ECONOMY

Finally, A Simple Plan That Can Reverse Inequality and Save America's Sinking Middle-Class

Public assets allow the economy to produce great wealth that's not shared.

By Steven Rosenfeld / AlterNet

August 8, 2014

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Author and entrepreneur Peter Barnes.
Photo Credit: peter-barnes.org

Editor’s Note: As economic inequality grows in America, very few people have put forth solutions that can revive the middle class. Peter Barnes is a writer and entrepreneur whose focus is improving capitalism to solve big problems like climate change and inequality. Steven Rosenfeld spoke with Barnes about his latest book,With Liberty and Dividends For All: How To Save Our Middle Class When Jobs Don’t Pay Enough.

Steven Rosenfeld: Your book starts with a very sober assessment of the American middle-class. It’s shrinking. It’s disappearing in our lifetime. And the reason is that most work-related income is not enough. It’s insufficient and that’s getting worse. Tell me about that.

Peter Barnes: One can throw out all the numbers, but rather than do that, just think back. Some of us, like myself, are old enough to remember when there were lots of good-paying steady jobs, both in the private sector and public sector. They had benefits, covered health insurance, and provided pensions. That was what the middle-class was built on when I was growing up. Now, for a variety of reasons, including globalization, and automation, and the decline of labor unions, that is no longer the case. And most of the younger people who are entering the labor market today don’t get jobs like that.

It’s kind of a “you’re on your own economy.” Everybody temps. They have more than one job. They’re always marketing themselves on LinkedIn or something like that to get the next job. They don’t get health coverage. They have to pay for their own pensions and so forth. On top of which, education costs are way up. Students have debts they have to pay. All these things are different and they are not changing. They are going down, not up, as far as the middle-class goes.

Steven Rosenfeld: Yes, but your crucial observation is that work-related income is not enough.

PB: Right, well, that’s the point. We can’t rely on good-paying jobs to sustain a large middle-class in the future. It’s not enough. It’s not going to work.

SR: Your solution comes from taking a close look at what you call the “river of money” flowing in the American economy, and redirecting or redistributing the wealth that comes from the assets and institutions all citizens share. You call it “co-owned wealth.” So break this down for us. What should be shared? What is co-owned wealth?

PB: Even though good-paying jobs are in decline, there’s a lot of wealth in our economy. It produces an enormous amount of wealth. So the economy, as a whole, is okay, but the money isn’t flowing to labor.

So if we want to have a middle-class we have to take somehow from the wealth that we actually do have, and spread it around in ways that aren’t tied to people’s time-clock labor. All right, so what is all that extra wealth out there that doesn’t come from labor? A lot of it, if you really start to dig deeper, below the surface, is wealth that is either stuff that we inherit—like all the gifts of nature; the soil, the water, the air, the minerals, the trees, etc. Also, a lot of our wealth comes from stuff that society created—all of our science, knowledge, techologies, that stuff.

Plus, and here’s the key to it, there’s a lot of social infrastructure—such as the financial systems, or legal systems, our copyrights and patent laws. All of these create enormous amounts of wealth. This is wealth that is not created by individuals, not created by private corporations, but created by society. So what I’m saying is that some of that wealth should be shared equally among everybody. And that would be the basis for supplementing labor income.

It’s kind of like in board game Monopoly, which I refer to a few times in the book. The game is supposed to be a great metaphor for capitalism. It is in lots of ways, but there are two other aspects of Monopoly that are quite interesting and not present in our current capitalist system, which is the fact that everybody starts off with the same amount of capital. Now that’s nice. That would make for an interesting and fair economic system. Plus everyone gets money every time they go around the board. That keeps the game going. Without that, in Monopoly, people wouldn’t have enough to play the game. Those features ought to be part of our real-.world economy. Everybody needs cash to play the game and to survive, and to have a basis on which to build, especially as I said, in these times when labor income just is not enough.

SR: You write that one of the founders of the American Revolution, Tom Paine, wrote about redistributing this kind of wealth. You note that conservatives in Germany in the late 1800s created a system of social insurance that became the model for Social Security as we know it today. And you point to the Alaska Gov. Jay Hammond, who created what today is called the Permanent Fund, where every Alaska resident gets $1,000 or more a year. That’s actually a dividend from oil and gas revenues.

