Help Make A Political Revolution

On March 29, 2015 Senator Bernie Sanders writes:

Dear Gary,

Thank you so much for the political and financial support you have given me over the years. It is much appreciated. As the longest serving independent in American congressional history, I am writing now to ask you, in these very difficult times, to stand with me again as we continue the struggle for social and economic justice and environmental sanity.

The good news is that the economy today is much better than it was six years ago when George W. Bush left office. The bad news is that, despite these improvements, the 40-year decline of the American middle class continues. Real unemployment is much too high, 35 million Americans continue to have no health insurance and more of our friends and neighbors are living in poverty than at almost any time in the modern history of our country.

Meanwhile, as the rich become much richer, the level of income and wealth inequality has reached obscene and unimaginable levels. In the United States, we have the most unequal level of wealth and income distribution of any major country on earth, and worse now then at any other time since the 1920s. Today, the top one-tenth of 1 percent of our nation owns almost as much wealth as the bottom 90 percent, and one family owns more wealth than the bottom 42 percent. In terms of income, 99 percent of all new income is going to the top 1 percent.

This is what a rigged economic system looks like. At a time when millions of American workers have seen declines in their incomes and are working longer hours for lower wages, the wealth of the billionaire class is soaring in a way that few can imagine. If you can believe it, between 2013 and 2015, the 14 wealthiest individuals in the country saw their net worth increase by over $157 billion dollars. Children go hungry, veterans sleep out on the streets, senior citizens cannot afford their prescription drugs — and 14 individuals saw a $157 billion dollar increase in their wealth over a two-year period.

The time to fight back is now.

The grotesque level of income and wealth inequality we are experiencing is not just a moral and economic issue, it is a political issue as well. As a result of the disastrous Citizens United Supreme Court decision, billionaires are now able to spend unlimited sums of money to buy the candidates they want. The Koch brothers, an extreme right-wing family, recently announced that they were prepared to spend some $900 million in the next election cycle. This is likely more money than either the Democratic or Republican parties will spend. If you think that it is an accident that the Republican Party has become a far-right party, think again. The Koch brothers’ agenda — ending Social Security, Medicare, Medicaid, the U.S. Postal Service, the Environmental Protection Agency and all campaign finance limitations — has become the agenda of the Republican candidates they fund.

And, by the way, if you think that the Republican Party’s refusal to acknowledge that climate change is real, is caused by human activity and is a severe threat to our planet, is not related to how we finance campaigns, you would be sorely mistaken. With the Koch brothers (who make much of their money in the fossil fuel industry) and big energy companies pouring huge amounts into Republican campaigns, it should not surprise anyone that my Republican colleagues reject the views of the overwhelming majority of scientists who study climate issues.

With Republicans now controlling both houses of Congress, let me briefly touch on some of the battles that I will be helping to lead in this extreme right-wing environment. In my view, with so many of our fellow citizens demoralized about the political process, it is absolutely imperative that we establish a strong progressive agenda that Americans can rally around. It must be an agenda that reflects the real needs of the working families of our country. It must be an agenda that engages people in a political struggle that they are prepared to fight for.

Join me now in the struggle for the progressive vision we share.

Jobs, Jobs, Jobs: The truth is that real unemployment in our country is not the “official” and widely-reported 5.5 percent. Counting those who are under-employed and those who have given up looking for work, real unemployment is 11 percent. Even more disturbingly, youth unemployment is close to 17 percent and African-American youth unemployment is much higher than that.

If we are truly serious about reversing the decline of the middle class and putting millions of people back to work, we need a major federal jobs program. There are a number of approaches which can be taken, but the fastest way to create jobs is to rebuild our crumbling infrastructure — roads, bridges, dams, levees, airports, rail, water systems and wastewater plants.

In that regard, I have introduced legislation which would invest $1 trillion over 5 years to modernize our country’s physical infrastructure. This legislation would create and maintain at least 13 million good-paying jobs. It would also make our country more productive, efficient and safe.

I will also continue my opposition to our current trade policies and vote against fast tracking the Trans-Pacific Partnership.  Simply put, our trade policies have failed. Permanent normal trade relations with China have led to the loss of more than 3.2 million American jobs. The North American Free Trade Agreement has led to the loss of nearly 1 million jobs. The Korean Free Trade Agreement has led to the loss of some 60,000 jobs.

We have got to fundamentally rewrite our trade rules so that American jobs are no longer our No.1 export. Corporate America must start investing in this country, not China.

As we struggle for decent-paying jobs, we must also rebuild the trade union movement. Throughout the country, millions of workers want to join unions but are meeting fierce opposition from their employers. We need legislation that makes it easier, not harder, for unions to flourish.

Raising Wages: Today millions of Americans are working for starvation wages. The current federal minimum wage of $7.25 an hour is totally inadequate. In fact, the real value of today’s minimum wage has declined by one-third since 1968. By raising the minimum wage to a living wage we can provide an increase in income for those people who need it the most. Our goal must be that no full-time worker in this country lives in poverty.

We must also bring about pay equity. There is no rational reason why women should be earning 78 cents on the dollar compared to men who perform the same work.

Further, we have got to expand overtime protections for millions of workers. It is absurd that “supervisors” who earn $25,000 a year are currently forced to work 50 or 60 hours a week with no overtime pay. Raising the income threshold to at least $56,680 from the absurdly low level of $23,660 a year for overtime will mean increased income for many millions of salaried workers.

Addressing Wealth and Income Inequality: Today the richest 400 Americans own more than $2.3 trillion in wealth, more than the bottom 150 million Americans combined. Meanwhile, nearly half of Americans have less than $10,000 in savings and have no idea how they will be able to retire with dignity.

We need real tax reform which makes the rich and profitable corporations begin to pay their fair share of taxes. It is absurd that in 1952 corporate income taxes provided 32 percent of federal revenue while in 2014 they provided 11 percent. It is scandalous that major profitable corporations like General Electric, Verizon, Citigroup and JP Morgan have, in a given recent year, paid nothing in federal income taxes. It is fiscally irresponsible that the U.S. Treasury loses about $100 billion a year because corporations and the rich stash their profits in the Cayman Islands, Bermuda and other tax havens.

Warren Buffett is honest. He has pointed out the unfairness that he, a multi-billionaire, pays a lower effective tax rate than his secretary. It is disgraceful that millionaire hedge fund managers are able to pay lower tax rates than truck drivers or nurses because they take advantage of a variety of tax loopholes that their lobbyists wrote.

This must end. We need a tax system which is fair and progressive. Children should not go hungry in this country while profitable corporations and the wealthy avoid their tax responsibilities.

Reversing Climate Change: The United States must lead the world in reversing climate change and make certain that this planet is habitable for our children and grandchildren. We must transform our energy system away from fossil fuels and into energy efficiency and sustainable energies. Millions of homes and buildings need to be weatherized, our transportation system needs to be energy efficient and we need to greatly accelerate the progress we are already seeing in wind, solar, geothermal and other forms of sustainable energy. Transforming our energy system will not only protect the environment, it will create good-paying jobs.

Health Care for All: The United States remains the only major country on earth that does not guarantee health care for all as a right. Despite the modest gains of the Affordable Care Act, 35 million Americans continue to lack health insurance and many more are under-insured. Yet, we continue paying far more per capita for health care than any other nation. The United States must move toward a Medicare-for-All single-payer system.

Protecting Our Most Vulnerable: Today the United States has more people living in poverty than at almost any time in the modern history of our country. We have the highest rate of childhood poverty of any major nation, 35 million Americans still lack health insurance and millions of seniors and disabled people struggle to put food on the table because of insufficient Social Security benefits.

The Republican response to the economic pain of so many of our people was to make a bad situation much worse. The recently-passed Republican budget throws 27 million Americans off of health insurance, cuts Medicare, makes huge cuts to nutrition and makes it harder for working class families to afford college or put their kids in the Head Start program.

In my view, we have a moral responsibility to make certain that no American goes hungry or sleeps out on the streets. We must also make certain that seniors and people with disabilities can live in dignity. Not only must we vigorously oppose Republican attacks on the social safety net, we must expand benefits for those in need. That is why I have recently introduced legislation which would increase the solvency of Social Security until 2065, while expanding benefits for those who need them the most.

Making College Affordable for All: We live in a highly competitive global economy. If this country is to do well economically, we need to have the best-educated workforce in the world. Yet today many Americans cannot get a higher education, not because they are unqualified, but because they simply cannot afford it. Millions of others who do graduate from college or graduate school are drowning in debt. According to the Consumer Financial Protection Bureau, the total amount of outstanding student loan debt in the United States has tripled in the last 10 years, and has now reached $1.2 trillion.

The United States must join many other countries in understanding that investing in our young people’s education is investing in the future of our nation. I will soon be introducing legislation to make tuition in public colleges and universities free, as well as substantially lower interest rates on student loans.

And these are just SOME of the issues we are dealing with.

Let me conclude this letter by stating the obvious. This country is in serious trouble. Our economic system benefits the rich and large corporations and leaves working families behind. Our political system is dominated by billionaire campaign contributors and their lobbyists and is moving us in the direction of oligarchy. Our media system, owned by the corporate world, spends enormous time and energy diverting our attention away from the most important issues facing us. Climate change threatens the planet and we have a major political party denying its reality.

Clearly, the struggle to create a nation and world of economic and social justice and environmental sanity is not an easy one. But this I know: despair is not an option if we care about our kids and grandchildren. Giving up is not an option if we want to prevent irreparable harm to our planet.

We must stand up and fight back. We must launch a political revolution which engages millions of Americans from all walks of life in the struggle for real change. This country belongs to all of us, not just the billionaire class.

Please stand with me. Please join the grass-roots revolution that we desperately need.

Sincerely,

U.S. Senator Bernie Sanders

Senator Bernie Sanders has accurately described the problems at the forefront facing the American people. But his solutions are REDISTRIBUTIVE and debt financed, which will expand the nation’s debt unless there is a significant reduction in military expenditures (which would cause enormous unemployment) or far greater taxation.

