Robert Reich: Why Our Economy No Longer Works for the Vast Majority of Americans

And what we can do about it.

Source: Robert Reich’s blog, vai AlterNet

Author:Robert Reich

Emphasis Mine

In 1928, famed British economist John Maynard Keynes predicted that technology would advance so far in a hundred years – by 2028 – that it will replace all work, and no one will need to worry about making money.

“For the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.”

We still have thirteen years to go before we reach Keynes’ prophetic year, but we’re not exactly on the way to it. Americans are working harder than ever.

Keynes may be proven right about technological progress. We’re on the verge of 3-D printing, driverless cars, delivery drones, and robots that can serve us coffee in the morning and make our beds.

But he overlooked one big question: How to redistribute the profits from these marvelous labor-saving inventions, so we’ll have the money to buy the free time they provide?

Without such a mechanism, most of us are condemned to work ever harder in order to compensate for lost earnings due to the labor-replacing technologies.

Such technologies are even replacing knowledge workers – a big reason why college degrees no longer deliver steadily higher wages and larger shares of the economic pie.

Since 2000, the vast majority of college graduates have seen little or no income gains.

The economic model that predominated through most of the twentieth century was mass production by many, for mass consumption by many.

But the model we’re rushing toward is unlimited production by a handful, for consumption by the few able to afford it.

The ratio of employees to customers is already dropping to mind-boggling lows.

When Facebook purchased the messaging company WhatsApp for $19 billion last year, WhatsApp had fifty-five employees serving 450 million customers.

When more and more can be done by fewer and fewer people, profits go to an ever-smaller circle of executives and owner-investors. WhatsApp’s young co-founder and CEO, Jan Koum, got $6.8 billion in the deal.

This in turn will leave the rest of us with fewer well-paying jobs and less money to buy what can be produced, as we’re pushed into the low-paying personal service sector of the economy.

Which will also mean fewer profits for the handful of billionaire executives and owner-investors, because potential consumers won’t be able to afford what they’re selling.

What to do? We might try to levy a gigantic tax on the incomes of the billionaire winners and redistribute their winnings to everyone else. But even if politically feasible, the winners will be tempted to store their winnings abroad – or expatriate.

Suppose we look instead at the patents and trademarks by which government protects all these new inventions.

Such government protections determine what these inventions are worth. If patents lasted only three years instead of the current twenty, for example, What’sApp would be worth a small fraction of $19 billion – because after three years anybody could reproduce its messaging technology for free.

Instead of shortening the patent period, how about giving every citizen a share of the profits from all patents and trademarks government protects? It would be a condition for receiving such protection.

Say, for example, 20 percent of all such profits were split equally among all citizens, starting the month they turn eighteen.

In effect, this would be a basic minimum income for everyone.

The sum would be enough to ensure everyone a minimally decent standard of living – including money to buy the technologies that would free them up from the necessity of working.

Anyone wishing to supplement their basic minimum could of course choose to work – even though, as noted, most jobs will pay modestly.

This outcome would also be good for the handful of billionaire executives and owner-investors, because it would ensure they have customers with enough money to buy their labor-saving gadgets.

Such a basic minimum would allow people to pursue whatever arts or avocations provide them with meaning, thereby enabling society to enjoy the fruits of such artistry or voluntary efforts.

We would thereby create the kind of society John Maynard Keynes predicted we’d achieve by 2028  – an age of technological abundance in which no one will need to work.

Happy Labor Day.