So it’s not unprecedented. And what’s not unprecedented is that the common wealth of Americans can be treated like a giant mutual fund, paying dividents to all citizens. How does that work and take shape?

PB: You mention the Alaska model. That’s been a very, very successful and very popular model for over 25 years now. Republicans support it. Democrats support it. Everybody supports it up there. So what I’m talking about is extending that model to the lower 48 plus Hawaii, and funding it with other common wealth besides oil.

One important bit of common wealth that would start this off very nicely is the air. You would think that everybody would agree that we all own the air. If anybody owns the air, it is all of us together. So what is causing climate change and other forms of pollution is the fact that really nobody is seen as owning the air, so polluters dump their crap in it for free. If we were to create an entity that held the air in trust for future generations and charged polluters for dumping their crap into our common property, and then used that revenue to pay equal dividends to all, we would generate a substantial dividend flow.

That’s source number one. There was [federal] legislation introduced in 2009 to set up that sort of a system. It was just reintroduced, actually, a few weeks ago by Rep. Chris Van Hollen of Maryland. So that legislation is out there. It’s very simple. The Van Hollen bill is 27 pages long. It’s extremely simple. Just cap the input of carbon, sell permits, and divvy up the money equally. It’s a no-brainer. It would solve two huge problems at once, one being climate change and the other being widening inequality in America. So I would start off with passing a bill like that.

That might get us to between $500 and $1,000 a year, per person, in dividends. In my mind, I think we should get the dividends up to $5,000 per year, per person, in order to be significant in terms of helping the middle-class. In my book, I went around and looked for other bits of common wealth that do that. And each of these things would require different bits of legislation, and they wouldn’t happen all at once, but over time—just like Social Security started in 1935 in America and got larger over time. I would see the same thing happening with the mutual fund of common wealth paying dividends. It would start small and grow larger.

The second biggest bit of common wealth that could be a big source of dividends is our money supply and our financial infrastructure in general. This obviously is something that has been created by our society over the years. This is an extremely valuable asset and yet it doesn’t really serve everybody. It serves mostly private banks that have sucked an enormous amount of money out of our financial infrastructure.

Just to give one example from that. One could focus on how new money is made in our economy. Every year, we do have to increase the money supply a bit just to keep up with normal growth. The way it works now is that most of the new money that’s created in our economy is created by commercial banks by lending money. They can do that. They are required by law to keep about 10 percent of their deposits on hand. But then they can loan out—just out of thin air—about 10 times that amount. That’s how new money is created. It’s created as debt that has to be repaid to private banks.

That isn’t the only way we can create money. There’s been lots of thought given to this over the years, in fact by conservative economists, who think that creating new money by debt it not good. It leads to all sorts of excess debt, financial bubbles and instability. And that a much better way to create new money every year would be to just have the government print it and spend it. This is not a new idea. What is a new idea is the spin that I put on that—to say that instead of government printing and spending new money itself, government, as an alternative, could instead print new money and distribute it equally to all of us people, and let us spend it into the economy. It would have the same effect of the government spending it into the economy, in terms of stimulating the economy, but we would decide how to spend it rather than government.

SR: What does the business community think of this? Has there been a response from the Wall Street Journal editorial board?

PB: The book’s only been out five days. It’s a little early to say.

SR: After all, you’re not talking about tax increases. You’re talking about pay-as-you-go financing. You’re talking about giving consumers more disposal income. These are conservative fiscal ideas.

PB: Exactly. There’s nothing in this that would run counter to conservative principles and the notion of property rights. There’s no tax increases. There’s no increase in government bureaucracy. There’s no redistribution—although you did use that word. I prefer to think of what this system would be as a kind of predistribution. In other words, the government isn’t taking money from anybody, but it’s assuring that income is distributed more fairly in the first place.

SR: Let’s talk about some other obstacles. Too many people are greedy. Many wealthy people griped about paying higher taxes to subsidize Obamacare. Even in California, where another of your books, Who Owns The Sky, helped launch the state’s cap and trade system, we are now seeing some Democratic legislators who want to delay a gas tax that’s tied to it. They’re not talking about returning those revenues as a climate change dividend. So how do you turn ideas like this into action?