I am not opposed to either reduced military expenditures or to significantly greater taxation of corporate profits. But there should be a caveat to increased taxes corporate profits and that is the tax on a corporation would be eliminated if the corporation paid out fully its earnings as dividends taxed at the personal tax rate. This would eliminate double taxation and incentivize corporations to finance new growth by issuing and selling new stock to represent investment in new asset-backed projects that are expected to pay for themselves within a reasonable time period, and once paid for to continue to generate profits to the corporation, which would then be fully paid out to the stockholders as personal dividend earnings.

The fundamental challenge to be solved, and one that Senator Sanders does not address, is how do we reinvent and redesign our economic institutions to keep pace with job destroying and labor devaluing technological innovation and invention so not all of the benefits of owning FUTURE productive capacity accrues to today’s wealthy 1 percent ownership class, and ownership is broadened so that EVERY American earns income through full-payout stock ownership dividends so they can afford to purchase the products and services produced by the economy.

Even if Senator Sanders achieves the passage of a debt-finance $1 trillion to be spent on funding infrastructure project, both renewal and new infrastructure, he does not stipulate that the corporations bidding and award the actual construction contracts by 100 percent employee owned, so that the growth of those companies benefits its employees additionally as OWNERS as well as creating new job opportunities. Anyone who has observed modern-day infrastructure construction understands that “machines” are employed to do the “heavy” work. These “machines” and all the other physical capital assets of companies are OWNED by people.

None of this is new from a macro-economic viewpoint as productive capital is increasingly the source of the world’s economic growth. The role of physical productive capital is to do ever more of the work of producing more products and services, which produces income to its owners.

People invented tools to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive––the core function of technological invention.

Furthermore, because productive capital is increasingly the source of the world’s economic growth it should become the source of added property ownership incomes for all. Put another way, if both labor and capital are interdependent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. Yet, sadly, the American people and its leaders, such as Senator Sanders, still only see a job as the means to earn wage income, and ignore the structural reform necessary to ensure that we simultaneously create new owners with the growth of the economy and with ALL government spending.

Senator Sanders should introduce a National Right To Capital Ownership Bill that restores the American dream of property ownership. This should be advocated by both the progressive movement and the conservative movement, as such legislation would address solutions to the reality of Americans facing job opportunity deterioration and devaluation due to tectonic shifts in the technologies of production and the wage cost-saving pressure resulting from globalization.

The solution, which Senator Sanders should advocate, would result in double-digit economic growth and simultaneously broaden private, individual ownership so that EVERY American can benefit from significant income growth, providing the means to support themselves and their families with an affluent lifestyle. The Just Third Way Master Plan for America’s future is published at http://foreconomicjustice.org/?p=5797.

The solution is obvious but our leaders, academia, conventional economist and the media are oblivious to the necessity to broaden ownership in the new capital formation of the future simultaneously with the growth of the economy, which then becomes self-propelled as increasingly more Americans accumulate ownership shares and earn a new source of full-dividend income derived from their capital ownership in the “machines” that are replacing them or devaluing their labor value. This can be accomplished without taking from those who already own and can be the one-up solution to poverty wage competition on a global scale.

The solution will require the reform of the Federal Reserve Bank to create new owners of future productive capital investment in existing and new businesses simultaneously with the growth of the economy from financing viable projects. The solution to broadening private, individual ownership of America’s future capital wealth requires that the Federal Reserve stop monetizing unproductive debt, including bailouts of banks “too big to fail” and Wall Street derivative speculators, and begin creating an asset-backed currency that could enable every child, woman and man 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 full-dividend-bearing stock portfolio to supplement or replace their incomes from work and all other sources of income. Policies need to insert American citizens, without the requirement of past savings, into the low or no-interest investment money loop to enable non- and undercapitalized Americans, including the working class and poor, to acquire capital with the earnings of capital and build wealth, and become “customers with money.” The proposed Capital Homestead Act would produce this result.

Over a relatively short period of time, the result would be to create jobs as every able body American would be needed to build a future economy that can support general affluence for every child, woman and man. Not only would wages raise but a new source of income would be created in the form of dividend earnings from every child, woman and man owning stock in America’s future. This approach would abate the further concentration of capital ownership, the cause of wealth and income inequality. We could heal the planet’s climate because people will become more affluent with the income to support the purchase of costlier products that are produced using sustainable resource technologies that do not pollute the planet and conserve resources as well as renew resources. As our nation’s tax base expands with an abundant tax revenue from individuals earning far greater incomes, we will be able to implement a national health care system that provides superior health services to every child, woman, and man. As EVERY child, woman, and man would become an owner, without the requirement of past savings or any reduction in wages or benefits, we would no longer have anyone living in poverty. As part of this solution, all tax loopholes and subsidies would be eliminated. There would also be provided a tax exemption of $100,000 for a family of four to meet their ordinary living needs. All promises for Social Security, Medicare, government pensions, health, education, rent and subsistence vouchers for the poor would be paid out general revenues until their new jobs and ownership accumulations provide new incomes to substitute for the taxpayer dollars to fill these needs.  As for education, we would be able to return to a non-tution-based, fully taxpayer funded public higher education system to educate our young people how to think and inspire them to further invent and innovate to achieve a future affluent society where the productive capacity is OWNED by every child, woman, and man, as individual citizens.

Support the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm

See the article “The Absent Conversation: Who Should Own America?” published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/who-should-own-america_b_2040592.html and by OpEd News at http://www.opednews.com/articles/THE-Absent-Conversation–by-Gary-Reber-130429-498.html

Also see “The Path To Eradicating Poverty In America” at http://www.huffingtonpost.com/gary-reber/the-path-to-eradicating-p_b_3017072.html and “The Path To Sustainable Economic Growth” at http://www.huffingtonpost.com/gary-reber/sustainable-economic-growth_b_3141721.html. And also “Second Income Plan” at http://www.huffingtonpost.com/gary-reber/second-income-plan_b_3625319.html

Also see the article entitled “The Solution To America’s Economic Decline” at http://www.nationofchange.org/solution-america-s-economic-decline-1367588690 and “Education Is Critical To Our Future Societal Development” at http://www.nationofchange.org/education-critical-our-future-societal-development-1373556479. And also “Achieving The Green Economy” at http://www.nationofchange.org/achieving-green-economy-1373980790. Also see it complete with the footnotes at http://foreconomicjustice.org/?p=9082.

Also see “Financing Economic Growth With ‘FUTURE SAVINGS': Solutions To Protect America From Economic Decline” at NationOfChange.org http://www.nationofchange.org/financing-future-economic-growth-future-savings-solutions-protect-america-economic-decline-137450624 and “The Income Solution To Slow Private Sector Job Growth” at http://www.nationofchange.org/income-solution-slow-private-sector-job-growth-1378041490.

Guess What’s Destroying The Middle Class?

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On March 25, 2015, Noah Smith writes on Bloomberg View:

Perhaps the biggest question in American political economy right now is why middle-class wages have been falling. There are three main hypotheses. Roughly, these are: Robots, unions and China.

The robots theory gets by far the most play in the news media, since it’s by far the scariest — if automation is replacing big chunks of the human workforce, things are only going to get worse as robots become more capable and efficient. This interpretation has tentatively been embraced by many on the political right, since it doesn’t imply a need for substantial government intervention in the economy (though it might imply a need for redistribution). The unions theory is favored by the political left, since it implies that giving more institutional power to this traditional liberal power bloc would shift the distribution of national income toward workers.

Neither side really wants to blame China. The right generally represents business interests and capital owners who have made a lot of money off of China, and hope to make a lot more. The left is afraid to go against the free-trade orthodoxy that has dominated postwar American economic thinking, and also fears a potential cold war with China.

But there’s just one problem: The evidence may point to least favored answer being the right one.

A new National Bureau of Economic Research paper by economists Avraham Ebenstein, Ann Harrison and Margaret McMillan examines the impact of offshoring to China. They compare industries and occupations based on their exposure to Chinese offshoring after China’s accession to the World Trade Organization in 2001. They find that when exposure is greater, wage declines are much bigger. They also find that competition from Chinese imports affects wages, but to a much smaller degree.

Another paper, by economists Michael Elsby, Bart Hobijn and Aysegul Sahin looks at the China story from a different angle. They ask why the share of income going to labor has decreased in the U. S. They examine two variants of the robots story and also the unions story, and find that these explain only a small part of the decline in the labor share. But when they look at industries exposed to imports, they find that import competition is responsible for most of the variation in the payroll share of value added. Our biggest new source of imports, of course, has been China.

And then there is the famous 2013 paper by economists David Autor, David Dorn and Gordon Hanson, entitled “The China Syndrome: Local Labor Market Effects of Import Competition in the United States.” They compare areas of the U.S. based on how exposed they were to Chinese import competition from 1990 to 2007. Their abstract states their conclusion in no uncertain terms:

Rising imports cause higher unemployment, lower labor force participation, and reduced wages in local labor markets that house import competing manufacturing industries…[I]mport competition explains one-quarter of the contemporaneous aggregate decline in US manufacturing employment.

In other words, there is a growing body of research showing that globalization — and, in particular, the rise of China — has been the biggest factor hollowing out the American middle class. Naturally, supporters of the robots explanation have challenged some of this research, but the papers keep piling up.

Meanwhile, the robots hypothesis is also starting to get serious pushback on other fronts. Celebrity economist Larry Summers, who has expressed concern over the possibility of automation replacing human jobs, has hedged his bets. He points out that productivity hasn’t surged as fast as one might expect from a robot revolution. He also notes that if robots were replacing humans, we’d expect to see a temporary boom in human labor, since people would be needed to build and install the robots. We haven’t seen that. Although Summersstill believes robots are a factor, he points out some reasons to be skeptical of the story.

