti-poverty spending.

Bernie’s Imperial Omission

Which brings us back to Bernie Sanders. Anyone who wants to bring the “Nordic model” of “democratic socialism” to the United States must surely confront a core and critical difference between the United States and Scandinavia. Forty-seven years after King’s assassination and despite the disappearance of any credible military rival to the US with the end of the Cold War, the Pentagon budget today accounts for more than half of US federal discretionary spending (symptomatic of “a society gone mad on war”). The US generates nearly half of all military spending on the planet. This giant war and empire (“defense”) expenditure ($1.2-1.4 trillion or more each year) maintains (among other things) more than 1000 US military installations spread across more than 100 “sovereign” nations. “Financially,” the U.S. peace and justice activist David Swanson writes, “war is what the U.S. government does. Everything else is a side show.”

Military outlays on the current U.S. scale carry enormous social, human, and environmental, opportunity costs. They cancel out spending to address massively unmet social, human, and environmental needs – needs that Sanders talks about in knowledgeable, populist, and properly angry terms. The trade-offs are disturbing. As Swanson observed last December:

“The cost of one weapons system that doesn’t work could provide every homeless person with a large house. A tiny fraction of military spending could end starvation at home and abroad. The Great Student Loan Struggle takes place in the shadow of military spending unseen in countries that simply make college free, countries that don’t tax more than the United States, countries that just don’t do wars the way the U.S. does. You can find lots of other little differences between those countries and the U.S. but none of them on the unfathomable scale of military spending or even remotely close to it”(emphasis added).

Military budgets are drastically smaller in Scandinavia, to say the least. Defense accounts for 3.1% of central government spending in Finland, 3.2% in Denmark, 4.3% in Sweden, and 4.8% in Norway.

So where is the call to drastically slash the Pentagon System and introduce a great social and environmental peace dividend in the Sweden- flattering Sanders’ program for social-democratic change on the Nordic model in the United States? Nowhere. As Swanson notes, Sanders’ politics and policy agenda are usefully acronym-ized as “PEP” to mean not just “Progressive Except for Palestine” (standard among top Democratic politicians, the nominally “independent” and pro-Israel Sanders included) but also “Populist Except for the Pentagon.” Sanders’ top 12 proposals include calls for major investments in infrastructure, measures and programs to reverse climate change, an end to corporate welfare, federal support for worker-owned coops, a real livable minimum wage, the restoration of union organizing and collective bargaining rights, equal pay for women, single-payer health insurance (Medicare for All), progressive taxation, expanded Social Security, college affordability, the break-up of the big Wall Street banks, and end to NAFTA, CAFTA, and permanent normal trade relations with China.


This is all good and essential stuff that Leftists, left-leaning progressives, and others have been advocating for quite some time. Still, there are three glaring omissions. First, there’s no call for a Financial Transaction Tax – for a levy on transactions made by the nations’ hugely profitable, taxpayer-subsidized and federally protected financial giants. Such a tax would create significant public revenue to fund federal social and environmental programs.

Second, there’s no reference to the nation’s savage racial disparities or to the intimately related problems of persistent de facto racial apartheid and racist mass arrest, incarceration, felony-marking, and police abuse. This is a glaring oversight in light of Ferguson (Michael Brown), Staten Island (Eric Garner), Baltimore (Freddie Gray) – to mention just the top three racial hotspots of 2014 and 2015 – and the rise of the Black Lives Matter movement to protest the ongoing epidemic racist police killings across the country.