PB: The answer is there needs to be a movement to do that. If you look back at the history of Social Security in the U.S., there were massive popular movements prior to 1935 that put pressure on Franklin Roosevelt to set up Social Security. People don’t remember this now, but I mention this in the book. There was the “Townsend Plan” movement of the 1930s, which proposed that every person over 60 receive a check from the governent of $200 a month, which they would have to spend within 30 days, the idea being this would stimulate the economy. Remember, there was 25 percent unemployment at this time. And that it would help seniors, who didn’t have any source of income in those days.

This movement got millions and millions of supporters, and petitions, and all sorts of things. It was at the same time that Huey Long was advocating “Share the wealth,” and there were “Share the wealth” clubs all over America. Roosevelt responded in a number of appropriate ways, but it was movement itself that made this happen.

We have had things like Occupy. People are aware how wealth is concentrating in the top one percent. But so far, I don’t know exactly why, a movement for a fairer distribution, or predistribution of income, hasn’t really emerged. But it will.

SR: To go back to where your book began, as you say in your foreward, people are very overwhelmed by problems and they’re not able to see clearly to simple solutions. I think the elegance of this solution is that it is simple, but it is not just a bumper sticker, because you have done the research. The money is there. It’s just not widely acknowledged because the people on the receiving end essentially don’t want to share it.

PB: That’s right. It’s my hope that by having a simple solution available, that this will inspire a movement that’s focused on solutions. I think people are ready for solutions. Everybody knows what the problems are. But for some reason there is a void in the realm of solutions. The kinds of things that even the intelligentsia, if one can call it that in this country, talks about—everybody in the chattering class recognizes inequality. That’s not too hard to see.

But when they get around to talking about solutions, they scratch their heads and say maybe we should invest more in education or innovation, or raise the minimum wage. These are fine. These are all good things to do. But they don’t solve the problem. So I don’t know what’s wrong with our intelligentsia, but they’re not really coming up with solutions.

Anyway, I think the solution that I propose in this book is totally sensible, totally doable, simple, transparent, hard to corrupt—the way a lot of other things that involve subtle changes in the tax law; those are all extremely corruptible. I’m hoping that it will catch on as a viable solution.

Steven Rosenfeld covers national political issues for AlterNet, including America's retirement crisis, democracy and voting rights, and campaigns and elections. He is the author of "Count My Vote: A Citizen's Guide to Voting" (AlterNet Books, 2008).

The Middle Class Has Been Vital to Civilization: Not nourishing a middle class is huge mistake

Chicago Tribune

Not nourishing a middle class is huge mistake

April 24, 2014|By Ron Grossman

One of a professor's perks is that students feel obliged to laugh at his lame jokes, like a quip I'd make while handing out final exams in my Western Civilization class. It was a piece of advice if they were stumped by a question about, say, the Hellenistic Age or the French Revolution: "Always guess that the middle class was rising."

That wisecrack would fall flat in a contemporary American history course. These days, middle-class folks are barely treading water. The decent-paying industrial jobs that were their economic underpinning have been outsourced, wholesale. Upbeat reports that the Great Recession is over, from an investor's standpoint, have to acknowledge that Joe and Jill Six-Pack are still in limbo. Long-term unemployment hangs like a cloud over the streets where they live.

Yet from ancient times to the era of suburban soccer moms, the middle class was the engine of progress. When it prospered, civilization advanced. When it didn't, society went down the tubes. So having embarked on the experiment of making do with a shriveling middle class, let's rerun the tape of history — modified a la the classic movie "It's A Wonderful Life."

Having reached rock bottom, the hero, played by Jimmy Stewart, wishes he'd never been born, whereupon his guardian angel grants the request. Because he wasn't there to save his brother from a childhood accident, the brother isn't a war hero. Because he didn't run a savings and loan, his fellow townsmen never became homeowners. He sees his wife as a lonely spinster.

Apply that template to our common past, and here is what it looks like:

Socrates' father was a skilled stonemason; Aristotle's father was a doctor. Suppose those two occupations, plus other middle-class trades and professions, hadn't existed in ancient Greece. Who would have asked the big questions — like what is the nature of a just society? Centuries before Donald Rumsfeld, who would have posed the issue of how we know what we think we know? Probably nobody. Where a middle class is lacking, aristocrats simply hand down the answers, considering their views beyond question. So Western philosophy wouldn't have been born in Athens.