So if the U.S. middle class has been gutted because of China instead of robots or de-unionization, what do we do? Reshoring initiatives are becoming popular, but so far they have had limited effect. Trade barriers against China are unlikely to do much, since offshoring investment will just shift to other low-wage countries — as it is already doing as Chinese wages rise. And the globalization cat is already out of the bag — now that markets and supply chains are global, walling off American industry will probably just cut American companies out of fast-growing global markets, and lead to slower growth in the U.S.

The only solution to the problem of globalization may be to wait. Chinese wages have risen a lot, and only India is big enough to take China’s place. As global economic convergence proceeds, the U.S. will look more attractive as an investment destination, and reshoring will increase. That isn’t an answer that people want to hear, but it may be the right one.

http://www.bloombergview.com/articles/2015-03-25/what-s-destroying-middle-class-wages-china

The problem is that for-profit corporations, whether the productive property is private sector owned or State-owned as is often the case in communist China, are increasingly operating on a global scale.  The inherant nature of the business corporation, which produces or distributes products, as well as service businesses, is to constantly seek the lowest cost labor work force and/or invest in non-human intelligent and non-intelligent means to produce products and services in order to gain efficiencies, reduce production costs including saving labor, and maximize profit.
With respect to China, the country has hundreds of millions of people who will labor for survival at significantly lower costs than an equivalent worker in America.  This translates to the ability of a business corporation to produce its products at significantly lower costs, which means they effectively gain a competitive advantage over their competitors who continue to produce in America at higher costs. As such, our nation is experiencing an exodus of business corporation production to other countries, such as China in order to save costs and maintain a competitive position. This has resulted in a domino effect causing a majority of products consumed by Americans to be produced in China or other extremely low-wage countries with less regulation of the manufacturing processes involved in producing products (for air quality, pollution, worker safety, healthcare and other benefits, etc). The American consumer is driving this push for a race to buying products that are the least expensive (Walmart, etc.), not understanding that their ONLY means within the current system to earning an income is a job, which they are undermining.  But it doesn’t end there. Because the profit motive is the function of business corporations, lower cost labor is not enough, and the emphasis is shifting to replacing labor workers with sophisticated “tools” and “machines” that can operate 24/7 and require minimum labor worker maintenance while producing even more efficiently with exacting precision (as in quality).
Such tectonic shifts in the technologies of production is exponentially replaceing the need for masses of human labor. This is a steady progression of transition from human-intensive labor to non-human intensive physical capital––tools, machines, super-automation, robotics, digital computerization, etc.

This transition should surprise no one who is conscious and who has even causally observed the constant shift to non-human productive inputs in the manufacturing, distribution, and sale of products, as well as the delivery of services, that has been occurring during their lifetime. The first burst of this phenomena was the Industrial Revolution. But now we are in an age of technology sophistication that is permeating every sector of industry and our day-to-day lives. For a glimpse into today’s technology see “How It’s Made,” which airs on the Discovery Science Channel.

One would have to be blind not to come to an awaken understanding, but unbelievably, economist and former Labor Secretary Robert Reich made a statement recently regarding Amazon’s decision to employ 15,000+ robots in its fulfillment centers: “PS: Here’s who’s filling your Amazon orders (if you’re using Amazon). Amazon now has over 15,000 of these robots at its ‘fulfillment’ centers and is planning far more. It’s also making plans to replace its drivers with commercial drones. But once Amazon (and every other company) replaces their employees with robots, who’s going to buy their stuff? Robots?”

Reich, as is evidently Noah Smith, the author of this article, is totally oblivious to the concept of broadened, universal individual OWNERSHIP of the capital assets––”robots, machines, automation, computerization”––that are replacing the need for labor workers. This is occurring even in China at a rapid pace in those industries that are shifting production from a labor intensive reliance to a capital intensive reliance. Companies globally are striving to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological invention and innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both.

Progressive businessmen and businesswomen understand that technological change makes physical capital ever more productive. Corporate decision makers know this, whether in the United States or China, or anywhere organized assemblies of people engage in production. Technology is an easier and faster way to get a job done. Because technology increases the profitability of companies throughout the world, technology always has the advantage over human labor when the costs of them are the same. But because this is not well understood, what we as a society have been doing is to continually shift the work burden from people labor to real physical capital while distributing the earning capacity of physical capital’s work (via capital ownership of stock in corporations) to non-owners through taxpayer-funded make-work job creation, minimum wage requirements, and redistributive welfare programs. Such policies do not function effectively.

Those who can only see earning income through a job (and through redistributed earnings of others) totally ignore the fact that the reason that rich people are rich is because they are OWNERS of wealth-creating, income-producing capital assets (such as the “15,000 robots”). It is wealth inequality that is the core problem.  If we really want to abate wealth inequality, then the objective should be to empower EVERY child, woman and man (citizens) to acquire individual ownership shares in the FUTURE capital asset growth of the economy using insured, interest-free pure capital credit loans repayable out of the FUTURE earnings generated by the project investments in our nation’s economic growth. This would create a new source of income tied directly to the tectonic shifts in the technologies of production that are replacing the need for humans with non-human physical capital, and simultaneously create unprecedented double-digit economic growth with plentiful employment opportunities necessary to building a FUTURE economy within the United States that can support general affluence for EVERY citizen.

There’s nothing new about machines replacing people, but the rate of replacement is exponential and the result is that productivity gains lead to more wealth for the OWNERS of the non-human factor of production increasingly doing the actual work. But for others, who have always been dependent on jobs as their source of income, there has been wage stagnation or a steady decline to poverty-level labor incomes, underemployment and unemployment, not withstanding global outsourcing.

What must be understood (which unfortunately is not understood by conventional economists) is that there are two independent factors of production––human or labor workers and non-human or physical productive capital. Fundamentally, economic value is created through human and non-human contributions.

Also what needs to be understood is that human productivity has not advanced (our human abilities are limited by physical strength and brain power––and relatively constant), but that the productiveness of the non-human factor of production––productive capital––is the reason that private sector corporations, majority owned by the “1 percent,” are utilizing the non-human factor of production increasingly to create efficiencies and save labor and other costs. It is the function of technology to save labor from toil and to enable us to do things that otherwise is humanly impossible without non-human input. The critical question becomes who should own productive capital? The issue of OWNERSHIP is unbelievably overlooked by those in academia and politics. Yet we live in a country founded upon private property rights.

But what about China, the place where all the manufacturing jobs are supposedly going? True, China has added manufacturing jobs over the past 15 years. But now it is beginning its shift to super-robotic automation. Foxconn, which manufactures the iPhone and many other consumer electronics and is China’s largest private employer, has plans to install over one million manufacturing robots within three years. Thus, in reality off-shoring of manufacturing will eventually be replaced by human-intelligent super-robotic automation.

The pursuit for lower and lower cost production that relies on slave wage labor will eventually run out of places to chase. Eventually, “rich” countries, whose productive capital capability is owned by its citizens (though presently concentrated), will be forced to “re-shore” manufacturing capacity, and result in ever-cheaper “robotic” manufacturing.

“The era we’re in is one in which the scope of tasks that can be automated is increasing rapidly, and in areas where we used to think those were our best skills, things that require thinking,” says David Autor, a labor economist at Massachusetts Institute of Technology.

Businesses are spending more on technology now because they spent so little during the Great Recession. Yet total capital expenditures are still barely running ahead of replacement costs. “Most of the investment we’re seeing is simply replacing worn-out stuff,” says economist Paul Ashworth of Capital Economics.

Yet, while the problem is one that no one can no longer ignore, the solution also is one starring them in the face but they just can’t see the simplicity of it.

The fundamental challenge to be solved is how do we reinvent and redesign our economic institutions to keep pace with job destroying and labor devaluing technological innovation and invention so not all of the benefits of owning FUTURE productive capacity accrues to today’s wealthy 1 percent ownership class, and ownership is broadened so that EVERY American earns income through full-payout stock ownership dividends so they can afford to purchase the products and services produced by the economy.

None of this is new from a macro-economic viewpoint as productive capital is increasingly the source of the world’s economic growth. The role of physical productive capital is to do ever more of the work of producing more products and services, which produces income to its owners. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum. Private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role, as well as manufacturing outsourcing seeking the lowest production costs. Besides the outsourcing, over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital worker input has been rapidly changing at an exponential rate of increase for over 235 years in step with the Industrial Revolution (starting in 1776) and had even been changing long before that with man’s discovery of the first tools, but at a much slower rate. Up until the close of the nineteenth century, the United States remained a working democracy, with the production of products and services dependent on labor worker input. When the American Industrial Revolution began and subsequent technological advances amplified the productive power of non-human capital, plutocratic finance channeled its ownership into fewer and fewer hands, as we continue to witness today with government by the wealthy evidenced at all levels.

People invented tools to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive––the core function of technological invention. Binary economist Louis Kelso attributed most changes in the productive capacity of the world since the beginning of the Industrial Revolution to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital, in 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 bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.”

Furthermore, according to Kelso, productive capital is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. Kelso postulated that if both labor and capital are interdependent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. Yet, sadly, the American people and its leaders still pretend to believe that labor is becoming more productive.

A National Right To Capital Ownership Bill that restores the American dream should be advocated by both the progressive movement and the conservative movement, which addresses the reality of Americans facing job opportunity deterioration and devaluation due to tectonic shifts in the technologies of production and the wage cost-saving pressure resulting from globalization.

There is a solution, which will result in double-digit economic growth and simultaneously broaden private, individual ownership so that EVERY American can benefit from significant income growth, providing the means to support themselves and their families with an affluent lifestyle. The Just Third Way Master Plan for America’s future is published at http://foreconomicjustice.org/?p=5797.

The solution is obvious but our leaders, academia, conventional economist and the media are oblivious to the necessity to broaden ownership in the new capital formation of the future simultaneously with the growth of the economy, which then becomes self-propelled as increasingly more Americans accumulate ownership shares and earn a new source of full-dividend income derived from their capital ownership in the “machines” that are replacing them or devaluing their labor value. This can be accomplished without taking from those who already own and can be the one-up solution to poverty wage competition on a global scale.

