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by Brian T. Lynch, MSW
The impact on the economy of stagnant wages is ever slower consumption of goods and services over time. There isn’t as much money to buy things. This slower rate of consumption suppresses demand. Lower demand means fewer jobs and even lower wages for the rest of us. This is the cycle were we find ourselves today.
The consumption of goods produces the profits from with owners of capital collect returns on their investments. Lower demand due to suppressed wages would normally also lower returns on capital investments but for the factors that have kept consumption afloat. Now there are no hours left in a day, fewer household members available to work, no more capacity to borrow against future earnings. Now the impact of low wages has come home to roost and lower sales means less profit to be made.
Before the 1970’s this situation would right itself when owners shared a portion of their wealth by offering productivity raises to reward their workers. Productivity wages are based on growing productivity and are separate and above cost of living increases. Productivity raises, along with cost of living adjustments, allowed the labor/consumers to increase spending and boost demand. Increased demand would spur on manufacturing and stimulate the whole economy.
But today’s billionaires have found another way to profit without sharing their wealth with wage earning consumers. They spotted the growing ownership stake of many in the middle class and created an opportunity to take it all back. It is hard for most of us to see in our lifetime, but this is the first time in history of the world that the middle class (upper-middle mostly) has accumulated a significant stake in capital ownership. Many of us have retirement accounts, money market funds, etc. People in the upper-middle class, doctors, lawyers, middle-managers etc., have become mini-investment capitalists. Prior to the vast destruction of property caused by the world wars in the last century, wealth was concentrated at the top as is happening again today. Middle class gains in the 20th Century directly correspond to capital losses by the wealthiest owners during the two world wars.
Billionaire capitalists, the “true heirs” to wealth ownership, have responded to middle-class ownership of capital by creating a massive financial investment casino filled with elaborate new investment vehicles. The object is to entice new wealth owners to play in the billionaire’s casinos. Mortgage backed securities and swaps are just two small examples that nearly bankrupted the economy in 2008.
These new and incomprehensible investment products has spawned a whole new class of hucksters, like Bernie Madoff, who use these bewildering new instruments to create slick ponzi schemes. But the bulk of these new investment opportunities are just a big casino games in which the house (billionaire owners) always wins. Billionaires are quickly siphoning away middle class ownership stakes in capital through high finance games of chance. In this way they can boost returns on investments and entertain themselves without sharing their wealth through higher wages.
Because these billionaire owners, who make up less than .01% of the population, control the investment odds, they are sure to win back all the capital they lost in the war years of the last century. Middle class gains in the 20th Century correspond to capital losses by the wealthiest owners during the two world wars. This now explains why the stock market and investment economy seem to be booming while the economy on Main Street slumps. Billionaire capitalists don’t have to share wealth to make wealth like they use to. There are enough small investors with an ownership stake willing to gamble what little they have in this new investment casino to keep billionaire fortunes growing.
If you, the reader, are still with me at this point let me assure you that the geometrically rising gains by the wealthiest owners of capital are not an inevitability. There are difficult but concrete steps we can take to bring capitalism back into balance for everyone. A discussion of these solutions does require a much deeper understanding of problems that I can provide here. I firmly believe it is in our best interest to arm ourselves with a much better understanding of the forces creating our two economies; Forces that are threatening our democratic institutions. For a fuller understanding I recommend Thomas Piketty’s excellent book, Capitalism in the 21st Century. I encourage you to strike up conversations with others and share your thoughts and questions.
By Brian T. Lynch, MSW
How should sensible people respond to divisive attacks on the poor and vulnerable? Should we begin making similar distinctions between the worthy and unworthy rich? Should we affirm those who earned their great wealth and provide social benefit but rescind all advantages given to those who use their inherited wealth to squeeze the people and their government for still more?
It should be obvious that social polarity is not between Democrat and Republican, or between liberal and conservative, but rather where it has always derived, between rich and poor.
GOP Senate Candidate: Republicans Must Turn Poor against Each Other (Video)
Watch N.C. House Speaker Thom Tillis explain: .“What we have to do is find a way to divide and conquer the people who are on assistance,”
by Brian T. Lynch
According to the NY Times: “As in 2011, 46 percent, or nearly half of New Yorkers, were making less than 150 percent of the poverty threshold, a figure that describes people who are struggling to get by.
Even with fewer people unemployed, the poverty rate for working-age adults working full time reached 8 percent, by the city’s measure. Fully 17 percent of families with a full-time worker lived in poverty, and even among families with two full-time workers, the rate was 5.2 percent.”
