Blog Archive

Wednesday, February 27, 2019

Want to Expand the Economy? Tax the Rich!

Want to Expand the Economy? Tax the Rich!: If Democrats want to win big in November, they must do more than just renounce trickle-down economics. They need to replace it.

This comes out of the American Prospect magazine, and it's a great article.   B.L.   2.27.19 

Thursday, February 14, 2019

My first essay at this #2 spot. http://benL88.blogspot.com

See my original blog:              http://benL8.blogspot.com 

              (Below this first essay is another on 
                               Climate Change)


Poverty, Hardship, “Doing OK”, and “Living Comfortably” in the U.S.A.

The disruptive effects of inequality are not clearly perceived by the American public. If they were the political conversation would seek to repair the decades of tilted growth, and to shore up the majority of  households who simply are not making it adequately.

The Consumer Financial Protection Bureau, a creation of now Senator Elizabeth Warren, published a survey “Financial Well-Being in America” in 2017, and certain details exemplify the sad, precarious and inescapable conditions confronting too many Americans. The questions about “liquid assets” show that 24% of adults have less than $250 in savings or liquid assets, 35% have less than $1,000, 54% have less than $5,000, and 73% have less than $20,000 (Exhibit A5). In stark contrast the Federal Reserve report, Flow of Funds (page 2), shows the total net worth of U.S. households stands at $109 trillion, and that comes to a “mean average” savings of $858,267 per household. Half of households own less than $82,000 including non-liquid assets, that is including the value of their homes, as reported by Edward N. Wolff in December, 2017. And in the same report, 40% are reported to owe approximately 0.5% of total wealth, that is, their debts are greater than their savings. Nothing could more clearly demonstrate the immoderate nature of the nation’s inequality. 

The same CFPB report says that 43% of Americans “have difficulties making ends meet”, while 34% report they “experience material hardship”. The Federal Reserve report on Household Well-Being says that about 40% of adults have “scores that suggest a high likelihood of material hardship". And while the official U.S. Census reports that 12.3% live in poverty, and the Supplemental Poverty Measure (SPM) shows 13.9%, many scholars maintain that this understates poverty by half. In 2013 one of the authors of the SPM wrote (page 23) that 29.9% of Americans were unable to “achieve a safe and decent standard of living”. A report from the United Way charity, the ALICE report, surveying all the counties in the U.S. and focusing on 15 states, claims that 40% of households cannot afford the cost of seven normal expenses: food, shelter, utilities, medical care, transportation, phone service and child care. 

Moving up above the lower 43% who are poor or struggling, there are 25% in the middle who state they are “doing OK”. This mediocre condition is short of the experience of the highest earning 33% of American adults who report they are “living comfortably”. These are the findings of the CFPB report. 

Expanding this picture shows that at the bottom, at least 1% live in extreme poverty, living on less than $2 a day income; a total of 5% live in “deep poverty” or below half the official poverty level; then a total of 13% or so live below the official poverty level (including the extreme and the deep groups); and a total of about 25% (estimated) live in the condition of “unable to achieve a safe and decent standard of living”, and then 34% experience hardship (inability to pay normal expenses), and 43% worry about making ends meet. Coincidentally, the SPM shows that 43% of Americans live with incomes below 200% of the Federal Poverty Level; their incomes are measured after paying all taxes and receiving all government benefit transfers. That completes the lower earning 43%. Next there is a core of 25% who are “doing OK”, and then at the top end, those 33% who are “living comfortably.” 

The national mean average household income is around $120,000 per year, but half of all households live with incomes below $61,372. (In 2018 the Joint Committee on Taxation reported a national income of $15.0 trillion, and the Census reports 127 million households, and this reflects an average income of $118,165 per household.) Furthermore, the mean average household net worth is $858,000 per household, yet half live with less than $82,000, and the lower 40% have negative net worth. Another measure from the Bureau of Economic Analysis shows that $47,421 is the post-tax income for each citizen in the nation, all 325 million citizens; and that equates to an average post-tax income of $189,684 for all 4 person households. Yet half of all four person families have incomes half that amount, or $94,876 in pre-tax income. Their post-tax income is below $70,000. These high levels of poverty (13%), hardship (34%) and worrying about  not “making ends meet” (43%), and even the weak admission of  just “doing OK” (25%) are surprising and unacceptable in a nation where all could be at the level of “living comfortably”. And the paucity of savings among the lower-earning 80% is clearly a rebuff to those who believe the economy distributes its resources fairly.    