The solution will require the reform of the Federal Reserve Bank to create new owners of future productive capital investment in existing and new businesses simultaneously with the growth of the economy from financing viable projects. The solution to broadening private, individual ownership of America’s future capital wealth requires that the Federal Reserve stop monetizing unproductive debt, including bailouts of banks “too big to fail” and Wall Street derivative speculators, and begin creating an asset-backed currency that could enable every child, woman and man 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 full-dividend-bearing stock portfolio to supplement or replace their incomes from work and all other sources of income. Policies need to insert American citizens, without the requirement of past savings, into the low or no-interest investment money loop to enable non- and undercapitalized Americans, including the working class and poor, to acquire capital with the earnings of capital and build wealth, and become “customers with money.” The proposed Capital Homestead Act would produce this result.

Support the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm

See the article “The Absent Conversation: Who Should Own America?” published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/who-should-own-america_b_2040592.html and by OpEd News at http://www.opednews.com/articles/THE-Absent-Conversation–by-Gary-Reber-130429-498.html

Also see “The Path To Eradicating Poverty In America” at http://www.huffingtonpost.com/gary-reber/the-path-to-eradicating-p_b_3017072.html and “The Path To Sustainable Economic Growth” at http://www.huffingtonpost.com/gary-reber/sustainable-economic-growth_b_3141721.html. And also “Second Income Plan” at http://www.huffingtonpost.com/gary-reber/second-income-plan_b_3625319.html

Also see the article entitled “The Solution To America’s Economic Decline” at http://www.nationofchange.org/solution-america-s-economic-decline-1367588690 and “Education Is Critical To Our Future Societal Development” at http://www.nationofchange.org/education-critical-our-future-societal-development-1373556479. And also “Achieving The Green Economy” at http://www.nationofchange.org/achieving-green-economy-1373980790. Also see it complete with the footnotes at http://foreconomicjustice.org/?p=9082.

Also see “Financing Economic Growth With ‘FUTURE SAVINGS': Solutions To Protect America From Economic Decline” at NationOfChange.org http://www.nationofchange.org/financing-future-economic-growth-future-savings-solutions-protect-america-economic-decline-137450624 and “The Income Solution To Slow Private Sector Job Growth” at http://www.nationofchange.org/income-solution-slow-private-sector-job-growth-1378041490.

Aspiration Without Opportunity Leads To Violence Says Venture Capitalist Nick Hanauer

On March 25, 2015, speaks about economic inequality on the BBC:

Aspiration without legitimate opportunity creates anger, resentment and violence, the multi-millionaire venture capitalist Nick Hanauer has told BBC HARDtalk.

Mr Hanauer added that he believes an increase in wealth inequality could lead to social unrest in the United States.

I wonder what motivates these super-rich advocates for abating economic inequality.. They, including Nick Hanauer, cannot believe in genuine equality of economic power. without recognizing that their own freedom and power come from their OWNERSHIP of productive capital assets. Are they blind to what makes 99 percent of non-owning world citizens so victimized and powerless by systemic barriers to equal ownership opportunities? Wake up!

Hanauer acknowledges that corporate profits in the U.S. are at all-time highs, which they rightly conclude is increasing income inequality.

Let’s face it, if the top 10 percent of American families own 90 percent of the stocks, then they will take a greater share of those corporate profits and there’s less wealth for the rest of society.

Americans should be demanding REAL solutions to economic inequality. But, sadly, the problem is Americans have been so ill-educated that all they are likely to understand, based on their ONLY experience is “create jobs that pay a living wage.”

This is NOT the solution to economic inequality.

The REAL solution is to lift all legal barriers to universal capital ownership access by every child, woman, and man as a fundamental right of citizenship and the basis of personal liberty and empowerment. The goal should be to enable every child, woman, and man to become an owner of ever-advancing labor-displacing technologies, new and sustainable energy systems, new rentable space, new enterprises, new infrastructure assets, and productive land and natural resources as a growing and independent source of their future incomes, without the requirement of past savings or any reduction in wages or benefits.

The conventional thinking is the result of being stuck, as is the entire playing field of advocates for change, in one-factor thinking––that is, the labor worker, and they, who have gained their wealth through capital ownership, are oblivious to the most powerful and increasingly productive factor––non-human physical capital (the land, structures, tools, machines and robotics, computerization, etc.) that is responsible for 90 percent of the production of the products and services needed and wanted by society.

Hanger should be demanding that the politicians running for the office of President focus on broadening personal ownership of capital asset formation simultaneously with financing the growth of the economy, instead of allowing the continued concentration of capital ownership. Hanger and these politicians now in representative office or seeking such should grasp this idea instantly, because, after all, their millionaire wealth is the result of their OWNING productive capital assets.

What they should really being doing, including Hanauer and his advocate friend Robert Reich and other academics, leading up to and in the 2016 presidential election year, is leading a national discussion on the topic of the importance of capital ownership and how we can expand the base of private capital ownership simultaneously with the creation of new physical capital formation, with the aim of building long-term financial security for all Americans through accumulating a viable capital estate.

Robert Reich On The One Percent’s Inequality Love Affair

Published on Mar 25, 2015

The WTH crew features an exclusive interview with former U.S. Secretary of Labor, Robert Reich, about the sources of mass wealth inequality in the United States, and what we can do to stop it.

While Robert Reich envisions a dire result as the technological revolution advances and less and less human labor is required to produce and distribute the products and services needed and wanted by society, with just a tiny few reaping ALL of the financial rewards, he poses the same old redistribution approach that results in socialism, instead of making EVERY citizen individually productive through their personal ownership stakes in the wealth-creating, income-producing capital assets resulting from technological invention and innovation. Rather than address the issue of concentrated ownership, as he alludes to in this article without ever using the therm OWNERSHIP, his ONLY solution is a redistribution of income and wealth from the rich owners of breakthrough technologies to the rest of us.

I wish Reich would use his communication talent to advocate for making EVERY person a productive contributor to societal development through their personal ownership stakes in the productive capacity of our future. This can be accomplished without the requirement of past savings or a reduction in wages (if one is employed) or benefits using insured, interest-free capital credit to finance technological invention and innovation with the credit extended paid off out of the future earnings generated by the investments. In this way, we can build a future economy to support general affluence for EVERY child, woman and man, while at the same time generating, over the short-term (say a generation), virtual full employment and simultaneously creating new private property sector capital owners, who will benefit from growing purchasing power and financial security, and not dependent on a job that is being replaced by “machines” or a welfare State of elites determining who gets what.

The problem is that technological invention and innovation––change––makes the non-human means of producing––tools, machines, structures, and computerized processes––ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). This means that fewer and fewer people are necessary to produce the products and services needed and wanted by society. But when a job is one’s ONLY way to be productive and earn an income and when jobs are disappearing and the worth of labor is being devalued, we have a problem.  The problem is magnified by the fact that upward of 95 percent of the products and services are produced by physical productive capital––the non-human factor––which is owned by less than 10 percent of the population and highly concentrated among less than 1 percent of the population. The result is that primary distribution through the free market economy, whose distributive principle is “to each according to his production,” delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor.

Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment––thus the political focus on job creation and redistribution of wealth rather than on equal opportunity to produce, full production and broader capital ownership accumulation. This is manifested in the myth that labor work is the ONLY way to participate in production and earn income. Long ago that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Physical capital provides not less than 90 to 95 percent of the input. Full employment as the means to distribute income is not achievable. When the “tools” of capital owners replace labor workers (non-capital owners) as the principal suppliers of products and services, labor employment alone becomes inadequate. Thus, we are left with government policies that redistribute income in one form or another, such as a proposed universal basic income.

The capitalism practiced today is what, for a long time, I have termed “Hoggism,” propelled by greed and the sheer love of power over others. “Hoggism” institutionalizes greed (creating concentrated capital ownership, monopolies, and special privileges). “Hoggism” is about the ability of greedy rich people to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership. Our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success––always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent are not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption made possible by “customers with money.” It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being, not to a hand-out derived from government coercion that takes from those who make productive contributions as workers and capital owners and gives to those who are unable to earn a minimum sustainable income.

Binary economist Louis Kelso postulated: “When consumer earning power is systematically acquired in the course of the normal operations of the economy by people who need and want more consumer goods and services, the production of goods and services should rise to unprecedented levels; the quality and craftsmanship of goods and services, freed of the corner-cutting imposed by the chronic shortage of consumer purchasing power, should return to their former high levels; competition should be brisk; and the purchasing power of money should remain stable year after year.”

Without this necessary balance hopeless poverty, social alienation, and economic breakdown will persist, even though the American economy is ripe with the physical, technical, managerial, and engineering prerequisites for improving the lives of the 99 percent majority. Why? Because there is a crippling organizational malfunction that prevents making full use of the technological prowess that we have developed. The system does not fully facilitate connecting the majority of citizens, who have unsatisfied needs and wants, to the productive capital assets enabling productive efficiency and economic growth.

America has tried the Republican “cut spending, cut taxes, and cut ‘entitlements,’ eliminate government dependency and shift to private individual responsibility” and the Democrat “protect ‘entitlements,’ provide tax-payer supported stimulus, lower middle and working class taxes, tax the rich and redistribute” through government brands of economic policy, as well as a mixture of both. Republican ideology aims to revive hard-nosed laissez-faire appeals to hard-core conservatives but ignores the relevancy of healing the economy and halting the steady disintegration of the middle class and working poor.

Some conservative thinkers have acknowledged the damaging results of a laissez-faire ideology, which furthers the concentration of productive capital ownership. They are floundering in search of alternative thinking as they acknowledge the negative economic and social realities resulting from greed capitalism. This acknowledgment encompasses the realization that the troubling economic and social trends (global capitalism, free-trade doctrine, tectonic shifts in the technologies of production and the steady off-loading of American manufacturing and jobs) caused by continued concentrated ownership of productive capital will threaten the stability of contemporary liberal democracies and dethrone democratic ideology as it is now understood.