Third, and most relevant to the main topic of this essay, there’s nothing on the need to drastically cut the nation’s giant “rogue superpower” military budget, itself a giant form of corporate welfare and the revenue source for “the single biggest contributor to climate change, namely the military” (Swanson). By Swanson’s analysis, this conspicuous and social-democratically self-defeating omission is explained largely by the fact that Sanders (who supported the Pentagon’s installation of a hugely expensive F-35 fighter jet base in Vermont in the name of “jobs” and “growth”) at the end of the day is on board with the American military project:

“What do you invest in infrastructure? It’s not as though Sanders doesn’t know about the trade-offs….he blames ‘the Bush-Cheney war in Iraq’ for costing $3 trillion. He says he wants infrastructure instead of wars. But routine ‘base’ military spending is $1.3 trillion or so each and every year. It’s been far more in recent years than all the recent wars, and it generates the wars as Eisenhower warned it would. It also erodes the economy…The same dollars moved [from the military] to infrastructure would produce many more jobs and better paying ones. Why not propose moving some money [out of the Pentagon]? Why not include it in the list of proposals? In Sanders’ case, I think he’s partly a true believer in militarism. He wants good wars instead of bad wars (whatever that means) despite the belief in ‘good wars’ requiring ongoing military spending. And partly, I think, he comes at it from a deep habit of ‘supporting’ the troops and veterans for both sincere and calculating reasons. He’s also a PEP in the Palestine sense.”

The problem is more than just fiscal and budgetary. It’s also moral and spiritual. If Dr. King were alive today, he would denounce the “spiritual doom” at the heart of the contradiction between the United States’ gargantuan military spending and the comparative paltriness of its welfare state in a time when 1 in 5 US children live in food insecure households and 14.7 million US children live below the federal government’s notoriously inadequate poverty level. At the same time, King, unlike Sanders, would not be able to stay silent about such appalling crimes as US client state Israel’s horrific killing of many hundreds of children in Gaza last year and in 2008. King would never join Sanders in keeping mum about the vicious “collateral damage” inflicted on civilians by President Kill List’s endless jihad-recruiting drone strikes across the Muslim world.

Sanders has transcended one side of the American Exceptionalist trap – the notion that the U.S. has nothing to learn from other countries and people. Great. The other, foreign policy side of the trap still exercises great pull over him as it did over previous U.S. progressives who could not break free from the corporate and militaristic Democratic Party. And here’s the rub: clinging to the second side of the trap (the notion of a good American Empire and “good [US] wars”) tends to render null and void a politician’s effort to act on his or her rejection of the first side by advancing progressive social and democratic and environmental policies of uber-white Scandinavian – or French or German or (in a less Caucasian vein) Latin American (Venezuela, Bolivia, Ecuador, Uruguay, Argentina, Cuba?) – inspiration. Is this not an almost embarrassingly elementary lesson of post-World War II US history for any “Left” worth its label? Uncle Sam cannot fund a “Nordic” social democracy to end poverty, provide free and high quality health care, fund college, build green infrastructure, avert global warming and generally advance equality, sustainability and justice at home while also paying for a giant military war and empire machine at home and abroad. He has to choose. And so does Bernie if he wants more Left progressives to take his “democratic socialism” more seriously. Along the way, it would help if he would pay more explicit attention to the United States’ appalling racial disparities and oppression.


Buffett: Stop Blaming The Rich For Income Inequality


On May 22, 2015, Dan Bigman writes on Forbes:

The world’s third-richest man weighed in on the national debate over rising levels of income disparity in the United States yesterday, saying that while the gaps between the country’s haves and have nots are definitely increasing, it is not the fault of those at the top. Nor will it be solved by traditional methods, like improving education or hiking the minimum wage. His solution: a pragmatic, direct way of helping incomes rise for the working poor across America by increasing access to the Earned Income Tax Credit.

“No conspiracy lies behind this depressing fact: The poor are most definitely not poor because the rich are rich,” Buffett, who’s net worth we clock in at $71.3 billion, wrote in a Wall Street Journal opinion piece published late yesterday. “Nor are the rich undeserving. Most of them have contributed brilliant innovations or managerial expertise to America’s well-being. We all live far better because of Henry Ford, Steve Jobs, Sam Walton and the like. Instead, this widening gap is an inevitable consequence of an advanced market-based economy.”

That’s not to say the gap isn’t growing. Citing data from The Forbes 400 list of the richest Americans, he said that the total net worth of those on the list in 1982, the first year the list was compiled, was $93 billion. In 2014, that number was $2.3 trillion, up 2,400%. At the same time, median household income in the United States rose only about 180%, he said.