NOTE: This means that 8% of adults working FULL-TIME are at or below the poverty line, while 46% percent of all EMPLOYED New Yorkers are struggling to get by. This reinforces my analysis that NEARLY HALF of all working families must rely on some form of PUBLIC ASSISTANCE to make ends meet. Government assistance to these fully employed families = a tax subsidy on labor costs for the companies that employee them.
Put another way, people who earn more are being made to subsidize the company’s low wage employees through their federal income tax withholding. Ordinary wages have been held hostage to the 1% for almost 40 years.
AMERICANS NEED A RAISE
In, “Making the Case for a LIVING WAGE” I discussed more fully why it must be the obligation of business to compensate their employees to a level of at least minimal self-sufficiency (a living wage). Once all wage earners realize they shoulder the burden for low wage workers there will be more activism to at least raise the minimum wage. Ask yourself, “How much does my companies low wage policies cost me in income taxes?”
Here below is the link to the New York Times article which is about New York City, but could be about any city in America.
This is an mportant story that I want to share with readers of this blog. I encourage everyone to watch the video. Feel free to add your comments.
Bank Profits Soar, Wages Suffer Sharpest Decline in 60 Years
Bill Black: The economy is recovering – unless you work for a paycheck. – June 9, 2013
JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I’m Jaisal Noor in Baltimore. And welcome to the latest edition of The Black Financial and Fraud Report with Bill Black, who now joins us from Kansas City, Missouri. Bill is an associate professor of economics and law at the University of Missouri-Kansas City. He’s a white-collar criminologist and former financial regulator. And he’s the author of the book The Best Way to Rob a Bank Is to Own One.
Thank you for joining us, Bill.
BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you.
NOOR: So, Bill, what can you tell us about this latest news from the first-quarter? Bank profits soared to record levels while wages suffered their sharpest decline since 1947.
BLACK: What it all adds up to, of course: it is a very good time and a very good country to be a plutocrat, because the rich are getting richer at a staggering rate and poor people are actually getting poorer, just like the same saying goes.
So we’ve got a series of news that it has just come in this week. One thing shows that we have the largest decline in wages. Boy, that’s a big win. And that follows–that’s for the first quarter of 2013. And that follows what was a huge quarter for income in the fourth quarter, in other words the last three months of 2012. But, of course, there’s a footnote on that. And that huge quarter at the end of last year was to beat the tax increase. So that was the massive payment of bonuses to the wealthiest Americans. So they made sure the wealthiest Americans got their money before the tax increases kicked in.
And what happened as soon as we got back to the regular economy? Well, wages haven’t simply stalled; they’ve actually gotten negative. And productivity is up, which is supposed to mean that wages are up, but wages have gone in the opposite direction. So that’s the news on the wages front.
On the bank profit front, hey, we’ve got the highest reported profits ever for the first quarter of this year. Now, the twist in all of this is that the statistics, when you look at them closely, show the banks weren’t all that profitable in their regular operations, because, of course, they’re not making all that much in the way of loans and such. They’re mostly sitting on their money.
So how did the banks report record profits, but when they were doing their day-to-day business they weren’t earning all that much in the way of super profits? And the answer to all of that is that they reversed out a whole bunch of reserves for future losses, which is the same game they played leading up to the crisis. So reserves for those massive future losses, they’ve made them lower and lower. At the end of 2006, they had gotten to the lowest level of reserves against future losses in history since the savings and loan debacle. And we all know how disastrously this ended. Well, guess what? We’re at the record low again in 2007.
And this is how the accounting works. Every dollar they take out of reserves for future losses is an additional dollar they can pay in bonuses to the top executives. So the wealthier are getting wealthier at a record rate in banking as well.
So what else is happening? Well, we have record stock market appreciation. In fact, there’s a neat headline that says that when you disregard inflation–which of course you can’t–the losses that people suffered in the Great Recession have now been made back. It took a lot of years to do it, but they’ve made it back. But, of course, there’s a footnote, and the footnote says this: well, regular people haven’t, but people who own stock have made out like bandits. They’ve had a recovery measured by $1.5 trillion, and 80 percent of that gain goes to the 20 percent of richest Americans. So, hey, stock market–great news for the wealthy.
Well, but there was also some potential good news. So housing prices have finally started to go upwards. And that’s good news for all kinds of Americans who own their homes. But, again, there’s a little hitch in all of this, ’cause it turns out that for the first time in American history, a huge portion of these gains are going to massive corporations and investment firms and hedge fund types, and they are because they’re making massive purchases of homes at distressed prices to serve as what we call in the trade vulture funds and to sell it back to regular folks when those housing prices have appreciated. So a lot of this gain in housing prices is not going to regular people; it’s going to go to the hedge fund executives, who are already the wealthiest people in the world.