Without a policy shift to broaden productive capital ownership simultaneously with economic growth, further development of technology and globalization will undermine the American middle class and make it impossible for more than a minority of citizens to achieve middle-class status.

We are absent a national discussion of where consumers earn the money to buy products and services and the nature of capital ownership, and instead argue about policies to redistribute income or not to redistribute income. If Americans do not demand that the contenders for the office of the presidency of the United States, the Senate, and the Congress address these issues, we will have wasted the opportunity to steer the American economy in a direction that will broaden affluence. We have adequate resources, adequate knowhow, and adequate manpower to produce general affluence, but we need as a society to properly and efficiently manage these resources while protecting and enhancing the environment so that our productive capital capability is sustainable and renewable. Such issues are the proper concern of government because of the human damage inflicted on our social fabric as well as to economic growth in which every citizen is fairly included in the American dream.

Our current system is rigged to continually concentrate the ownership of capital in the 1 to 5 percent of the population. The current system is presently propelled by greed in our society, which creates dire moral implications. A new system that would ensure equal opportunity for every child, woman, and man to acquire productive capital with the earnings of capital and broaden its ownership universally does not require people to be any better than they presently are, but it does enable our society to leverage both greed and generosity in a way that honestly recognizes and harnesses productive capital as the factor that exponentially produces the wealth in a technologically advanced society.

The resulting impact of our current approaches has been plutocratic government and concentration of capital ownership, which denies every citizen his or her pursuit of economic happiness (property). Market-sourced income (through concentrated capital ownership) has concentrated in individuals and families who will not recycle it back through the market as payment for consumer products and services. They already have most of what they want and need so they invest their excess in new productive power, making them richer and richer through greater capital ownership. This is the source of the distributional bottleneck that makes the private property, market economy ever more dysfunctional. The symptoms of dysfunction are capital ownership concentration and inadequate consumer demand, the effects of which translate into poverty and economic insecurity for the 99 percent majority of people who depend entirely on wages from their labor or welfare and cannot survive more than a week or two without a paycheck. The production side of the economy is under-nourished and hobbled as a result.

While Americans believe in political democracy, political democracy will not work without a property-based free market system of economic democracy. The system is the problem, but it can and must be overhauled. The two prerequisites are political power, which is the power to make, interpret, administer, and enforce laws, and economic power, the power to produce products and services, whether through labor power or productive capital.

Kelso wrote: “In the distribution of social power, whether it be political power or economic power, all things are relative. The essence of economic democracy lies in the elimination of differences of earning power resulting from denial of equality of economic opportunity, particularly equal access to capital credit. Differences of economic status resulting from differences in advantages taken and uses made of differences based on inequality of economic opportunity, particularly those that give access to capital credit to the already capitalized and deny it to the non- or -undercapitalized, are flagrant violations of the constitutional rights of citizens in a democracy.”

We need a recognition in America that we should deliberately begin to broaden the capital ownership base in a way that is consistent with the laws of property and the Constitutional safeguards of the rights of men and women to own property and be productive.

What needs to be adjusted is the opportunity to produce, not the redistribution of income after it is produced.

The government should acknowledge its obligation to make productive capital ownership economically purchasable by capital-less Americans using insured, interest-free capital credit, and, as Kelso stated, “substantially assume financial responsibility for the economy through establishing and supervising the implementation of an economic, labor and business policy of democratized economic power.” Historically, capital has been the primary engine of industrialization. But as used, as Kelso has argued, has, as well, “been the chief cause of the institutional deformities that have created and maintained two incompatible classes: the overcapitalized and the undercapitalized.”

We cannot balance the budget without cutting out coerced taxpayer-dependent redistribution of the earnings of capital workers, which if we did at this juncture would collapse the economy and ruin lives, resulting in social strife, personal suffering and degradation, the erosion of freedom, and ultimately anarchy, which will bring on totalitarian government. While welfare, private charity, boondoggle employment and other redistribution measures are now seen as necessary, they do not have to be sustained indefinitely. There are policies that can be adopted and executed to reverse the ultimate direction of collapse of the American market economy system. Such policies are based on the recognition that as the production of products and services changes from labor intensive to capital intensive, the way in which every human being––not just a few, but every person––earns his or her income must change in the same way. At the core of this quiet revolution is the understanding and commitment to broadening the ownership of productive capital.

We need new justice-committed leaders, especially those who want to end the corruption built into our exclusionary system of monopoly capitalism––the main source of corruption of any political system, democratic or otherwise. We need to advocate the need to radically overhaul the Federal tax system and monetary policies and institute proposals to get money power to the 99 percent of American citizens who now only rely on their labor worker earnings. Under the Just Third Way’s (http://foreconomicjustice.org/?p=5797) 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 leaders and activists will be inclusive prosperity, inclusive opportunity, and inclusive economic justice.

The proposed Capital Homestead Act would achieve this objective. Support the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/. See http://cesj.org/learn/capital-homesteading/ and http://cesj.org/…/uploads/Free/capitalhomesteading-s.pdf.

 

Wage Plan Can’t Fix Poverty In L.A.

Dolores Huerta speaking at downtown L.A. rally

On March 25, 2015, Christopher Thornberg writes in the Los Angeles Times:

Confronting unyielding poverty rates and economic inequality, Los Angeles city and county political leaders are debating whether hiking the minimum wage is a good idea. My firm, Beacon Economics, analyzed the effects of a jump from the current $9 state minimum wage to $13.25 within the city by 2017 as proposed by Los Angeles Mayor Eric Garcetti.

Our report was underwritten by the Los Angeles Area Chamber of Commerce, which will certainly lead some to accuse us of acting as a mouthpiece for the profit-minded business community. But that’s not the case. Lifting families out of poverty ultimately helps everyone — including business owners. The focus of this debate should be on whether higher minimum wage is an efficient way of achieving this laudable goal.

It is true that many of the working poor here have low-paying jobs. But this does not by extension mean that all workers earning less than $13.25 an hour are among the city’s or county’s poorest households. In fact, half of such workers live in households where total earnings are above $55,000 per year — the county’s median income. They may be teenagers working part-time jobs, or servers or salespeople who earn much more in commissions or tips.

A citywide minimum wage isn’t targeted well enough to have much of an effect. Many working poor Angelenos hold jobs outside the city limits, and they wouldn’t see any benefits from a higher minimum wage. Similarly, half of those who would get a wage hike don’t live within the city of Los Angeles. While the latter are indeed among the working poor, helping them should be the purview of their local government, not L.A.’s.

How does this all add up? Under the city’s current proposal, less than one dollar out of every four would end up in low-income households in the city of Los Angeles. No matter how you look at it, that’s a low rate of return.

That might not matter if the economic costs were small. But they aren’t. Food service firms will see their base costs rise 8% to 12% as a portion of total revenues, as will social assistance firms (5% to 7%) and retail operations (3% to 5%). These firms will have no choice but to raise prices and reduce the size of their workforce to stay in business.

These problems are magnified because local businesses will have competitors in cities not subject to the new minimum wage. More than one-third of businesses in Los Angeles are within two miles of the city’s border. Companies considering opening or expanding business in the region will, over time, settle where labor costs are lower.

If other parts of the county also raised their minimum wage, that might mitigate a portion of the damage. But unincorporated areas of Los Angeles County and a handful of cities still represent only a small fraction of the broader regional economy.

Our model doesn’t suggest that, on net, Los Angeles will lose jobs if the minimum wage goes up, but rather that job growth here will take a substantial hit. That would be a blow to a region still trying to climb out of the fiscal hole formed during the Great Recession.

Other researchers looking at the mayor’s proposal suggest that somehow a minimum wage increase will grow the Los Angeles economy. This flies in the face of logic. At its core, an increase in the minimum wage is a transfer of wealth from one group (employers and their customers) to another (workers with hourly pay below a certain level). Such transfers may be fair, even socially desirable, but they do not increase the size of the economic pie. When it comes to raising the minimum wage, economists debate the magnitude of the negative impact, but there is no generally accepted literature suggesting such moves ever measurably increase economic activity.

Los Angeles’ working poor do need help, and our political leaders should explore ways to assist them directly and alleviate poverty. But the current minimum wage proposal won’t accomplish that. The benefits are far too diffuse and the costs to economic growth are far too high.

http://www.latimes.com/opinion/op-ed/la-oe-0325-thornberg-minimum-wage-20150325-story.html

What we, as a society, need is to look at the economic inequality problem from a different perspective. That perspective includes the realization that the purpose of a for-profit business corporation is to “maximize profit” by striving to keep labor input and other costs at a minimum in order to maximize profits for the owners or to stay competitive. They strive to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.

The result is that the price of products and services are extremely competitive as consumers will always seek the lowest cost/quality/performance alternative, and thus for-profit companies are constantly competing with each other (on a local, national and global scale) for attracting “customers with money” to purchase their products or services.

But seeking the lowest labor cost results in millions of people who, dependent solely on their wage incomes, suffering financially because they can not earn more than the competitive rate of wages, and struggling to avoid falling into poverty conditions. As a result we have a problem because the vast majority of the population are wage slaves because they have no other means to earn income.

While the role of business corporations is to efficiently produce products and services, which produces wealth and thus income to those who own the corporations, business corporations should also act justly and serve and enhance the community well-being. This should be a proper function of government regulation to ensure that corporations do not disregard the health and welfare of the people and their communities. This then is the moral basis upon which a minimum wage boost is advocated.

The problem that advocates for solutions to economic inequality have is that their mind-set is limited by ONLY thinking in terms of human productive input––as in labor’s contribution––while failing to understand that fundamentally, economic value is created through human and non-human contributions. Those who OWN business corporations know that the productive capital factor input represents upward of 98 percent of the total contributions. In concentrated capital ownership terms, roughly 1 percent own 50 percent of the corporate wealth with 10 percent owning 90 percent. This leaves 90 percent of the people scrambling for the last 10 percent, with them dependent ONLY on their labor worker wages to purchase capital assets. Thus, we have the great bulk of the people providing a mere 10 percent or less of the productive input. Contrast that to the less than 5 percent who own all the productive capital providing 90 percent or more of the productive input, and who initiate and oversee most of the technological advances that replace labor work with capital work.