Robert B. Reich has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He also served on President Obama’s transition advisory board. His latest book is “Aftershock: The Next Economy and America’s Future.” His homepage is www.robertreich.org

See:http://www.alternet.org/economy/robert-reich-why-our-economy-no-longer-works-vast-majority-americans?akid=13435.123424.9xvh1V&rd=1&src=newsletter1041823&t=2

Tax Cuts for the Wealthy DO NOT Create Jobs

Source: DailyKos

Author: Jocava

Emphasis Mine

After 30 years of re-engineering our nation’s economy and tax code to deliver huge benefits, free of charge, to the wealthy, the most massive transfer of wealth in the history of the world —a transfer of wealth that has led to now catastrophically failed wealth disparities between the wealthiest and the poorest—, we have not seen the wildly prolific job-creation that was promised. Indeed, we have seen our manufacturing base stripped away piece by piece and our middle class society systematically eroded.

Now, after 10 years of massive tax breaks for the wealthiest people in the history of humanity, we have seen a further concentration of wealth and a further erosion of the open market for employment and innovation. The 400 wealthiest people in the United States now control more wealth than 155 million people at the other end of the socio-economic spectrum combined. The tax cuts that were supposed to be given to the “supply side” were never given to the supply side at all, only to those that seek to own it.

To distill the complicated economics down to simple terms: Why should the rich “create jobs”, why should they put money into wages in order to build businesses to make profits, when it’s being handed to them in unprecedented amounts, for free? That’s the real problem. When the government takes money from everyone, then hands it out to the wealthiest among us, it has the direct effect of disincentivizing investment by those individuals and interests in the creation of new businesses and new jobs.

It is economic incentive that drives enterprise, not the supposed nobility of spirit of the wealthy. That idea is aristocracy: that the ruling class is there because they deserve to be, because they are uniquely noble, because they have arete —excellence and a commitment to justice and humane values, to the better interests of society at large. Our nation is founded on the self-evident truth that medieval aristocracy is a lie, and that powerful elites do not tend to give their power and privilege back to the people.

It makes no sense to be fostering a new aristocracy, to be transferring literally trillions of dollars in wealth, as a matter of national policy, to the wealthiest people in our society. There is no economic reason for doing so. There is nothing about that process which upholds or defends democracy. Much to the contrary, the massive and unprecedented transfer of wealth from ordinary, working Americans to the already wealthy —which began with Ronald Reagan and accelerated to warp speed with George W. Bush’s 2001 and 2003 tax cuts—, has crippled our economy and removed any incentive major financial interests have to invest in widespread job creation.

If you believe a vibrant middle class is essential to fostering generalized citizen participation and real elective democracy, then the collapse of that middle class, the decline in household wages, the rapid escalation in bankruptcies and home foreclosures, should worry you. Even if you are a billionaire, it should worry you, because the erosion of our middle class, the gutting of funds from our educational system, the prioritization of billionaires and multinational corporations, is eroding our democracy itself.

When Vice President Joe Biden left the Senate to join the Obama administration, he was the only member of the United States Senate who was not a millionaire. He had not used his office to enrich himself or his family, and he had not played the game of Washington insider. He was not a celebrity and he did not view politics as a battle for cold, hard cash. He made policy based on how it would affect ordinary citizens, local communities, the real human freedom of people he knows and understands.

As the Senate became the world’s most powerful millionaire’s club, it became harder and harder for ordinary people to break into politics. The power of the two-party system had made it risky for anyone not to support the one of the two parties most friendly to their views, because even the slightest erosion of support for one of the two parties is now translated, through furious and misleading reporting of public opinion poll numbers as a “gain” for the other party.

As the concentration of wealth in the hands of the few has accelerated, and the concentration of political power in the hands of the wealthy has followed along, the outright lie that tax cuts for the wealthy are the best, indeed the only, way to create jobs continues to have widespread support. Though real people living in the real world can see with their own eyes that fundamental pillars of our democracy are being eroded, or even eliminated, while parents across the country know what it would mean for the House of Representatives to strip funding for Head Start, for public education and for college financial aid, the transfer of wealth goes ahead, and the job creation boom to which innovative, hard-working, democratic Americans are entitled, continues to stall.

There should be an indefinite, blanket moratorium on wasteful wealth spending.

