How Conventional Economist Peter Diamond Thinks About Taxes And Jobs

“When economists think about the role taxes play in an individual’s decision to work, they think about two things. There’s the “substitution effect,” where higher tax rates make you work less, because you keep less of every extra dollar you earn. But there’s also the “income effect,” in which higher tax rates make you work more, because you need to earn more to be able to live how you want to live, or retire when you want to retire. The question is which dominates: The desire to keep more of the money you make or the desire to have more money in total?”

Conventional economist Peter Diamond, the MIT economist who won the 2010 Nobel prize, as with nearly all economist, continue to miss the obvious by restricting their thinking to one-factor economics––labor workers. Promoting opportunity and upward mobility through tax incentives to incentive the “work ethic” doesn’t work in light of the role of technology, which is to “save” labor. The role of physical productive capital (the non-human factor of production) is to do ever more of the work, which produces income. 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. Over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production.

Never do conventional economists such as Peter Diamond, or for that matter any of the political leaders they advise, address the term “OWNERSHIP.” In fact, the entire subject of WHO OWNS the productive capital that comprises the third industrial revolution is NEVER addressed!!

The old way of making things involved taking lots of parts and screwing or welding them together. Now a product can be designed on a computer and “printed” on a 3D printer, which creates a solid object by building up successive layers of material. Such additive manufacturing will use new materials, which are lighter, stronger and more durable than the old ones. Carbon fibre is replacing steel and aluminium in products ranging from aeroplanes to mountain bikes. New techniques let engineers shape objects at a tiny scale. Nanotechnology is giving products enhanced features. But additive manufacturing is only one of a number of breakthroughs leading to the factory of the future, and conventional production equipment is becoming smarter and more flexible, too. Factories are becoming vastly more efficient, thanks to automated milling machines that can swap their own tools, cut in multiple directions and “feel” if something is going wrong, together with robots equipped with vision and other sensing systems. Everything in the factories of the future will be run by smarter software. Digitisation in manufacturing will have a disruptive effect every bit as big as in other industries that have gone digital, such as office equipment, telecoms, photography, music, publishing and films. And the effects will not be confined to large manufacturers; indeed, they will need to watch out because much of what is coming will empower small and medium-sized firms and individual entrepreneurs. As manufacturing goes digital, it will allow things to be made economically in much smaller numbers, more flexibly and with a much lower input of labor, thanks to new materials, completely new processes such as 3D printing, easy-to-use robots and new collaborative manufacturing services available online. Thanks to smarter and more dexterous robots, some lights-out manufacturing is now possible. Manufacturing revolutions never happen overnight, but this one is already well under way. There is enough transformative research going on in the biological sciences and in nanotechnology to spawn entirely new industries, like making batteries from viruses. And if the use of carbon-fibre composites were to spread from sports cars to more workaday models, the huge steel-stamping presses and robot welding lines would vanish from car factories.

I have devoted an entire Web site ( and Facebook page ( to advocating for a paradigm shift in economic thinking, which to date is based on one-factor labor worker input and excludes a “reality” discussion of the second factor in production––the non-human factor embodied in productive land, structures, machinery, superautomation, robotics, digitally automated factories, sophisticated computerized operations, etc. As the production/manufacturing/delivery of products and services continues to transform exponentially and employ advancing non-human productive capital digitally realized, the necessity will be to recognize 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 the capital owners of the non-human factor and progressively less to workers who make their contribution through labor. This means that the GOAL of Full Employment will not and cannot solve our income distribution problems. We can no longer ignore the advances constantly being made in the scientific world or the business world or the industrial world, which embrace the ever-expanding role of the non-human factor of productive capital input. 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 capitalless Americans using capital credit, and, as binary economist Louis Kelso states, “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 need to arrive at a new market economy structure in which people are in a position to earn the wages of their capital as well as the wages of their labor. In companies that employ people the company would be in a position to be more competitive through lower labor costs and increased technological innovation, while achieving higher employee incomes through the employee’ capital.

If we change direction and systematically build earning power into consumers, we have the opportunity to reverse the depression perpetrated by systematically limiting the 99 percent to labor wages alone and through technology eliminating their jobs. We need solutions to grow the economy in ways that create productive jobs and widespread equity sharing. We need to systematically make capital credit to purchase capital accessible to economically underpowered people (the 99 percenters) in which the income from the capital investment is isolated until it pays for itself, and then begins to produce a stream of dividend income to the new capitalists. This can only be accomplished by enabling every person to have access to productive capital ownership and purchase the capital, and pay for it out of what the capital produces. It’s time good and well-intentioned people woke up and adopted a just third way beyond the greed model of monopoly capitalism and the envy model of the traditional welfare state. This will promote peace, prosperity, and freedom through harmonious justice.

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