As a result, the trend has been to diminish the importance of employment with productive capital ownership concentrating faster than ever, while technological change makes physical capital ever more productive. Corporate decision makers know this, whether in the United States or China, or anywhere organized assemblies of people engage in production. Technology is an easier and faster way to get a job done. Because technology increases the profitability of companies throughout the world, technology always has the advantage over human labor when the costs of them are the same. But because this is not well understood, what we as a society have been doing is to continually shift the work burden from people labor to real physical capital while distributing the earning capacity of physical capital’s work (via capital ownership of stock in corporations) to non-owners through make-work job creation, minimum wage requirements, and welfare programs. Such policies do not function effectively.

Boosting the minimum wage will result in either increasing prices, reducing job opportunities, or replacing labor completely with “machines,” which are becoming more and more sophisticated every day. While there is no question that people need a livable income, and the greater the more financial secure and affluent one can be, but to put the focus entirely on boosting the minimum wage is not the solution we should be seeking.

The REAL solution is to lift all legal barriers to universal capital ownership access by every child, woman, and man as a fundamental right of citizenship and the basis of personal liberty and empowerment. The goal should be to enable every child, woman, and man to become an owner of ever-advancing labor-displacing technologies, new and sustainable energy systems, new rentable space, new enterprises, new infrastructure assets, and productive land and natural resources as a growing and independent source of their future incomes. This would enable our business corporations to operate more efficiency and competitively, while broadening wealth-creating ownership participation, creating new capitalists and “customers with money” to support the products and services being produced. This can be achieved with any reduction in wages or benefits.

The thinking of those advocating ONLY a boost in the minimum wage is the result of being stuck in one-factor thinking––that is, the labor worker. While they often tiptoe around an understanding the relationship between economic inequality and concentrated ownership of productive capital asset wealth, they remain, at least publicly, oblivious to the most powerful and increasingly productive factor––non-human physical capital (the land, structures, tools, machines and robotics, computerization, etc.) that is responsible for 90 percent of the production of the products and services needed and wanted by society. Their focus should be on broadening personal ownership of capital asset formation simultaneously with financing the growth of the economy, instead of just talking about the continued concentration of capital ownership and the dire consequences for labor workers or the limited financial good that a minimum wage boost would create.

We desperately need a national discussion on the topic of the importance of capital ownership and how we can expand the base of private capital ownership simultaneously with the creation of new physical capital formation, with the aim of building long-term financial security for all Americans through accumulating a viable capital estate.

This is the approach necessary for business corporations to best serve their constituencies — customers, owners, and employees — instead of just constantly concentrating more wealth ownership among a tiny minority.

 

Bernie Sanders Stands Up For The Middle Class By Dropping A Huge Fact Bomb On The Senate

On March 26, 2015, Jason Easley writes on Politicus USA:

Bernie Sanders minimum wage

In the midst of a Senate budget vote-a-rama that Republicans are filling with anti-Obamacare and economy killing votes, Senator Bernie Sanders took the Senate floor and dropped the fact bomb that raising the minimum wage is real job creator.

Sen. Sanders said, “The simple truth is that in America people working full time should not be living in poverty. Since 1968, the real value of the federal minimum wage has fallen by close to thirty percent, and people all over this country and in state after state on their own have voted to raise the minimum wage. And, by the way, in state after state where the minimum wage has gone up, more jobs have been created. Let us stand today with the tens of millions of workers who are struggling to put food on the table to take care of their families.”

The Sanders amendment to raise the federal minimum wage failed to pass 48-52. The good news for Democrats and the left is that Sen. Sanders fell just three votes short of passage as just a simple majority of fifty-one votes are required to pass budget amendments.

Labor Department data for the first six months of 2014 revealed that the 13 states that raised their minimum wage created more jobs than the 37 that didn’t, “In the 13 states that boosted their minimums at the beginning of the year, the number of jobs grew an average of 0.85% from January through June. The average for the other 37 states was 0.61%.”

There are decades worth of data and studies that confirm what Sen. Sanders was saying. The Republican opposition to raising the minimum wage is ideological. The anti-minimum wage position lacks credible non-partisan statistics and data to support its claims. Republicans hang their opposition on a myth that raising the minimum wage kills jobs, but 64 studies have proven that the Republican talking point to be false.

Sen. Sanders dropped a dose of reality on Senate Republicans today. If the 52 Republican Senators who voted no really wanted to boost the economy, the first thing they should do is reverse course and support raising the minimum wage.

http://www.politicususa.com/2015/03/26/bernie-sanders-stands-middle-class-dropping-huge-fact-bomb-senate.html

Senator Bernie Sanders needs to look at the economic inequality problem from a different perspective. That perspective includes the realization that the purpose of a for-profit business corporation is to “maximize profit” by striving to keep labor input and other costs at a minimum in order to maximize profits for the owners or to stay competitive. They strive to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.

The result is that the price of products and services are extremely competitive as consumers will always seek the lowest cost/quality/performance alternative, and thus for-profit companies are constantly competing with each other (on a local, national and global scale) for attracting “customers with money” to purchase their products or services.

But seeking the lowest labor cost results in millions of people who, dependent solely on their wage incomes, suffering financially because they can not earn more than the competitive rate of wages, and struggling to avoid falling into poverty conditions. As a result we have a problem because the vast majority of the population are wage slaves because they have no other means to earn income.

While the role of business corporations is to efficiently produce products and services, which produces wealth and thus income to those who own the corporations, business corporations should also act justly and serve and enhance the community well-being. This should be a proper function of government regulation to ensure that corporations do not disregard the health and welfare of the people and their communities. This then is the moral basis upon which a minimum wage boost is advocated.

The problem that Sanders and others have advocating for solutions to economic inequality is that their mind-set is limited by ONLY thinking in terms of human productive input––as in labor’s contribution––while failing to understand that fundamentally, economic value is created through human and non-human contributions. Those who OWN business corporations know that the productive capital factor input represents upward of 98 percent of the total contributions. In concentrated capital ownership terms, roughly 1 percent own 50 percent of the corporate wealth with 10 percent owning 90 percent. This leaves 90 percent of the people scrambling for the last 10 percent, with them dependent ONLY on their labor worker wages to purchase capital assets. Thus, we have the great bulk of the people providing a mere 10 percent or less of the productive input. Contrast that to the less than 5 percent who own all the productive capital providing 90 percent or more of the productive input, and who initiate and oversee most of the technological advances that replace labor work with capital work.

As a result, the trend has been to diminish the importance of employment with productive capital ownership concentrating faster than ever, while technological change makes physical capital ever more productive. Corporate decision makers know this, whether in the United States or China, or anywhere organized assemblies of people engage in production. Technology is an easier and faster way to get a job done. Because technology increases the profitability of companies throughout the world, technology always has the advantage over human labor when the costs of them are the same. But because this is not well understood, what we as a society have been doing is to continually shift the work burden from people labor to real physical capital while distributing the earning capacity of physical capital’s work (via capital ownership of stock in corporations) to non-owners through make-work job creation, minimum wage requirements, and welfare programs. Such policies do not function effectively.

Boosting the minimum wage will result in either increasing consumer prices, reducing job opportunities, or replacing labor completely with “machines,” which are becoming more and more sophisticated every day.  While there is no question that ALL people need a livable income, and the greater the income the more financially secure and affluent one can be, but to put the focus entirely on the government boosting the minimum wage is not the solution we should be seeking.

The REAL solution is to lift all legal barriers to universal capital ownership access by every child, woman, and man as a fundamental right of citizenship and the basis of personal liberty and empowerment. The goal should be to enable every child, woman, and man to become an owner of ever-advancing labor-displacing technologies, new and sustainable energy systems, new rentable space, new enterprises, new infrastructure assets, and productive land and natural resources as a growing and independent source of their future incomes. This would enable our business corporations to operate more efficiency and competitively, while broadening wealth-creating ownership participation, creating new capitalists and “customers with money” to support the products and services being produced. This can be achieved without any reduction in wages or benefits.

Sander’s thinking is the result of being stuck, as is the entire playing field of advocates for change, in one-factor thinking––that is, the labor worker. While he tiptoes around an understanding with previous statements that tie economic inequality to concentrated ownership of productive capital asset wealth, he remains, at least publicly, oblivious to the most powerful and increasingly productive factor––non-human physical capital (the land, structures, tools, machines and robotics, computerization, etc.) that is responsible for 90 percent of the production of the products and services needed and wanted by society. Sanders focus should be on broadening personal ownership of capital asset formation simultaneously with financing the growth of the economy, instead of just talking about the continued concentration of capital ownership and the dire consequences for labor workers or the limited financial good that a minimum wage boost would create.

What Sanders should really being doing, this year and in the upcoming  2016 presidential election year, if he REALLY wants to get traction and national media attention and reduce EVERY OTHER politician to shame, is leading a national discussion on the topic of the importance of capital ownership and how we can expand the base of private capital ownership simultaneously with the creation of new physical capital formation, with the aim of building long-term financial security for all Americans through accumulating a viable capital estate.

This is the approach necessary for business corporations to best serve their constituencies — customers, owners, and employees — instead of just constantly concentrating more wealth ownership among a tiny minority.

Meet The 26-Year-Old Who’s Taking On Thomas Piketty’s Ominous Warnings About Inequality


French economist and academic Thomas Piketty. REUTERS/Charles Platiau

On March 19, 2015, Jim Tankersley writes in The Washington Post:

It was 2:45 a.m. on a Thursday last April. Matthew Rognlie was still awake, like a lot of graduate students. He had just finished typing 459 words and a few equations. They totaled six paragraphs, which he posted to the comments section of a popular economics blog.