A report from the Economic Policy Institute, “The New Gilded Age”, shows (page 12) with voluminous detail the history and extent of income inequality. In short it contrasts two periods of growth, the 28 years between 1945 and 1973, contrasted with the 42 years 1973 to 2015. In the first period 4.9% of growth went to the top-earning 1%, and 95.1% went to the lower-earning 99%. In the second period 56% went to the top 1% while 44% went to the lower 99%. In the first period the real inflation adjusted incomes of the 99% doubled, all 99% of households increased income by 100.1% in 28 years. In the second period of 42 years the lower 99% increased their incomes by 15.4%. The top 1% increased their incomes by 216.4%, more than tripling. This is a jaw-dropping report of extreme economic disruption. 

Personally I think the remedy for this is to create tax incentives for corporations to increase the wage incomes of their employees. Extensive research shows that corporations are distributing over 90% of their profits into stock buybacks or shareholder dividends. The big money in the economy is found in the biggest corporations, and they can easily afford increasing workers’ salaries. Over half (53%) of U.S. workers work in firms with more than 500 employees, which pay 59% of all wage income. The Bureau of Labor Statistics, BLS, shows that the “average weekly earnings of production and nonsupervisory workers”, 80% of all workers, was higher in 1964 than today in 2019, incredibly. The BEA.gov (Table 2.1) shows that post-tax income has tripled for all citizens on an inflation adjusted scale. The per capita economy triples while 80% are earning virtually the same as they earned 54 years ago! Corporations can afford to do better by their workers. 

The other remedy is raising the minimum wage to somewhere near $15 an hour. This may prove impractical as lower paying employers operate small firms that may find it difficult to increase their overhead. But an increase for these lower paid workers is necessary. The ALICE report shows that 40% of workers earn below $15 an hour, and 60% earn below $20 an hour. The U.S. Census states that the median male full-time worker earns about $25 an hour, and the female full-time worker earns $20 an hour, at the median. But -- and it's most meaningful -- the Social Security Administration report on wage income shows that the lower-earning half of all U.S. workers have a combined income of less than 8% of the total U.S. income (see the Joint Committee on Taxation report, page 31, for the table on total income and taxes). 


While this article is dense with numbers, the simple fact that stands out is that too many are struggling in an economy that is never-before so affluent. 
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Additional Reading and Listening
Marjorie Kelly's book Owning Our Future - The Emerging Ownership Revolution, Journeys to a Generative Economy,
2012, focuses on converting corporations from extractors of resources to generators of prosperity. What changes in corporate structure and purpose are needed? She works for the Democracy Collaborative .org.  
She's written extensively, see her bibliography. A quote from page 20, the corporation's "purpose is manufacturing financial wealth in endlessly growing quantity. . . this extraction weakens the vitality of the real economy of jobs, families, and communities." (A new book is announced, June 1, 2019, "The Making of a Democratic Economy". David Korten wrote his response: "As champions of worker and community ownership, Kelly and Howard remind us that economic democracy is essential to political democracy and a viable human future."
—David Korten, author When Corporations Rule the World and Change the Story, Change the Future: A Living Economy for a Living Earth.
I also like this comment: "Marjorie Kelly and Ted Howard have given us the roadmap toward economic democracy. But they don’t just show the interstates and the major landmarks— they show the byways and small towns where real change comes from. In this moment when greater and greater numbers of people are realizing that the rules of capitalism must be rewritten, the stories in these pages, and the strategies that Kelly and Howard share, will guide our way forward.





Lenore Palladino, Senior Economist, The Roosevelt Institute


     As I said somewhere William Lazonick states that 1,910 corporations generate 44% of all receipts, employ 34% of all employees, and have an average employee size of 25,000. Those are the trouble-makers, and that benevolent veneer is just that, only skin deep. 

Now for listening: 
Pitchfork Economics, podcasts see here. Nick Hanauer co-publishes this web page. He has the distinction of  arguing for much higher tax rates on the wealthiest in his article at the American Prospect. In their first interview they invite William Lazonick to explain the essence of stock buybacks. From Hanauer's recent, Summer 2018, article, about lowering taxes on the rich and corporations: "As a venture capitalist and serial entrepreneur who’s made a personal fortune founding or funding more than 30 companies, I can tell you firsthand that this classic trickle-down narrative represents more than just a fundamental misunderstanding of how market capitalism works; it is in fact a con job and a threat—an intimidation tactic posing as a theory of growth."
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GDP to Wealth graph from Real Investment Advice, a financial advisory firm. Other sites also have iterations of this graph, if one wishes to hunt. I've published it before at EWG, part one. 
U.S. Household Net Worth vs. GDP
And more important is this second graph, 
Household Net Worth As A Percent Of GDP
From 1952 to 1997 it averaged about 350% of GDP, now it's floating above 500%. So it is about 42% too high above the 45 year average. Now, late February, 2019, the S&P 500 is at 2,792, and should it be 1,619? That's my rough estimate of where it should be.
In October, 1972, "average weekly earnings of production and nonsupervisory workers" was at a high, about 8% higher than in January, 2019. (Another graph of this, unadjusted for inflation, is available at the FRED series of graphs, Federal Reserve) Weekly and yearly earnings dropped 5% over the 70s, and then another 15% until 1993. The graph above shows the lowest ratio years, net worth to GDP, were from 1974 to 1979. This is why I advocate a large tax on wealth, stronger union powers including strike rules.

