How Income Inequality Contributed To The Great Recession

Higher inequality, combined with easy credit, can pressure the lower and middle class to keep up with consumers at the top
In his op-ed piece in The Guardian, Till van Treeck writes:

“The idea that the Great Recession of 2008 may have been caused not just by careless banking but also social inequality is currently all the rage among macroeconomists.

“Much of the impetus for the current debate stems from the widely discussed 2010 book Fault Lines, written by Raghuram Rajan, a former chief economist of the International Monetary Fund. Rajan argues that many lower- and middle-class consumers in the United States have reacted to the stagnation of their real incomes since the early 1980s by reducing saving and increasing debt. This has temporarily kept private consumption and thus aggregate demand and employment high, but also contributed to the creation of the credit bubble which eventually burst.”

Our leaders are doing a poor job of preparing Americans for the third revolution in which manufacturing is going digital resulting in far fewer jobs. As well-paying job opportunities continually disappear, households have used the extension of credit to bolster their material wants. This has resulted in rising personal credit while at the same time income disparities have widened. Government, in response to growing income inequality has misguidedly focused on stimulating consumption demand through jobs alone,  maintaining “make-work” or “military-industrial” support in order to prop up consumer spending and the economy. They have completely ignored the necessity for broadening private, individual ownership of the productive capital assets that the third digital manufacturing revolution is creating, and instead allowing the future of the American economy to continue to be owned by a tiny minority, while ordinary Americans end up more financially insecure.

I have devoted an entire Web site (www.foreconomicjustice.org) and Facebook page (http://www.facebook.com/pages/For-Economic-Justice/347893098576250) 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 consequences of all these changes amount to a third industrial revolution. YET, Democrats and Republicans never address the “OWNERSHIP” issue. In fact, the entire subject of WHO OWNS the productive capital that comprises the third industrial revolution is NEVER addressed by our leaders!!

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.

Once this goal becomes the national political focus we will see an unbelievable discussion of workable plans to realize the goal. Remember that planning begins with a vision and a goal. This is not rocket science but it does require national leadership. Implementation requires amending a few laws that basically authorize the transactions that will broaden capital ownership paid for with the future earnings of capital investment. Allowing such transactions will provide incentives for profitable opportunities to employ unused capacity and promote stable economic growth.

Still, after a half-century, we have no leaders with a growth strategy that could restore the economic productiveness of the American economy. The growth strategy I have presented is not new, but it has not yet registered in the minds of leaderless politicians and their advisors from the left to the right of the political spectrum and a population of people who have been mis-educated and mis-led by conventional economists from all the conventional schools of economics.

We need leadership to awaken all American citizens to force the politicians to follow the people and lift all legal barriers to universal capital ownership access by every man, woman, and child as a fundamental right of citizenship and the basis of personal liberty and empowerment. The goal should be to enable every man, woman, and child 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.

http://www.economist.com/node/21553017

http://www.economist.com/node/21552901

http://www.economist.com/blogs/schumpeter/2012/04/special-report-manufacturing-and-innovation

http://www.economist.com/blogs/babbage/2012/04/third-industrial-revolution-begins

http://www.economist.com/node/21552899

http://www.economist.com/node/21552897

http://www.economist.com/node/21552898

http://www.economist.com/node/21552903

http://www.economist.com/node/21552902

http://www.economist.com/node/21552892

http://www.economist.com/node/21552895

http://apps.facebook.com/theguardian/commentisfree/cifamerica/2012/may/09/income-inequality-great-recession?post_gdp=true

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