Hollywood's version of the Roman Empire features decadent emperors and voluptuous slave girls. But behind the scenes, the urban middle classes kept it afloat. Their well-being depending upon trade routes linking Britain and the Middle East, they needed the security of knowing the rules of commerce didn't change from one province to another. Without them, Roman jurists wouldn't have taught that law isn't arbitrary, a gift of the gods or the whim of a ruler, but the product of human intellect. But they did, and their insight can be seen in any county courthouse in America when a lawyer objects to an opponent's argument and offers the judge an alternate explanation of the legal issue.

Those prosperous Roman burghers were also on a spiritual quest. Not so the upper classes, which stuck with the Roman gods, as did the peasants. So without middle-class converts, there wouldn't have been a Christian church to keep learning alive during the Dark Ages, when cities and commerce dried up. The clergy were about the only literate folks left. Charlemagne, the most powerful ruler of the medieval period, could scarcely write his name.

By the Renaissance, there were again middle-class readers with a taste for spicy stories like Boccaccio's "The Decameron." His father was an Italian merchant, as were his readers. John Shakespeare was an English leather merchant; his artistic son William became an actor and writer — a middle-class saga if ever there was one. Except for the merchant families of the Low Countries, who would there have been to pose for those beautiful family portraits by Rembrandt and Van Eck?

Without a middle class to read his polemics, Martin Luther would have been an obscure monk ranting about the need for church reform. The French Revolution wouldn't have happened without a middle class. It started when the nobles tried to nix the king's demand that they pay taxes like everybody else. But that seemed fair to lawyers and other middle-class professionals who transformed France into a republic. The nobles went to the guillotine, and the revolutionaries' slogans — Liberty, Equality, Fraternity — became the litmus paper of modern government.

Except for middle-class whiz kids, we'd lack a host of technological wonders, from the airplane to the iPad. Wilbur and Orville Wright were the proprietors of a bicycle shop. Alexander Graham Bell, of telephone fame, was a professor's son. James Watt, who developed the steam engine, caught the bug for tinkering in his father's naval supply store. The father of Jonas Salk, of the polio vaccine, was a women's wear designer in New York's garment district. Bill Gates is the son of a lawyer. Steve Jobs' adoptive father was a mechanic and a carpenter.

America once was so in love with a middle class it couldn't get enough of it. The GI Bill paid for World War II veterans to go to college, a steppingstone to the middle class, and enabled them to become homeowners, the hallmark of having arrived there.

It's easy to satirize the lifestyle they built of shopping malls and cul-de-sacs lined with carbon-copy houses. But if the time has come to bid farewell to a once-flourishing middle class, let's also remember it for its gifts: democracy, rule of law, material comfort and something less tangible but equally real: an optimistic spirit.

The rich take their social position for granted. The poor may be stoically resigned. But as long as a single member of the middle class survives, its creed will be with us: an unwavering faith that, come what may, hard work is the surest path to a better tomorrow.

Ron Grossman is a Tribune writer and former history professor.

VISIONS

The Poor and the Middle Class Will Save America Yet

Why there's still reason to hold out hope for social justice in this country despite growing income inequality.

By Robert Reich / RobertReich.org

August 30, 2013

Photo Credit: Shutterstock.com/Orhan Cam

A few days ago I had breakfast with a man who had been one of my mentors in college, who participated in the struggle for civil rights in the 1960s and has devoted much of the rest of his life in pursuit of equal opportunity for minorities, the poor, women, gays, immigrants — and also for average hardworking people who have been beaten down by the economy. Now in his mid-80s, he’s still active.

I asked him if he thought America would ever achieve true equality of opportunity.

“Not without a fight,” he said. “Those who have wealth and power and privilege don’t want equal opportunity. It’s too threatening to them.They’ll pretend equal opportunity already exists, and that anyone who doesn’t make it in America must be lazy or stupid or otherwise undeserving.”

“You’ve been fighting for social justice for over half a century. Are you discouraged?”

“Not at all!” he said. “Don’t confuse the difficulty of attaining a goal with the urgency of fighting for it.”

“But have we really made progress? Inequality is widening. The middle class and the poor are in many ways worse off than they were decades ago.”

“Yes, and they’re starting to understand that,” he said. “And beginning to see that the distinction between the middle class and poor is disappearing. Many who were in the middle have fallen into poverty; many more will do so.”