James Cypher, in an article published at Dollars and Sense magazine, July, 2011, "The Purloined Trillions" writes, "In 2009, stock owners, bankers, brokers, hedge-fund wizards, highly paid corporate executives, corporations, and mid-ranking managers pocketed—as either income, benefits, or perks such as corporate jets—an estimated $1.91 trillion that 40 years ago would have collectively gone to non-supervisory and production workers in the form of higher wages and benefits. These are the 88 million workers in the private sector who are closely tied to production processes and/or are not responsible for the supervision, planning, or direction of other workers."

Take the $1.9 trillion and divide it among the 88 million workers --- a raise of $21,704 per worker. 

Few Americans are informed, and I think most economists are remiss in dismissing this important fact.

In 2018 only 25,000 workers conducted "work stoppages", or went on strike, in actions involving over 1,000 workers. In 1974 the ratio of striking workers to total workers much higher, and if -- that elusive if -- (and if) the same ratio had been striking in 2018 then some 3.3 million workers instead of 25,000 would have been striking. Strikes have nearly disappeared, as wages have stagnated.

Income and wealth should be transferred back to levels of the 1960s and 70s. That sounds like confiscation, but it is striking a healthy balance (pun unintended). The gains of the elite 1%, the tripling of their incomes, were not earned -- policy made it possible -- their gains were stolen in effect by changes in policy. Capitalism has inherent defects, it is not pie-in-the-sky-wonderful. See the great blue graph by Giovannoni in my essay here.
To learn more about the above graphics 
Read the article from the creators of this graphic.

Using the same graphs above, Jesse Colombo publishing at Forbes magazine argues that, "The current U.S. household wealth bubble will end the way that the last several asset and wealth bubbles did: from the ending of the loose monetary conditions that caused it in the first place. As hedge fund manager Jeff Gundlach put it, the Fed will keep hiking interest rates until “something breaks.”
Colombo's article is a thorough examination of the interplay of inflated wealth levels, interest rates, debt burden, CPI to rent to housing costs. It shows that housing costs in late 2018 are almost at the same emergency level above the rising CPI level they were in 2007. Corporate debt levels also are at a high, foreboding a collapse that would create unemployment and recession. Debt levels triggered the collapse of 2007.
I checked the Fed's Flow of Funds, December, 2018, Table D.3, about debt levels. Since 1980 the "Domestic Financial Sector" "Outstanding Debt" has decreased by a third, from 122% of GDP to 79%. That's good. But still too high. Government debt (federal and state and local) has risen by 100%, not good. Corporate debt is about the same level 75% when in 2008 it was 73% of GDP. Household debt has dropped from 96% to 76%. And the total of all debt has increased from 239% of GDP to 250% in 2018. The question I find unsolvable is how housing and rent can be so high. The wealth effect has some influence, the low interest rates on mortgages another. The gap between CPI growth and housing price growth is now the same as in 2008. Not good.  In two days the Flow of Funds will be published, March 7, 2019.

Instead of Enriching Shareholders, These Companies Could Give 8 Million Workers a $46,000 Raise

This article appeared in the magazine In These Times, by Colleen Boyle, February 4, 2019. It documents the profit dispersal of the 30 companies comprising the Dow Jones Index, the total dollars dispatched to stock buybacks and dividends. If instead they had given bonuses to all workers? For some corporations it would be a raise of $165,000, for others just $4,000; the average $46,000. There is a table at the bottom showing the median wage income of each company's workforce, and the hypothetical bonus. This paragraph, written by Colleen Boyle, not me, asks the most important question:

It’s difficult to quantify the economy-wide impact of this shift in wealth. In 2017, the U.S. median household income was $61,372. Median income for men was $44,408 and median income for women was $31,610. Imagine if several million workers had an extra $10,000 a year to spend on their families. Or $20,000. Or $100,000. Much of that money would circulate in local economies rather than sitting in a small number of investment accounts.

If the largest 1,909 U.S. corporations employing 34% of all workers and generating 44% of all revenue that William Lazonick writes about dispersed most, say 60% to 75%, of their profits to workers (IF? remember) instead of shareholders, then how much would all workers benefit? And beyond the largest firms, there is a domino effect, and lower-wage workers in smaller companies would gain. The ALICE reports from United Way shows that around 50% of workers worked in firms with more than 500 workers. As I show in my last essay at blog 1, see here, the lower-earning 90% has lost since 1980 about 18% of the income share, a drop from 55% to 38%, and that averages close to $20,000 per worker.
At risk is the overall health of the economy and of the society, I maintain.