Since we know that spending trillions of dollars on tax cuts for the wealthy is counterproductive, does not create jobs and is undermining our democracy, every independent voter, every Democratic and every Republican voter, should demand of every elected official that they cease to prioritize the giveaway of taxpayer money to those who have no use for it and will not use it to invest in rebuilding the middle class.

Tax cuts for the wealthy do not create jobs. Tax cuts for the wealthy are not a constructive way to build democracy. Tax cuts for the wealthy are not a sound investment for the already embattled middle class. Every proposed cut to social spending, every proposed tax break for millionaires and billionaires, is part of the same process of eroding our middle class and shoring up the long-term power interest of the already powerful.

It should not be the economic policy of a middle class democratic republic to prioritize the protection of millionaires and billionaires against economic hardship, when the economic hardship of the moment was created specifically and through many years of coordinated effort, by the mismanagement and bad practice of that very “investor class” that seeks to give the real power in our society to banks, hedge funds and offshore interests.

Whether by incompetence, ignorance or malice, the financial industry was hijacked by a logic of might makes right: anything that can be done to expand wealth, any “instrument” that can be devised that will make the digital, ethereal wealth of our times appear to increase, was to be cultivated, protected and propagated, regardless of the risk to the wider society or to the health of our people and our democracy.

The financial collapse of 2007 and 2008 was not brought about by working people’s mortgages; it was brought about by major financial interests that had agreed, implicitly and explicitly, it was no longer of any importance whether major national investment strategies represented real wealth or spurious wealth claims; what mattered was that those at the top could benefit from implementing the strategies.

That is what was done with our trillions of dollars in wealth subsidies: while the American people were told that tax breaks for the wealthiest of the wealthy would lead to widespread job creation, the money was devoted to creating entirely new markets where only money would be needed to make more money. Gone were the heady old days when earning millions was supposed to represent investment in an actual enterprise doing actual business, building a better society.

There should be an indefinite, blanket moratorium on wasteful wealth spending, because the work of our age needs to be the reinvention of our economy, the reversal of this egregious and undemocratic transfer of wealth from the tens of millios to the 400, and the restoration the principle that if it’s good for America, it’s because it’s good for building a vibrant, free and educated middle class that actually has the power to govern its own future and to steer the ship of state.

SOME DATA: The top 20% of the socio-economic pyramid in our country control well more than 80% of all the wealth. Just the top 1% control 40% of all financial investment assets.

In 2001, George W. Bush inherited a 10-year budget surplus of $1.7 trillion. His 2001 and 2003 tax cuts plunged the government into deficit spending, immediately. By 2002, the surplus was already erased, after just one year of the long-term tax cut plan.

By 2009, when Bush left office, he had doubled Defense spending, pledged over $1 trillion to banks, and average household incomes had FALLEN by more than $2,000 per year.

The result of these policies was: 25% of all American children living in poverty, near 10% unemployment (officially), as high as 25% among young people and well over 30% among some minority communities.

In 2008 and 2009, the nation saw record bankruptcies, record rates of home foreclosures, and despite massive investment in recovery efforts, in 2009 and 2010 job recovery has been slow to non-existent. The reason: even as banks and wealthy investors began to see their economic engine revving up again, they saw no economic incentive at all to invest in job creation.

The wrong kind of tax policy was giving them cash for nothing, and incentivizing them to invest it in money-for-the-wealthy financial schemes that don’t support small business, manufacturing, entrepreneurship or job-creation.

Originally posted to jocava on Tue Mar 08, 2011 at 06:28 AM PST.

Also republished by Income Inequality Kos, Daily Kos Classics, and Community Spotlight.

No longer the land of opportunity

From: Washington Post

By: Harold Meyerson.

““Over the past three years, Barack Obama has been replacing our merit-based society with an Entitlement Society,” Mitt Romney wrote in USA Today last month. The coming election, Romney told Wall Street Journal editors last month, will be “a very simple choice” between Obama’s “European social democratic” vision and “a merit-based opportunity society — an American-style society — where people earn their rewards based on their education, their work, their willingness to take risks and their dreams.”

