Why The Economy Is Heading For A Stall
by Gary Reber
Chancellor Professor of Public Policy at the University of California, Berkeley Robert Reich in his blog May 3, 2012 states:
“Today’s report on America’s massive service sector – which make up about 90 percent of the economy – is sobering to say the least.”
“That doesn’t bode well, especially when combined with other recent data. The Commerce Department reports that the economy as a whole has slowed from the last quarter of 2011 when it was expanding at an annual rate of 3 percent, to 2.2 percent for the first quarter of this year. And last month’s unemployment report showing only 120,000 new jobs in March was downright alarming.”
“What’s going on? Europe is sliding into recession, and gas prices are still high. But the real problem lies closer to home. Cuts in government spending are reducing domestic demand precisely at the time when consumers are reaching the end of their ropes and can’t spend more.”
“Absent real wage gains, that spending pace can’t possibly continue. Consumer savings are down and their debt is up. Consumer confidence dropped last week to a two-month low.”
“The only people left spending are in the top 5 percent, whose stock portfolios have been doing so well they feel even richer. But the top 5 percent can’t pull the entire economy out of the doldrums. Besides, if demand continues to slide the stock market will follow.”
This condition will worsen with the continued exponential growth of job-displacing and job-destroying productive capital––the non-human factor contributing to the making and delivery of products and services. Thus, the focus on “full employment” and “real wage gains” is a dead-end approach. Why, because, given the distributive principle “to each according to his production,” when the primary distribution through the free market economy delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor, the growth in earnings belongs rightfully to those who own the productive capital assets. What has been transpiring is redistribution of the rightful earnings of productive capital owners, achieved by the rigging of labor prices, by taxation to support redistribution and job “creation,” or subsidization by inflation and by all kinds of welfare, open and concealed. Our leaders and conventional economists still believe full employment will solve our income distribution problems. Realistically “full employment” or “real wage gains” will not. What needs to be adjusted is the opportunity to produce, not the redistribution of income after it is produced.
The purpose of production in a market economy is the consumption of products and services by the consumers who make up the economy. But without income, the non-capital or under-capialized ownership class, the 99 percenters, cannot afford to purchase the products and services they desire. But when incomes rise among consumers who have the need and desire to improve their material standard of living, the market demand for products and services strengthens, which in turn increases production and results in a growth economy.
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 cornercutting 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.”
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.”
Without a policy shift to broaden productive capital ownership simultaneously with economic growth, further development of technology and globalization will undermine the American working class and middle class and make it impossible for more than a minority of citizens to achieve middle-class status.
Through economic democratization reforms, economic growth can be freed from the slavery of past savings, while creating a domestic source of new asset-backed, interest-free money and expanded bank credit to finance new capital formation repayable out of future savings (earnings).