Improving education, won’t work fast enough, or go far enough, he said. And fighting to raise the minimum wage—currently in vogue among many on the left—won’t bridge the gap either, he says, and may actually backfire by hurting employment.   “The better answer,” he said, is an expansion of the earned income tax credit, a federal tax credit targeted at working class Americans which gives them a credit starting with the first dollar they earn and rises until it hits a ceiling, then phases out from there.

According to the Center on Budget and Policy Priorities, more than 27 million taxpayers got the ETIC in 2013 and in the 2012 tax year, the average EITC was $2,982 for a family with children.

“There is no disincentive effect: A gain in wages always produces a gain in overall income,” writes Buffett. “The process is simple: You file a tax return, and the government sends you a check. In essence, the EITC rewards work and provides an incentive for workers to improve their skills. Equally important, it does not distort market forces, thereby maximizing employment. “

That distortion is the main criticism of opponents of raising the minimum wage. Arbitrarily increasing the amount employers are required to pay workers, as cities like Seattle, and most recently Los Angeles have done, is a disincentive to hiring or retaining workers, especially those at the lower end of the economic latter who most need a job.

“I may wish to have all jobs pay at least $15 an hour,” writes Buffett. “But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty.”

It’s an argument that probably won’t sit well with many on the left accustomed to blaming employers and the rich for the pain of the poor, but, like most things Buffett says and does, it isn’t aimed at being popular. It’s aimed at actually getting something done.

Warren Buffett  in this article suggests that the wealthy aren’t responsible for inequality. He is WRONG. The wealthy are wealthy because they OWN the non-humans means of production and have rigged the system for their benefit by  hiring all the lobbyist that create the financial mechanisms that continuously concentrate wealth-creating, income-producing capital asset OWNERSHIP among themselves and fix the tax loopholes and deductions which make the rich richer. Warren Buffett is clearly no progressive thinker.

Abraham Lincoln said that the purpose of government is to do for people what they cannot do for themselves. Government also should serve to keep people from hurting themselves and to restrain man’s greed, which otherwise cannot be self-controlled. Anyone who seeks to own productive power that they cannot or won’t use for consumption are beggaring their neighbor––the equivalency of mass murder––the impact of concentrated capital ownership.

Any justice-minded person should be angry at the system and want to reform the system, but as well there are wealthy capital owners, such as Warren Buffett, who have been able to enrich themselves and have not lifted a finger to acknowledge that they are rich because they own wealth-creating, income-producing capital assets. Nor have they not spoken out about broadening capital ownership.

Those who are overwhelmingly benefiting from the current unjust system, such as Warren Buffett and others, should be shamed for hogging capital ownership and not seeking 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. Doing so would enable the poor and others with no or few assets (the 99 percenters) to overcome the collateralization barrier that excludes the non-halves from access to productive capital.

Power From The People

FINANCE & DEVELOPMENT, March 2015, Vol. 52, No. 1

By Florence Jaumotte

The decline in unionization in recent decades has fed the rise in incomes at the top

Power from the People

Inequality has risen in many advanced economies since the 1980s, largely because of the concentration of incomes at the top of the distribution. Measures of inequality have increased substantially, but the most striking development is the large and continuous increase in the share of total income garnered by the 10 percent of the population that earns the most—which is only partially captured by the more traditional measure of inequality, the Gini coefficient (see Chart 1).

jaumotte chart 1

The Gini is a summary statistic that gauges the average difference in income between any two individuals from the income distribution. It takes the value zero if all income is equally shared within a country and 100 (or 1) if one person has all the income.

While some inequality can increase efficiency by strengthening incentives to work and invest, recent research suggests that higher inequality is associated with lower and less sustainable growth in the medium run (Berg and Ostry, 2011; Berg, Ostry, and Zettelmeyer, 2012), even in advanced economies (OECD, 2014). Moreover, a rising concentration of income at the top of the distribution can reduce a population’s welfare if it allows top earners to manipulate the economic and political system in their favor (Stiglitz, 2012).