And how does all of this sum it up? Well, I did a paper recently on the Nobel Prize awarded to Mr. Myerson. Dr. Myerson got this award in 2007 when the world was blowing up, and he got the award for proving that fraud couldn’t exist in the financial sector. And he proved this by assuming that fraud couldn’t exist. And his mechanism for assuming that fraud doesn’t exist is plutocracy. And indeed he says the great advantage of the market system compared to socialism is that we have billionaires, and he says that people who are not that rich, in other words, ordinary multimillionaires who are CEOs, if they act rationally–that’s his word–will loot their corporations. And so the only safe thing we can do is to make some segment of Americans billionaires–in fact, probably multibillionaires–so they can run our largest corporations and made–be made into mega-billionaires. So you get a Nobel Prize for creating a system that leads to recurrent intensifying financial crises that caused $10 billion in losses in the United States and the loss of $10 million jobs. And we are told that we’re supposed to be happy and bless the system because it creates plutocrats who have incomes in the multibillion dollars who, when there is a crisis–in the words of Myerson in another article, people who are poor should pay taxes to bail out billionaire bankers, because that will be good for the poor people. That’s the status of economics in the modern era.
NOOR: So, Bill, it would seem like the dominoes are in a row for another massive financial meltdown. Would you disagree?
BLACK: No, that’s exactly what they’re putting in place. And they’re going to make the folks wealthy on both ends, right? We’re told that they have to be made billionaires so that they can invest prudently during the expansion phase of the bubble. And as soon as they destroy the economy, we’re told that we have to bail them out and make them ever wealthier. And the way we do all of these things increases the rewards to fraud and reduces the penalty to fraud, and especially in the modern era where you can dilute with impunity under the administration’s too-big-to-prosecute-or-even-indict standard.
NOOR: And finally, Bill, where are the movements that are challenging these policies?
BLACK: Well, they’re certainly not in either of the major parties. There are, of course, progressives within the Democratic Party, and they do some things, but in truth, both parties’ leadership are heavily dependent on funding from the largest banks and from other plutocrats. You’ve just seen the the Obama administration put a Pritzker in a cabinet position where the Pritzkers have a terrible reputation. And you saw that the Republicans, who usually block anyone that Obama nominates, were more than happy to have one of those wealthy folks, who is one of their kind, in a cabinet position.
So the dissent remains on places that are not typically found in the mainstream media, the Occupy movements and such. And, you know, it’s going to be the next crisis before there’s any serious chance of serious reform.
NOOR: Thank you for joining us, Bill.
BLACK: Thank you.
NOOR: And thank you for joining us on The Real News Network.
Bio – William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics. Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement. Black developed the concept of “control fraud” frauds in which the CEO or head of state uses the entity as a “weapon.” Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae’s former senior management.
Since Reagan in 1980’s Tax Rates for the wealth were cut in half and capital gains tax (where most make their money) was cut in half again. http://j.mp/ZFFQHB
Wages and GDP rose together until wages were suppressed in the 70’s, otherwise median income today would be greater than $100K instead of $51K http://j.mp/14MoT67
A majority of American’s don’t make enough money to support a robust economy because a handful of us have more money than they can spend. http://j.mp/16E3zOT
Current US policy is creating permanent income inequality. Income mobility is shrinking as income caste system forms. http://t.co/nK5uFGyCaG
We know what victory looks like in Class Warfare. It’s the formation of an income caste system where birth determines your level of success. http://j.mp/Y1HwQP
Obama’s proposed raise in min. wage from $7.20 to $9/hr would mean a person working 40hr/week at min. wage would still be below poverty line. http://j.mp/10DwY7V
If the minimum wage was raised to $18/hour the Federal Government could eliminate almost all aid to the working poor, saving tons of money. http://j.mp/10DVrLn
Every tax dollar paid to assist the working poor is a tax subsidy providing their employer a federally funded labor discount. http://j.mp/16Bml7r
God! When are we going to wake up?
A Spring 2013 BPEA paper by Vasia Panousi, Ivan Vidangos, Shanti Ramnath, Jason DeBacker and Bradley Heim
Disadvantaged Becoming Worse Off Long-term; Tax System Has Helped But Not Significantly
Income inequality in the US has increased in recent decades, and this increase is of a permanent nature, according to a new paper presented today at the Spring 2013 Conference on the Brookings Papers on Economic Activity (BPEA).