The Roosevelt Institute has a flurry of articles about this economic distortion, and see their weekly e-mail for even more. Corporate Financialization and Worker Prosperity: A Broken Link, by Lenore Paladino. And at Jacobin magazine in March, 2019, is this promising article, "Democratize Finance, Euthanize the Fossil Fuel Industry."  Sounds promising.  Don't miss it!



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The Mariposa Gazette published the following essay on Climate Change on April 4, 2019.











1
 of 8











7 most terrifying global warming image
McClintock Wrong about Climate Change

Two weeks ago the Gazette carried a column by Congressman McClintock who argued that climate change is not a problem, not a “purported apocalypse.” In contrast to his view a Congressional report of 2017 states in its executive summary, “The global atmospheric carbon dioxide (CO2) concentration has now passed 400 parts per million (ppm), a level that last occurred about 3 million years ago, when both global average temperature and sea level were significantly higher than today. Continued growth in CO2 emissions over this century and beyond would lead to an atmospheric concentration not experienced in tens to hundreds of millions of years. There is broad consensus that the further and the faster the Earth system is pushed towards warming, the greater the risk of unanticipated changes and impacts, some of which are potentially large and irreversible.” 

Atmospheric change is a slow process by human standards. Certain studies predict that the great Himalayan mountain range will be denuded of glaciers by 2100, and the great rivers of that area will create potable and irrigation water shortages, and groundwater aquifers will run dry, and up to 2 billion humans will suffer food shortages. This qualifies as apocalypse. The glacier on Mt. Lyell, ten miles south of Tuolumne Meadows, is now nearly gone due to global warming. And in Mariposa, and the San Joaquin Valley, wells are not recharging as they have before. We’ve had more drought years over the past ten years than non-drought years. The Colorado River Basin has been in drought for 16 years, and Lake Mead and Lake Powell are carrying 40% of their capacity, the lowest level since 1937 when they were filling up. The nine warmest years on record occurred in the past eleven years. And extreme weather events — ranging from polar vortexes to hurricanes, ocean surges, floods, and wildfires — have served to shift public opinion about climate change. Reuters and Gallop polls in the past year record a majority of American adults now believe that human activity is changing the climate and it poses a threat, either serious, imminent or dangerous, to our life style. 

The Union of Concerned Scientists states, “The scientific consensus is clear. Building on two previous studies, a landmark 2013 peer-reviewed study evaluated 10,306 scientists to confirm that over 97 percent climate scientists agree, and over 97 percent of scientific articles find that global warming is real and largely caused by humans. . . . This level of consensus is equivalent to the level of agreement among scientists that smoking causes cancer – a statement that very few people, if any, contest today.” The debate will never be over, but in practical terms, it’s over, and no one’s views are being suppressed. 

Last August the CBS News reported, “‘We have 129 million dead trees from drought and bark beetle infestation,’ said Information Officer Scott McLean of CAL FIRE, the state's lead department fighting these explosive blazes, which last year alone cost California 43 lost lives and $13.2 billion in damages. And this year could be even harsher. ‘September and October are historically our worst months,’ McLean warned.

‘You can get in a plane and fly for literally hours over dead forest,’ said Entomologist Diana Six of the University of Montana, who studies the bark beetle. ‘This is massive. Beetle outbreaks have been happening for thousands of years. But this one is estimated to be more than 10 times bigger.’

Climate change also plays a major role: The biggest boost to the bark beetle population has been the change in temperature worldwide. While the planet has warmed ‘only’ 1.5 degrees since 1880, the main enemy of the insect's eggs has been a hard freeze. The temperature on the coldest winter night is now six to seven degrees warmer in many areas of the country than it was 50 years ago, according to a Dartmouth College study.”

Republican Senator Lamar Alexander recently proposed doubling budget of the Office of Science at the Department of Energy, from $6 billion to $12 billion. But the Trump/GOP proposal is to cut $1 billion from the budget. The research would explore renewable energy alternatives, and it is supported by many Democrats. Transitioning from a fossil fuel energy system to a renewable electric system is a massive but necessary undertaking and opportunity. Jon Rynn’s book Manufacturing Green Prosperity is a road map. It is less expensive to move into a renewable future than perish in smoke, fire, and an inundated landscape.  



  






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Wednesday, November 21, 2018

The Case of the Lost Dog who did not bark, that's me

I'm disappointed with Google, but it is free. I lost my original blog, Economics Without Greed, due to some error with passwords, and now I start a new "son of . . ." blog, part two. Try to find the original with it's laborious essays. And read on here. I'll post something soon enough. Or start a real web page, as I did with Bluehost. Nov. 21, before Thanksgiving.     Nice photo, that is Hosmer Lake in Oregon's Cascade range, near Bend, Oregon. It originally was called Mudd Lake, and then changed to Hosmer, an improvement. Like this new blog!