Traditional explanations for the rise of inequality in advanced economies are skill-biased technological change and globalization, which have increased the relative demand for skilled workers, benefiting top earners relative to average earners. But technology and globalization foster economic growth, and there is little policymakers can or are willing to do to reverse these trends. Moreover, while high-income countries have been similarly affected by technological change and globalization, inequality in these economies has risen at different speeds and magnitudes.

As a consequence, economic research has recently focused on the effects of institutional changes, with financial deregulation and the decline in top marginal personal income tax rates often cited as important contributors to the rise of inequality. By contrast, the role played by labor market institutions—such as the decline in the share of workers affiliated with trade unions and the fall in the minimum wage relative to the median income—has featured less prominently in recent debates. In a forthcoming paper, we look at this side of the equation.

jaumotte chart 1

We examine the causes of the rise in inequality and focus on the relationship between labor market institutions and the distribution of incomes, by analyzing the experience of advanced economies since the early 1980s. The widely held view is that changes in unionization or the minimum wage affect low- and middle-wage workers but are unlikely to have a direct impact on top income earners.

While our findings are consistent with prior views about the effects of the minimum wage, we find strong evidence that lower unionization is associated with an increase in top income shares in advanced economies during the period 1980–2010 (for example, see Chart 2), thus challenging preconceptions about the channels through which union density affects income distribution. This is the most novel aspect of our analysis, which sets the stage for further research on the link between the erosion of unions and the rise of inequality at the top.

Changes at the top

Economic research has highlighted various channels through which unions and the minimum wage can affect the distribution of incomes at the bottom and middle, such as the dispersion of wages, unemployment, and redistribution. In our study, however, we also consider the possibility that weaker unions can lead to higher top income shares, and formulate hypotheses for why this may be the case.

So the main channels through which labor market institutions affect income inequality are the following:

Wage dispersion: Unionization and minimum wages are usually thought to reduce inequality by helping equalize the distribution of wages, and economic research confirms this.

Unemployment: Some economists argue that while stronger unions and a higher minimum wage reduce wage inequality, they may also increase unemployment by maintaining wages above “market-clearing” levels, leading to higher gross income inequality. But the empirical support for this hypothesis is not very strong, at least within the range of institutional arrangements observed in advanced economies (see Betcherman, 2012; Baker and others, 2004; Freeman, 2000; Howell and others, 2007; OECD, 2006). For instance, in an Organisation for Economic Co-operation and Development review of 17 studies, only 3 found a robust association between union density (or bargaining coverage) and higher overall unemployment.

Redistribution: Strong unions can induce policymakers to engage in more redistribution by mobilizing workers to vote for parties that promise to redistribute income or by leading all political parties to do so. Historically, unions have played an important role in the introduction of fundamental social and labor rights. Conversely, the weakening of unions can lead to less redistribution and higher net income inequality (that is, inequality of income after taxes and transfers).

Bargaining power of workers and top income shares: Lower union density can increase top income shares by reducing the bargaining power of workers. Naturally, top income shares are mechanically influenced by what happens in the lower part of the income distribution. If deunionization weakens earnings for middle- and low-income workers, this necessarily increases the income share of corporate managers’ pay and shareholder returns. Intuitively, the weakening of unions reduces the bargaining power of workers relative to capital owners, increasing the share of capital income—which is more concentrated at the top than wages and salaries. Moreover, weaker unions can reduce workers’ influence on corporate decisions that benefit top earners, such as the size and structure of top executive compensation.

To study the role of unionization and the minimum wage in the rise of inequality, we use econometric techniques over a sample including all advanced economies for which data are available and the years 1980 to 2010. We examine the relationship between various inequality measures (top 10 percent income share, Gini of gross income, Gini of net income) and labor market institutions, as well as a number of control variables. These controls include other important determinants of inequality identified by economists, such as technology, globalization (competition from low-cost foreign workers), financial liberalization, and top marginal personal income tax rates, as well as controls for common global trends in these variables. Our results confirm that the decline in unionization is strongly associated with the rise of income shares at the top.