In “Rising Inequality: Transitory or Permanent: New Evidence from a Panel of U.S. Tax Returns” … [the authors] use new data to closely examine inequality, finding an increase in “permanent inequality” — the advantaged becoming permanently better-off, while the disadvantaged becoming permanently worse-off. The paper has important public policy implications because rising income inequality will lead to greater disparity in families’ well-being that is unlikely to reverse, whereas “transitory inequality” or year-to-year income variability would imply greater income mobility—those who fare worse today might be able to do better in later years. The authors are among the first to examine various measures of income in great detail, including earnings from work activities as well as broader measures of family resources such as total household income. [SNIP]
Looking at the impact of tax policy on inequality, the paper finds that although the U.S. federal tax system is indeed progressive in that it has provided some help in mitigating the increase in income inequality over the sample period, it has, however, not significantly altered the broadly increasing inequality trend. All told, the results suggest that rising income inequality will likely lead to greater disparity in families’ well-being and reduce social welfare in the long-run.
Rising Inequality: Transitory or Permanent?
New Evidence from a Panel of U.S. Tax Returns
We use a new, large, and conﬁdential panel of tax returns to study the permanent versus-transitory nature of rising inequality in individual male labor earnings and in total household income, both before and after taxes, in the United States over the period 1987-2009. We conduct our analysis using a wide array of statistical decomposition methods that allow for various ﬂexible ways of characterizing permanent and transitory income components. For male labor earnings, we ﬁnd that the entire increase in the cross-sectional inequality over our sample period was permanent, that is, it reﬂected increases in the dispersion of the permanent component of earnings. For total household income, the large increase in inequality over our sample period was predominantly, though not entirely, permanent. For this broader income category, both the permanent and the transitory parts of the cross-sectional variance increased, but the permanent variance contributed the bulk of the increase in the total. Furthermore, the increase in the transitory component reﬂected an increase in the transitory variance of spousal labor earnings and investment income. We also show that the tax system partially mitigated the increase in income inequality, but not suﬃciently to alter its broadly increasing trend over the 1987-2009 period.
In his State-of-the-Union Address President Obama proposed raising the federal minimum wage to $9.00 per hour and indexing it to inflation. He said a family of four with two children still lives below the poverty line when one parent works full-time at minimum wage. The proposed increase would lift them out of poverty, he said.
by Google Images
What a welcome suprise! Virtually no attention was given to the working poor in the last election. In the past decade real wages rapidly declined for the working poor, driving ever more citizens into the grip of intractable poverty.
When a person works full-time for a profitable company their compensation should enable them to care for their family. When this isn’t the case, they must rely on taxpayer-subsidized housing, food stamps, medical care, daycare, or other supportive services. This takes a toll. It can erode a person’s dignity and self-worth. It can foster a sense of inadequacy or self-loathing.
On a social level the working poor are often labeled and marginalized. They are deemed to be less worthy. They are less likely to be promoted or rehired after a layoff. Any economic hardship at all can lock them into a cycle of poverty where their hope for a better life evaporates with each passing year. Escaping poverty in America today is the exception, not the rule.
Many wealthy companies are just as dependent on government subsidies for cheap labor. Without taxpayer assistance for their workers these companies would have to pay a living wage in order to maintain a stable workforce.
And what is wrong with that? Shouldn’t adequate compensation be part of the cost of doing business? Why should business owners be allowed to pad their profits by cutting labor costs at taxpayer expense?
We can expect the pro-business lobby to oppose an increase in low-wage pay while calling for more spending cuts and lower business taxes. Austerity can’t create more jobs and spending cuts will never result in more pay for low-wage earners. Only an increase in the minimum wage or a living-wage law can do that.
Pro-business economists will claim that a higher minimum wage will increase unemployment and hamstring businesses, especially small businesses. Much evidence suggests the opposite. Higher minimum wages have a simulative effect on the economy. The extra $1.75 per hour will be spent immediately, boosting business profits and sparking more demand.
The pro-business lobby will claim the proposed increase is excessive, but here the facts are against them. Even President Obama got this wrong. The poverty wage for a family of four is current $10.60 per hour. If passed, President Obama’s proposal would still means a minimum-wage worker would have to work overtime, take another part-time job, or have their spouse work part-time to reach the poverty line.
And what does it really mean to be at the poverty line? Does this make a family economically self-sufficient?
No, it does not. A living wage to lift a family of four above the need for taxpayer subsidies is considerably higher. In Wyoming, for example, a living wage for this family is $16.93 per hour. In Virginia it is $20.88 per hour, and in California it is $22.15 per hour. These figures are not government artifacts. They are actual costs based on local free-market economies.
While business owners and corporations may squeal at the size of the proposed increase in the minimum wage, they would still benefit greatly from taxpayer subsidies for their low-wage employees. Raising the minimum wage shifts some of the burden of caring for employees to the employers, but not much. It still doesn’t hold wealthy corporations responsible for their low-wage workers or for the harm that poverty wages inflict on their families.