“And, so?”

He smiled. “For decades, those at the top have tried to convince the middle class that their economic enemies are minorities and the poor. But that old divide-and-conquer strategy is starting to fail. And as it fails, it will be possible to create a political coalition of the poor and the middle class. It will be a powerful coalition! Remember, demographics are shifting. Soon America will be a majority of minorities. And women are gaining more and more economic power.”

“But the 400 richest Americans are now wealthier than the bottom 150 million Americans put together — and have more political influence than ever.”

“Just you wait,” he laughed. “I wish I had another 50 years in me.”

Robert Reich is the nation's 22nd Secretary of Labor and a professor at the University of California at Berkeley.

THE AMERICAN PROSPECT

Who's Got the Political Will to Save the Middle Class?

HAROLD MEYERSON

APRIL 30, 2014

The changes that are necessary to arrest this decline are so fundamental that they virtually require a new political order. 

AP Photo/Charles Dharapak

It’s not easy being president during an epoch of downward mobility for the American people. The shrinking of the middle class--a phenomenon to which Americans are historically unaccustomed, most particularly during recoveries-- depresses the president’s popularity, drags down that of his party, and generally plays hell with incumbents’ election prospects.

That the American people are downwardly mobile was underscored this weekend by a report from the National Employment Law Project demonstrating that while lower-wage jobs accounted for just 22 percent of the jobs lost during the recession, they account for 44 percent of the jobs created since the recession ended in 2010. Middle-wage jobs, by contrast, accounted for 37 percent of the jobs lost during the recession, but just 26 percent of the jobs created since. Median annual household income is still roughly $4,000 beneath its level before the recession started.

Indeed, the most alarming polling for the Democrats--in a sense, for all incumbents--should be the January poll from the Pew Research Center that showed that the percentage of Americans describing themselves as middle class had declined from 53 percent in 2008 to 44 percent this year, while the percentage describing themselves as lower class rose from 25 percent to 40 percent during this time. The share of Americans describing themselves as upper class also declined during this time from 21 percent to 15 percent. More discombobulating still, the decline in the upper- and middle-class self-designees and the rise in the number of those who called themselves lower-class really began not in 2008 but 2010, when the recovery was ostensibly underway.

These changes reflect deep structural shifts in the American economy. Beginning in 2008, the slow erosion of manufacturing jobs became an avalanche, the number of jobs in construction plummeted, and long-embattled unions found themselves so enfeebled that they were unable to arrest the decline of their members’ wages and benefits in every sector of the economy. Collective bargaining effectively vanished from the American economic landscape. As employers automated jobs, reduced wages and replaced full-time workers with temps, American workers had no capacity to defend their interests.

These were all developments decades in the making, and cannot be reversed absent a massive shift in public policy. President Barack Obama, it’s clear from his speeches and proposals, understands that. The Affordable Care Act and his 2009 stimulus were his initial attempts to make such shifts, and succeeded in providing health coverage to millions and stopping the economic near-collapse of 2008-2009. He was unable to persuade enough Democratic senators to pass a version of labor law reform, the Employee Free Choice Act (EFCA),  that would have made it easier for workers to form unions. And with the Republican capture of Congress in 2010, none of his subsequent economic proposals--raising the minimum wage, funding major infrastructure projects--have gone anywhere.

The GOP’s obstructionism has badly damaged that party in the polls, but it’s damaged Obama as well--rendering the entire federal government incapable of even beginning to address the strange crisis of downward mobility that Americans are experiencing. An Allstate/National Journal poll released Monday shows that while more Americans believe that Obama and the Democrats are more aligned with their interests than the Republicans are, a scant 25 percent believe that Obama’s agenda would increase opportunities for people like them.

The changes that are necessary to arrest this decline are so fundamental that they virtually require a new political order. In essence, wealth and income now flowing almost entirely to capital has to be redirected to wages, through a combination of corporate tax reform that rewards companies that boost wages at capital’s expense, a re-legalization of collective bargaining, major increases in taxes on high levels of wealth and income, and massive public works programs that move the nation towards full employment. Such changes are hardly on the horizon, which means that not only Obama but his successor--and almost surely, his successor’s successors--will experience the same drop in support that he has. We have entered an age of dwindling economic prospects, and it will yield dwindling approval ratings for elected officials until they can turn the economy around.