While causality is difficult to establish, the decline in unionization appears to be a key contributor to the rise of top income shares. This finding holds even after accounting for shifts in political power, changes in social norms regarding inequality, sectoral employment shifts (such as deindustrialization and the growing role of the financial sector), and increases in education levels. The relationship between union density and the Gini of gross income is also negative but somewhat weaker. This could be because the Gini underestimates increases in inequality at the top of the income distribution.

We also find that deunionization is associated with less redistribution of income and that reductions in minimum wages increase overall inequality considerably.

On average, the decline in unionization explains about half of the 5 percentage point rise in the top 10 percent income share. Similarly, about half of the increase in the Gini of net income is driven by deunionization.

Future research

Our study focuses on unionization as a measure of the bargaining power of workers. Beyond this simple measure, more research is needed to investigate which aspects of unionization (for example, collective bargaining, arbitration) are most successful and whether some aspects may be more disruptive to productivity and economic growth.

Whether the rise of inequality brought about by the weakening of unions is good or bad for society remains unclear. While the rise in top earners’ income share could reflect a relative increase in their productivity (good inequality), top earners’ compensation may be larger than what is justified by their contribution to the economy’s output, reflecting what economists call rent extraction (bad inequality). Inequality could also hurt society by allowing top earners to manipulate the economic and political system.

In such cases, there would be grounds for governments to take policy action. Such action could include corporate governance reforms that give all stakeholders—workers, managers, and shareholders—a say in executive pay decisions; improved design of performance-related pay contracts, especially in the risk-happy financial sector; and reaffirmation of labor standards that allow willing workers to bargain collectively. ■

Decline in union membership is responsible for half the rise in the income share of the top 10 percent between 1980 and 2010.

Robert Reich: Bernie Sanders Is Right—We Need Free College for All

On May 22, 2015, Robert Reich writes on AlterNet:

Higher education isn’t just a personal investment. It’s a public good that pays off in a more competitive workforce and better-informed and engaged citizens.

Senator Bernie Sanders is making waves with a big idea to reinvent education: Making public colleges and universities tuition-free.

I couldn’t agree more. Higher education isn’t just a personal investment. It’s a public good that pays off in a more competitive workforce and better-informed and engaged citizens. Every year, we spend nearly $100 billion on corporate welfare, and more than $500 billion on defense spending. Surely ensuring the next generation can compete in the global economy is at least as important as subsidies for big business and military adventures around the globe.

In fact, I think we can and must go further — not just making public higher education tuition-free, but reinventing education in America as we know it. (That’s the subject of this latest video in my partnership with MoveOn, “The Big Picture: Ten Ideas to Save the Economy.” Please take a moment to watch now.)

In the big picture, much of our education system — from the bells that ring to separate classes to memorization drills — was built to mirror the assembly lines that powered the American economy for the last century. As educators know, what we need today is a system of education that cultivates the critical thinking skills necessary for the economy of tomorrow.

We have to reinvent education because it’s not working for too many of our kids – who are either dropping out of high school because they aren’t engaged, or not getting the skills they need, or paying a fortune for college and ending up with crushing student debt.

How do we get there?

First, stop the wall-to-wall testing that’s destroying the love of teaching and learning. Let’s get back to a curriculum that builds curiosity, problem solving, teamwork and perseverance, and away from teaching to the test. Give teachers space to teach, and give students freedom to learn. Limit classrooms to 20 children so teachers can give students the individual attention they need.

Increase federal funding for education. The majority of U.S. public school students today live in poverty. That’s a staggering figure. Our schools and educators aren’t equipped to deal with this harsh reality but we know ways to change that. High-quality early childhood education, for starters. Community schools to serve the whole child, with health services, counselors, and after school activities.

Offer high school seniors the option of a year of technical education, followed by two years of free technical education at a community college. The route into the middle class shouldn’t always require a four-year college degree. America needs technicians who can install, service, repair, and upgrade complex equipment in offices, laboratories, hospitals, and factories.