Thus begins the unlikely story of, arguably, the most-influential critique of the most influential economics book of this century.

Rognlie’s comment on the blog Marginal Revolution was a response to the provocative argument laid out by the French economist Thomas Piketty in his bestselling book on wealth inequality, “Capital in the Twenty-First Century.”

Piketty had worried in his book that wealth inequality could soon explode at such a velocity that it would continue to widen essentially on autopilot. Wealthy people would accumulate more capital in the form of stocks, real estate and other assets, would continue to earn high returns on them, and then would have more capital to invest. As more and more money became concentrated among the wealthy, less and less would be available to workers. The book turned Piketty into an international celebrity.

Rognlie, however, wrote in his blog post that the French economist’s argument “misses a subtle but absolutely crucial point.” Piketty, he said, might have got the pattern in reverse. Instead of the returns to capital increasing in perpetuity, Rognlie said, they might be poised to decline.

With that quick post, Rognlie was challenging the most politically earthshaking prediction about inequality and the economy in recent memory.

The comment blossomed into a near-unprecedented career opportunity for a student who just recently turned 26 years old, and who remains a year away from earning his doctoral degree. It will culminate on Friday morning at the Brookings Institution in Washington, where Rognlie will present a research paper before an often-cutthroat audience of all-star economists, including a Nobel Prize winner, Robert Solow, who will critique Rognlie’s analysis.

Organizers say it will almost certainly be the first paper at the prestigious Brookings Papers on Economic Activity that was commissioned based on a blog comment. It is also a rare honor for a graduate student to present a sole-authored paper there; a quick scan of Brookings records shows a similar appearance by the now-renowned economist Jeffrey Sachs when he was a doctoral student in 1979.

“It’s made Matt famous,” said Tyler Cowen, the George Mason University economist who runs the Marginal Revolution blog, and who elevated Rognlie’s comment into a standalone post on his site. “It was brilliantly reasoned and right on target. And very elegant.”

There are two concepts at the heart of Rognlie’s Brookings paper.

One is that Piketty drew too broad a conclusion about the nature of capital in this era than he should have based on the evidence. Piketty assumed that the returns to capital were increasing across the economy. Rognlie found the trend to be almost entirely isolated to the housing sector.

Yes, some investments with a high level of intellectual property, like computer software, had become extremely valuable in the hands of the wealthy. But some of those assets were unlikely to remain valuable for very long, like a software program that needs to be replaced in a few years with a new version. When adjusting for that depreciation, most of the rest of the increase in capital came in housing, a single sector that, while important, might not shape the entire future of inequality as Piketty assumed.

The second  finding was that Piketty probably overestimated how high the returns to capital would be in the future. For his fears to come true, wealthy people who amass more and more capital would need to keep earning a high return on that capital. But, Rognlie’s research suggests, the returns to capital will decline over time unless it is very easy for the economy to substitute capital (like robots) for labor (workers) – far easier, in fact, than historical evidence suggests is normal. Thus, if history is a guide, the wealth-inequality autopilot will slow itself down over time.

“Piketty’s story has multiple steps to it. I’m sort of showing that one of the steps does the reverse of what he says it does,” Rognlie said in an interview. Those findings, he added, suggest “there doesn’t seem to be a big need for panic” over Piketty’s predictions.

Rognlie grew up in West Linn, Ore., a Portland suburb, the son of a librarian and a data analyst for an insurance company. He was drawn to economics at a young age, because it unified his interests: math and computer science and public policy. He earned a full academic scholarship to Duke, blemished his grade-point average with exactly one A-minus, and chose M.I.T.’s economics doctoral program, one of the country’s most prestigious.

For a while Rognlie kept his own economics blog; his last entry, from 2011, argued that professional sports teams and then-Texas Gov. Rick Perry “use the same shady economic methodology to promote their policies.” In recent years, he focused more on class and research, and he occasionally left comments on popular econ blogs. He was one of the first Americans to see Piketty’s Capital before it took the wonk world by storm. His officemate, a native of France, had a French-language copy before the book was translated into English.

Rognlie had just finished reading the English version of the book last year when he read a Marginal Revolution post about economist (and New York Times columnist) Paul Krugman’s review of Piketty. The labor-capital substitution problem was nagging at him. He posted his comment on Cowen’s blog.

After Cowen elevated the comment, other economists began to write about it. Rognlie soon spun this thoughts into a 23-page paper posted on his student website.

Justin Wolfers, the University of Michigan economist who co-chairs the Brookings confab, said Rognlie’s critique was “easily the clearest” one of Piketty that he had read. “As I read the paper,” he said, “I found myself learning about stuff that I should have known.”

Wolfers asked Rognlie to broaden his research even more and present it at Brookings. All of the BPEA papers are critiqued by a roomful of economists, starting with a discussant chosen by the chairmen. Rognlie’s discussant will be Solow, a Nobelist who teaches at M.I.T.

Piketty won’t be there, but he and Rognlie have debated over email. Responding to a reporter’s questions this week, Piketty said “there is some misunderstanding” about his book and Rognlie’s critique of it. He said he never predicted inequality would “rise forever” — only that it could reach “higher levels than what we have today, and that this is sufficiently important to be concerned.”

He also said Rognlie could be underestimating the ease of substitutions, because technology is making it easier for companies to switch from workers to machines. (As an example, he cited drones potentially replacing delivery workers at Amazon.)

Rognlie was about to fly to Washington when a reporter sent him Piketty’s response. He wrote back, saying Piketty was more or less missing the broader point. To justify predictions of growing inequality, even caveated ones, he said, you need to show a “concrete argument” that it will be far easier in the future than it has been in the past to swap out capital and labor. Piketty, he said, had not done that.

The full e-mail was wonky and dense. It summed to about 1,800 words — or about four blog comments.

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/03/19/meet-the-26-year-old-whos-taking-on-thomas-pikettys-ominous-warnings-about-inequality/

http://www.brookings.edu/about/projects/bpea/papers/2015/land-prices-evolution-capitals-share

 

Profits Are People

Wall-St-bull

On March 22, 2015, Fred E. Foldvary writes on Progress.org:

Some people who fancy themselves to be “progressive” or “liberal” have a slogan, “people over profits.” Some organizations proclaim that they are serving people rather than seeking profits. The implication is that there is something bad about “profits,” or that there are profits at the expense of people.

Profit is revenues minus cost. From an economic perspective, profit is net of all costs, explicit and implicit. Costs include normal returns on assets and the normal wages of the self-employed. Therefore, in the long run, after competitors have entered or left the industry to avoid losses or seek gains above normal, a competitive company makes zero economic profits. It remains in business because it is covering its costs, including normal yields on its investments.

If a company is making an economic profit, the firm has gains beyond costs. Is that bad for society? The eternal economist answer is, “it depends.”

Profits come from several sources. Entrepreneurial profits are the gains from innovation, such as new products, better marketing, and improved reputation. Usually, entrepreneurial profits are temporary, as competitors copy the innovation, the price drops, and the economic profit is gone. Entrepreneurial profits are good for society, for they promote improvements and efficiency.

If a company has losses, that implies that it is not successful in meeting the desires of the customers, and market dynamics make such firms leave the industry. Profits indicate good management and entrepreneurship, and losses indicate errors in judgment, or changed conditions the firm cannot successfully respond to.

Another source of profit is monopoly. Profits from government-created monopolies, such as from patents and copyrights, can be good if they stimulate art and inventions, and bad if they offer excessive protection. Those opposed to profits from intellectual property rights should focus their opposition to the government that protects the monopoly profits.

Natural monopolies such as utilities, having high fixed costs and low variable costs, are usually regulated, and opposition to those profits should be addressed to the regulators.

The view that profits are bad sometimes is due to the thought that the “profit” is gained through fraud, such as with false advertising or the lack of disclosure of bad effects. But the concept of the market presumes ethical competition, not theft, so the gains from fraud and deception are not really profit in the economic sense, but loot from theft.

Another source of profit antagonism is the thought that the firm is profiting by exploiting their workers. If the firm is using slave labor or forced labor, the gains are again not really profit, but the theft of the labor of the workers. If the labor is voluntary and the firm is paying the prevailing wages, then the low wages are the fault of the economy, not the firm, because the workers are employed there due to worse opportunities elsewhere. Protesters should direct their opposition to the government which has stifled economic growth and development.

Genuine profits are people. People earn the profits and make the profit by serving customers, investors, and society. Profit-seeking is the source of growth and innovation.

Just as theft is not genuine profit, neither are gains from subsidies. If the government gives millions of dollars to a corporate farm, or protects the company from foreign competition, the gains do not come from the non-existing free market, but from governmental favors. Government is stealing funds from taxpayers and giving them to the special interests. Protesters should focus their opposition on the subsidies, because one cannot really blame a dog from biting and swallowing a piece of red meat dangled by its nose.

Some subsidies are provided indirectly and implicitly. Such is the case with gains from higher rent and land value. The public goods provided by government – streets, highways, schools, security, transit, and parks – generate higher rent. If the land holders pay only a small part of the cost, then they are receiving gains – rent and land value- that appear to be profit, but are actually subsidies. Those opposed to such subsidies should direct their protests to the government, because one cannot blame real estate speculators and owners for playing by the rules.

We can see that much of what is called “profit” is really theft, subsidies, and government-protected gains. Much of the negative attitude about profit is misplaced, for when business is taking advantage of subsidies, it is government that is allowing this theft from the public. If companies profit from low wages, they are providing better opportunities, and the fault is with the economic policy that keeps wages so low. Genuine profits from business and entrepreneurship is a social good, so those who sneer at profits should redirect their derision to the real culprit – defective government economic policy.

http://www.progress.org/views/editorials/profits-are-people/

 

Companies Are Maximizing Only 5 Percent Of Their Workforces

On March 24, 2013, Jim Harter writes on Gallup:

Let this be a wake-up call for business leaders: Employees with the longest tenures in your company are also the least likely to be engaged.