Romney’s assertions are the centerpiece of his, and his party’s, critique not just of Obama but of American liberalism generally. But they fail to explain how and why the American economy has declined the past few decades — in good part because they betray no awareness that Europe’s social democracies now fit the description of “merit-based opportunity societies” much more than ours does.

The best way to measure a nation’s merit-based status is to look at its intergenerational economic mobility: Do children move up and down the economic ladder based on their own abilities, or does their economic standing simply replicate their parents’? Sadly, as the American middle class has thinned out over recent decades, the idea of America as the land of opportunity has become a farce. As a paper by Julia Isaacs of the Brookings Institution has shown, sons’ earnings approximate those of their fathers about three times more frequently in the United States than they do in Denmark, Norway and Finland, and about 11 / 2 times more frequently than they do in Germany. The European social democracies — where taxes, entitlements and the rate of unionization greatly exceed America’s — are demonstrably more merit-based than the United States.

That’s hardly the only measure by which Europe’s social democracies demonstrate more dynamism than our increasingly sclerotic plutocracy. Unemployment rates in Northern European nations — as of October, Germany’s unemployment rate was 6.5 percent; the Netherlands, 4.8 percent; Sweden 7.4 percent — are substantially lower than ours (9 percent then). Denmark, Sweden, Finland and Germany in particular have sizable trade surpluses, while the United States runs the largest trade deficits in human history.

There are, of course, a multitude of reasons the nations of Northern Europe are outperforming us. But if entitlements and social democracy were anywhere near the impediments to enterprise that Romney claims, Germany would hardly be the most successful economy in the advanced industrial world, with those of Scandinavia close behind.

The secrets of social democracy’s successes are in plain view. In Scandinavia, government commitment to worker retraining and job relocation mean that there is no major political pressure to keep failing firms in business; it’s a policy that favors innovative start-ups. In Germany, management and unions cooperate to upgrade their products and their processes — partly because corporate boards consist of equal numbers of management and worker representatives. Germany’s surge in exports may be partly attributable to its union workers agreeing to hold their wages flat (at levels still well above those of their U.S. counterparts). But their workers’ willingness to sacrifice in order to stay competitive is surely increased by the fact that their CEOs on average make just 11 times as much as their workers. In the United States, chief executives make roughly 200 to 300 times (choose your survey) as much as their average employees’ salary.

Which brings us back to Romney’s characterization of our country as a merit-based society and his failure to notice the huge changes in economic rewards over the past three decades. During the 30 years after World War II, the average American family’s income doubled, while chief executives’ income was restrained, increasing by less than 1 percent annually, according to a 2010 paper by economists Carola Frydman and Raven Saks. Beginning around 1980, however, as unions were smashed, industry moved offshore and executive pay skyrocketed, the incomes of most Americans began to flatten or decline, while financiers and corporate leaders were able to claim more and more of the nation’s income for themselves.

Corporate leaders have been rewarded with huge payouts even when their corporation’s performance has been disappointing. Conversely, millions of Americans have maintained or upgraded their skills yet seen their jobs shipped abroad or downgraded. Is this a description of a merit-based society? How does it compare with that of mid-century America, when the rewards for work were distributed more broadly?

Romney and his Bain Capital buddies may view their wealth as the just rewards endemic to successful people in a merit-based society. But why are so few Americans sharing in those rewards today while so many Americans shared in them 40 years ago? Are most Americans no longer meritorious? Or has our country ceased to reward any but the rich and powerful?

meyersonh@washpost.com

Emphasis Mine

see:http://www.washingtonpost.com/opinions/no-longer-the-land-of-opportunity/2012/01/02/gIQAOJVDZP_story.html?wpisrc=nl_opinions