And Senator Sanders has proposed, make public higher education free — from community college to state universities — completely free, as it was in many states in the 1950s and 1960s. Higher education isn’t just a personal investment. It’s a public good that pays off in a more competitive workforce and better-informed and engaged citizens.

And critically, we must increase pay and improve conditions for the men and women who power our schools—teachers and school staff who educate our kids, clean our classrooms, and keep our schools safe.

The law of supply and demand isn’t repealed at the schoolhouse door. We’re paying investment bankers hundreds of thousands if not millions of dollars a year to make money for Wall Street. We ought to be paying educators and staff a decent wage to develop and guide the nation’s human capital – an investment that would benefit everyone.

By reinventing education in these sensible ways, we all gain.


Basically Unaffordable


On May 23, 2015,

WITH cash-strapped governments around the world looking for ways to cut welfare bills and reduce deficits, it might seem an odd time to consider a generous new universal benefit. Yet the basic income—a guaranteed government payment to all citizens, whatever their private wealth—is creeping onto the policy agenda. The Swiss will soon vote on a proposal for a basic income of 2,500 francs ($2,700) per month, following the success of a national petition. Amid turmoil in Greece, Yanis Varoufakis, its finance minister, has hinted that he is a fan. Britain’s Green Party has adopted a version of the policy. Turning it into a substitute for all welfare payments would be prohibitively expensive. But it might work as one element of the safety net.

The idea has a long intellectual heritage. In 1797 Thomas Paine, one of America’s founders, penned a pamphlet arguing that every person is entitled to share in the returns on the common property of humanity: the earth’s land and natural resources (today, you might include radio spectrum or the profits of central banks). Paine suggested paying citizens the equivalent of around $2,000 in today’s money—which was then over half the annual income of a labourer—on their 21st birthday, in lieu of their share of the planet. The benefit would be granted to all, to avoid creating “invidious distinctions” between rich and poor. Since Paine’s proposal, the idea of universal payouts—whether one-off or recurring—has periodically attracted support from both sides of the political aisle.

The left has usually viewed such policies as a way of beefing up the social safety net and fighting inequality. That is particularly appealing in a world where technology creates unimaginable riches for some, but threatens the jobs of others. As early as 1964 James Meade, an economist,argued that technological progress could reduce the demand for labour so much that wages would fall to intolerable lows. In a world where a computer can suddenly make a profession redundant, those who have worked hard cannot be certain of a decent standard of living. That may justify more generous state support.

For their part, right-wing advocates of the citizen’s income view it as a streamlined replacement for complicated meanstested welfare payments. A system where everyone receives the same amount requires fewer bureaucrats to administer. Existing schemes withdraw benefits from low earners as they earn more, discouraging work and so trapping some in poverty. For this reason, Milton Friedman, an economist known for his laissez-faire beliefs, wanted to replace all welfare with a simpler system that combined a guaranteed minimum income with a flat tax.

Although the basic income has so far failed to take off, it does have a commonplace cousin: the tax-free allowance. In Britain, for example, workers can earn £10,600 ($16,500) before income tax is levied on subsequent earnings (starting at 20%). The exemption is worth just over £2,000 a year to the 92% of taxpayers who earn more than the threshold. For them, there would be no difference if the government replaced the allowance with a payment of similar magnitude. Making the payment universal would be costlier, but could be paid for by paring other welfare payments.

Yet £2,000 does not provide much of a safety net, and more generous schemes are enormously expensive. In 1970 James Tobin, an economist, produced a simple formula for calculating their cost. Suppose the government needs to levy tax of 25% of national income to fund public services such as education, policing and infrastructure. Paying for a basic income worth 10% of the average income requires average taxes to rise by ten percentage points, to 35%. A basic income worth 20% of the average income requires average taxes to be 20 percentage points higher, at 45%, and so on. Eradicating relative poverty, defined as income beneath 60% of the median, would require tax rates approaching 85%. The Swiss proposal is absurdly expensive: a rough calculation suggests it would cost about SFr197 billion ($210 billion), or 30% of GDP. A generous basic income funded by very high taxes would be self-defeating, as it would reintroduce the sort of distortions that many of its advocates hope to banish from the welfare system. Loafers could live comfortably without lifting a finger.