After years with the same company, most workers lose some of their motivation to make a difference. Many grow apathetic over time and spend each day doing the minimum to get by. Some nurse grudges for years and even undermine the company when they get the chance.

Employee Tenure Doesn't Equal Engagement

It’s tempting to say these employees’ low engagement levels are their own problem, when it’s actually the company’s problem. Retaining long-tenured, highly capable employees is a challenge. However, minimizing turnover is more practical than churning through new hires who, even after costly training, might or might not turn out to be a fit for the complex requirements of a role.

Companies and products in today’s knowledge-based economy are increasingly specialized, so experience counts for a lot. By turning the tables on the typical inverse relationship between tenure and engagement, companies stand to make dramatic performance gains.

The Highest Performers Have Three Things Going for Them

Gallup’s data suggest that companies’ highest performing individuals have three things going for them: (1) they have tenures of a decade or more in their organizations; (2) they are engaged in their work; and (3) they are in roles where the expectations of the job align well their innate talents. Each variable affects outcomes on its own, but the highest performance comes from the combination.

But here’s the unfortunate fact: In the typical company among the hundreds we’ve studied, this combination exists in just 5% of individual contributors.

Talent plus engagement plus tenure equals high performance

Tenure matters because having years of experience with a company yields deep organizational expertise. Those years cultivate a nuanced understanding of how a company operates and how to maneuver through organizational channels and get things done with minimal friction. Through countless hours of collaboration with the same coworkers and teams, veteran employees gain tacit knowledge that allows them to predict how colleagues will behave and anticipate how they will respond to everyday situations. This sort of in-depth knowledge is immensely useful to employers, but prospective employees can’t obtain it in business school or replicate it by working in a similar company or role.

Indeed, numerous academic studies have found that individuals with longer organizational tenures tend to achieve higher performance levels. Their improvement trajectory, likely a mix of their growing capabilities and the increasing importance of the jobs they hold, might become less steep over time, yet it continues upward year after year. Experience so strongly influences performance that it allows long-tenured employees to outperform the average despite being less engaged than their colleagues are. Still, counting on tenure alone to deliver competitive levels of performance would be folly.

Getting to Do What They Do Best

Engagement also makes a big difference. Gallup found that this is true after working with hundreds of organizations to increase their employees’ engagement. The effect is pronounced even in employees with less than two years’ tenure — perhaps because higher engagement makes them more likely to interpret and use their early experiences productively. Engagement’s effect on performance continues throughout the employee life cycle to employees of long-term tenures — 10 years or more.

What can managers do to increase engagement? Gallup’s research shows that employees are most likely to be engaged — and stay with their companies — when they report that their managersunderstand them and give them the chance to do what they do best every day. Managers can help employees find ways to do more of what they’re good at.

This brings us to the importance of innate talent and matching people well with roles. Success starts with hiring employees with the right talents for jobs in the first place — or failing that, being quick to reposition them in jobs that fit them better. People’s innate talents matter a great deal to how well they do their jobs. Our research shows that of tenure, engagement and talent, talent is the strongest predictor of performance.

Further, our analysis shows that talented employees with longer tenures can achieve above-average performance even in work environments that are not very engaging. Alternatively, talented and engaged employees can achieve above-average performance even with less than two years of tenure. The effect of talent is only minimized to below-average performance when a talented person has less than 10 years of tenure and is actively disengaged at work.

To understand the combined effect of tenure, engagement and talent on performance, my colleagues and I launched a large-scale study. It included recent data from 20 studies across seven organizations and more than 7,000 individual contributors in various roles, including customer service, call centers, financial consultants, sales representatives, nurses, support staff and clinical staff.

Our finding that just 5% of employees are in the proverbial “sweet spot” — engaged at work, in roles that are the right fit for them and at their company for 10 years or more — likely indicates that few organizations are examining their workforce to understand where their people fit in this configuration. Yet our results suggest there’s much more these organizations can gain from getting employees in the sweet spot.

Hitting the Trifecta of Tenure, Engagement and Talent

Employees who hit the trifecta of tenure, engagement, and talent perform 18% higher than the average employee and 35% higher than a worker who goes zero for three. For skilled production and support staff, this equates to a financial outcome of $6 million and $12 million, respectively, per 1,000 employees. For highly educated professionals, the economic outcome essentially doubles from $12 million to $23 million per 1,000 workers.

In many companies, it may seem unrealistic to have a surplus of workers with 10 or more years of tenure. Even among workers who have less tenure and are engaged and highly talented for their role, their performance is 9% better than average and 24% higher than someone with low talent who is actively disengaged.

The most important thing that companies must do to get the most from their workforce is to align their talent, engagement and tenure strategies. Using scientific predictive analytics to hire people with the right talents for their role gives them a better shot at becoming engaged because they have more opportunity to do what they do best. And pairing talented employees with great managers helps to boost and sustain engagement, increasing the likelihood of retention. This leads to a longer, more meaningful tenure for employees and, ultimately, a more productive and valuable workforce poised to support high organizational performance.

While the three parts of the configuration inherently support one another, few organizations are combining their selection, engagement and retention initiatives in a strategic way.

A version of this article originally appeared on the HBR Blog Network.

Sangeeta Agrawal, Ben Wigert and Yongwei Yang contributed to the research in this article.

Methods

The employee engagement and tenure analysis is based on responses from 7,688 employed adults, aged 18 and older, in 2014, collected via Gallup’s nationally representative probability-based panel of U.S. households. Engagement percentages are based on responses to Gallup’s Q12 employee engagement metric with established meta-analytic links to various important business and well-being outcomes. Gallup researchers conducted a meta-analysis of links among organizational tenure, employee engagement and talent to establish the additive effect findings based on data collected in 20 research studies, in seven different organizations and among 7,477 employees. Job types included customer service, call center, financial consultants, sales representatives, nurses, support staff and clinical staff. Gallup’s talent selection database, built over four decades, includes 12,000 items gathered from more than 500 organizations in 50 countries and 20 industries. Our employee engagement database contains data from more than 3.1 million teams and 27 million employees.

In all fairness, they should have polled 100% leveraged ESOP’s. The results would have broken the paradigm of jobs, jobs, jobs.

Robots To Replace Almost Half Of Jobs Over Next 20 Years

Forty-seven per cent of jobs in the US will be overtaken by computers in the next decade or two, according to research.Forty-seven per cent of jobs in the US will be overtaken by computers in the next decade or two, according to research. Photo: Generic Thinkstock

On March 23, 2015, Jorge Branco writes on Brisbane Times:

Robots and computer programs could almost wipe out human workers in jobs from cooks to truck drivers, a visiting researcher has warned.

Driverless cars and even burger-flipping robots are among the technological advancements gunning for low-skilled jobs across dozens of industries.

University of Oxford Associate Professor in machine learning Michael Osborne has examined the characteristics of 702 occupations in the US, predicting 47 per cent will be overtaken by computers in the next decade or two.

University of Oxford Associate Professor in machine learning Michael Osborne.University of Oxford Associate Professor in machine learning Michael Osborne. Photo: Supplied

Those most at-risk jobs are in accommodation and food services (87 per cent of workers at high risk of being replaced), transportation and warehousing (75 per cent) and real estate (67 per cent).

By contrast, only about 10 per cent of workers in the information sector, software developers and higher level management were at risk of automation.

Professor Osborne said machines and computers still struggled with creativity, social intelligence and the manipulation of complex objects, making jobs with high requirements in these areas less vulnerable to robotisation.

“What unites all those bottlenecks [in computer ability] is kind of a deep reservoir of tacit knowledge humans possess that’s not readily reproducible in software,” he said.

“For example, in order to be creative, you need to understand the creative values of the society in which you find yourself.

“It’s very easy to design an algorithm that endlessly churns out paintings or pieces of music but it’s very difficult to get that algorithm to distinguish between good pieces of music and bad pieces of music.”

While the results, which Professor Osborne had been reproduced with similar results in the UK and Scandinavia, are bad news for individuals, they don’t necessarily predict a sky-rocketing unemployment rate as machines take over the workforce.

History is full of examples of machines replacing workers.

At the start of the 20th century about 40 per cent of US workers were in agriculture. That’s now about two per cent but the unemployment rate has remained relatively steady.

The invention of the car savaged jobs in the horse transport industry but gave rise to tourism and all the jobs that come with it.

In the early 19th century the Luddites rioted against labour-replacing machinery in the English textile industry, coining a name for someone resistant to change.

“These people weren’t irrational. There were genuine risks to their jobs,” Professor Osborne said.

“And while overall in the end unemployment wasn’t affected, there certainly were very severe negative consequences for those workers in the short term.

“I think the story here is fairly similar actually that in the end, yes we may see new forms of work generated but it’s not  clear that the kind of people who are put out of work, which I said ought to be those at the low-skilled end of the spectrum, are necessarily going to be those that move into those new forms of work.”

Technology will need to become more user-friendly and create new kinds of jobs given there would always be a resistance to its adoption, Professor Osborne said.

But Hollywood’s imagery of terminators and other self-aware robots wreaking havoc was not a healthy narrative to consider, he said.

“In the long term yes, we will see machines that may be potentially so intelligent as to have goals that aren’t consistent with our own and there might be consequences of that,” he said.

“But I think in the near term the larger question is that of employment really, and how people’s work might be affected by increasing automation.”

Professor Osborne is in Brisbane to speak about the future of work at the Queensland University of Technology on Tuesday.

He said many newly created industries such as software development and big data analysis weren’t creating as many jobs as thought but renewable energy industries were booming in the US and said Australian governments should be fostering similar innovation.

“There’s not a single silver bullet solution to this issue but investing in those new industries is certainly an important plank,” he said.

http://www.brisbanetimes.com.au/technology/sci-tech/robots-to-replace-almost-half-of-jobs-over-next-20-years-expert-20150323-1m5oei.html