To prevent that, eligibility could be restricted. Tony Atkinson, another economist,advocates a “participation income”, paid only to those who contribute to society, whether by working, looking for work or volunteering. That reintroduces some administrative burden, but avoids supporting the idle.

A better system might also be financed by a return on assets, rather than by taxes. Alaska pays its residents an annual dividend—$1,900 in 2014—from the returns on its oil fund. An asset-financed basic income would remove welfare distortions without introducing new ones through higher taxes. Unfortunately, few governments have wealth funds. On the contrary, they are mired in debt (though some think they could monetise public assets, including land, more effectively). In any case, many would worry that widespread government ownership of financial assets would lead to bureaucrats meddling in the private sector.

Small is beautiful

Fans of the basic income make plenty of good arguments. A welfare system riddled with complicated means-testing distorts incentives and is a headache to run. Paine’s intellectual case for all citizens to be entitled to a return on the bounties of the earth is compelling. But a basic income is too costly and inefficient to act as a wholesale replacement for welfare. It is feasible only if it is small, and complemented by more targeted anti-poverty measures. Basic income: the clue is in the name.


Elizabeth Warren Details Obama’s Broken Trade Promises

On May 18, 2015, Zach Carter writes on The Huffington Post:

Sen. Elizabeth Warren (D-Mass.) issued a report Monday morning detailing decades of failed trade enforcement by American presidents including Barack Obama, the latest salvo in an ongoing public feud between Warren and Obama over the Trans-Pacific Partnership.

Obama is currently negotiating the major trade pact with 11 other nations. While the text of the TPP agreement remains classified information, it is strongly supported by Republican leaders in Congress and corporate lobbying groups including the U.S. Chamber of Commerce. The deal is opposed by most congressional Democrats, along with labor unions, environmental groups and advocates of Internet freedom.

Obama has repeatedly insisted the TPP will include robust labor protections, and has dismissed Warren’s criticisms as “dishonest,” “bunk” and “misinformation.” On Monday, Warren fired back, showing that Obama simply has not effectively enforced existing labor standards in prior trade pacts. According to the report, a host of abuses, from child labor to the outright murder of union organizers, have continued under Obama’s watch with minimal pushback from the administration.

“The United States does not enforce the labor protections in its trade agreements,” the report reads, citing analyses from the Government Accountability Office, the State Department and the Department of Labor.

Of the 20 countries the U.S. currently has trade agreements with, 11 have documented reliance on child labor, forced labor or other human rights abuses related to labor, according to the report. The violations are not confined to exploitation. Since Obama finalized a labor action plan with the government of Colombia in 2011, 105 union activists have been murdered. Obama called the Colombian deal “a win-win for workers” at the time.

Despite these trade violations, none of these countries has faced significant consequences from the United States government.

Warren’s report undercuts an Obama public relations offensive that has repeatedly characterized TPP as “the most progressive trade deal in history.” The Senate is currently considering legislation that would grant Obama “fast track” authority, barring Congress from amending any trade pact he negotiates, including TPP. Liberals are concerned TPP will exacerbate income inequality and undermine key regulations.

But while much of the TPP controversy has concerned the legal language involved in the agreement itself, Warren’s report highlights a broader concern among progressives. Regardless of what the final TPP deal looks like, presidents Bill Clinton, George W. Bush and Obama himself, have all failed to effectively enforce promises to protect workers, even as rogue regimes have continued to benefit from other provisions of the agreements.

“We have two decades of experience with free trade agreements under both Democratic and Republican Presidents. Supporters of these agreements have always promised that they contain tough standards to protect workers,” the report reads. “The rhetoric has not matched the reality.”

The Obama administration has said it takes labor violations seriously and has pushed countries to improve conditions.

“The Obama Administration is taking unprecedented actions to promote and protect fundamental labor rights and ensure acceptable conditions of work,” reads a joint report from the Department of Labor and the Office of the U.S. Trade Representative from February. Those commitments include “bringing the first-ever labor dispute under a free trade agreement”– in Guatemala.

But labor unions and other critics say these measures have been ineffective. The AFL-CIO has been pressing for action on Guatemalan violations for Obama’s entire term in office, and the dispute remains unresolved. Meanwhile, as Warren’s report documents, Guatemala remains one of the most dangerous places in the world for union workers. In 2013 and 2014, according to the AFL-CIO, 17 labor activists were murdered in Guatemala while the Obama administration pursued diplomatic action. Three of the slain union workers were reportedly killed during a dispute with a local government over unpaid back wages.

Much of Warren’s trade critique has focused on the capacity for free trade pacts to undermine financial regulations. Last week, Canadian Finance Minister Joe Oliver gave a speech arguing that a key tenet of Obama’s 2010 Wall Street reform lawviolates the North American Free Trade Agreement.

Read the full Warren report here.


11 Moments From Bernie Sanders’s Reddit Q&A That Show Why He’s A Progressive Hero

Senator Bernie Sanders (I-VT)Mark Wilson/Getty Images

On May 20, 2015, Matthew Yglesias writes on VOX:

The media isn’t taking Bernie Sanders seriously as a presidential candidate because he doesn’t seem to have a realistic path to winning the nomination. But he does have a large and highly engaged fan presence on the internet, and his Tuesday Q&A session on Reddit was full of moments that illustrate why his fans love him so much. He is an utterly self-confident, utterly fearless exponent of liberal and social democratic ideals in a country where such notions are rarely shouted from the rooftops.

He’s a politician who doesn’t care about hitting his next quarterly fundraising numbers or what he can round up 60 votes for in the Senate. He’s just here to speak the truth as he sees it. Here, excerpted from the Q&A, are 11 answers that exemplify why he’s such a hero to online progressives.

7) Future-proofing the economy

ImLivingAmongYou: What do you think will have to be done regarding massive unemployment due to automation permanently killing jobs with no fault on the people losing these jobs?

Bernie Sanders: Very important question. There is no question but that automation and robotics reduce the number of workers needed to produce products. On the other hand, there is a massive amount of work that needs to be done in this country. Our infrastructure is crumbling and we can create millions of decent-paying jobs rebuilding our roads, bridges, rail system, airports, levees, dams, etc. Further, we have enormous shortages in terms of highly-qualified pre-school educators and teachers. We need more doctors, nurses, dentists and medical personnel if we are going to provide high-quality care to all of our people. But, in direct response to the question, increased productivity should not punish the average worker, which is why we have to move toward universal health care, making higher education available to all, a social safety net which is strong and a tax system which is progressive.

10) Working toward a universal basic income

Stack0verfl10w: What is your stance on Universal Basic Income(UBI)?

Bernie Sanders: So long as you have Republicans in control of the House and the Senate, and so long as you have a Congress dominated by big money, I can guarantee you that the discussion about universal basic income is going to go nowhere in a hurry. But, if we can develop a strong grassroots movement which says that every man, woman and child in this country is entitled to a minimum standard of living — is entitled to health care, is entitled to education, is entitled to housing — then we can succeed. We are living in the richest country in the history of the world, yet we have the highest rate of childhood poverty of almost any major country and millions of people are struggling to put food on the table. It is my absolute conviction that everyone in this country deserves a minimum standard of living and we’ve got to go forward in the fight to make that happen.

Bernie Sanders skips over the ever-growing job destroying impact that results from automation and robotics––technological non-human means of production, to focus solely on job creation and education. Yet that won’t really address this constant technological change that is occurring and diminishing the need for human labor, no matter how well educated one is. What Bernie Sanders should advocate is the passage of the proposed Capital Homestead Act, which would accomplish abating economic inequality and create universal personal OWNERSHIP of wealth-creating, income-producing capital growth assets––the assets of automation and robots, all technological non-human means of production, while simultaneously creating millions of jobs to build a future economy that can support general affluence for EVERY child, woman, and man.