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Thursday, December 19, 2013

Getting There - How to have Full Employment with Good Wages

In my previous article I talked about the need to reduce the length of the work week.  But this cannot be done in isolation; if we simply all began to work less, then we would produce less, and we all would be poorer.  No, it must be done in synchrony with other measures.  This is the plan that I present below.

First, let me list some facts:

1. A large fraction of the U.S. population are either unemployed or under-employed. Also, many are earning poverty wages even when working full time or more than full time.

2. The gap between the incomes of ordinary people and the incomes of the wealthy is very large.  The last time it was this large was about 1928. Since then it has mostly been much lower, until recently. You can see a nice graph of this here: http://wallstreetonparade.com/2013/10/the-great-regression-robert-reichs-new-film-mainstreams-the-dangers-of-income-inequality/

3. America's large corporations are doing very well. Their profits declined briefly during the recent recession, but quickly recovered to reach record levels. Wealthy individuals are also doing very well. (The rich have gotten richer.)

4.There is no shortage of investment capital to invest in plants and equipment, or to hire new employees, should corporations decide to do so. They are currently able to supply the demand for their goods and services with what they already have, so they are investing very little.  (The so-called "job creators" are not doing it.)

5. About 70% of the goods and services produced by American businesses are consumed by Americans.

6. Wealthy people spend a fraction of their income on goods and services; the rest they invest. The size of the fraction depends on the income. (of course there is individual variation) The very wealthy invest most of their income.

7. Poor people save nothing, they spend all of their income quickly. Middle class people save a little; they spend most of their income fairly quickly.

8. Due to pervasive and continually increasing automation, the number of workers needed, is less than the population of working age adults.  This unbalance will grow, probably for decades to come.

Now let's address how to improve our situation:

If the populace were to smarten up just a little, and elect representatives that understood these issues, and had the courage to do what's best for the whole country, then they would begin to fix the roads, bridges and railroads, and invest in alternative energy, and raise subsidies for the installation of solar systems on homes and small businesses, and a host of other things.  Not just any other things; they must be projects that result in significant employment gains, and with little delay.  This would employ many people directly, and many more people through the increased spending by those who are directly employed. (the well-known multiplier effect)  Projects that mostly transfer tax dollars to wealthy people and corporations should be avoided.

There are 3 ways to pay for this: Money can be borrowed, revenue can be increased, or the government can "print" the money. (as you know, this last means that they simply create money by accounting entries in computers.)

Although there can be a mix, IMO it's best to pay for most of it by increasing revenue. There will be substantial revenue increase just due to the increased employment and increased profits of businesses, but some tax increases, or loophole plugging, are desirable.  Taxes should be progressive, because if the goal is to boost the economy, then it's important for the average person to have money to spend.  (This follows from items 5, 6, and 7 above.)  This is not a new idea: http://earthchurch.blogspot.com/2012/06/what-do-henry-ford-joseph-stiglitz-have.html

For those who think that increasing revenue will prevent the economic gains, I refer you again to items 5, 6, and 7 above.

The main and important goal, as I see it, should be to maintain, over the long term, a balance between a labor shortage and a labor surplus. Currently we have a labor surplus. That leads to low wages, and to oppressive working conditions. A labor shortage would also not be a good thing; it would lead to inflation and high labor turnover. Too much government spending on job-creating projects will create a labor shortage. Hence government spending needs to be adjustable. It needs to be part of a feedback control system. It should reflect the unemployment rate.

When the unemployment rate is high, government spending should be increased. When it is low, spending should be decreased. I suggest a "dead band" of 3% to 5%. When the unemployment rate is below 3%, then spending should be decreased. When it is above 5%, then spending should be increased. As a side issue, it would be very desirable if the labor department would calculate and publish a true unemployment rate, It is this rate that should be input into this proposed feedback control system.

Legislation can be enacted which describes the broad outlines of such a scheme, but it is impossible to get everything right in advance. Congress will have to revisit this topic annually, or better yet, semi-annually, and make necessary adjustments, with the goal of maintaining unemployment within the desired range. And of course that range may also need to be changed.

Now to the question of the length of the work week: As a consequence of the great strides that have been made in automation, it is no longer necessary for people to work a 40-hour week. In fact, that custom makes it more difficult to keep everyone employed. The only way that we could maintain full employment and the 40-hour week is to undertake major projects, something like building the pyramids. An expanded space program is one example, but it would probably not be sufficient. We could also build lots of hospitals, clinics and schools of all kinds. Or we could expand the defense establishment even beyond it's present bloated condition.

It is difficult to regulate the work week. There are many categories of people who want to work long hours, and should be allowed to do so. Into this category fall artists and other creative workers, as well as the self-employed. However, it is only necessary for work-week regulation to apply to a majority of the population, in order to have the intended effect of enabling full employment. It should apply to all of the most common occupations, blue and white collar. It does not need to apply to any category that includes relatively few people.

Current labor law (Fair Labor Standards Act) makes a 40-hour week standard, and requires the payment of time-and-a-half for overtime. This law applies to the employees of most large organizations, public and private, and hence covers a large fraction of the workforce. What I propose is that the FLSA be modified to reduce the 40 hour figure according to a flexible schedule. The initial schedule would be simply one hour less for every year that passes. However, whenever the unemployment rate is low, say below 5% for example, the work week would not be changed.  Whenever the unemployment rate climbs above 5%, then the once-a-year lowering of the work week would resume.  The work week would never be lowered by more than one hour per year.

I'm sure it is obvious that the present congress is neither willing nor capable of implementing my proposal. It cannot happen until we have a congress that is dominated by people who are both intelligent and open-minded, and furthermore are not beholden to conservative political donors.

Why do I want the government monkeying with the economy to such a degree, some will ask? My answer is that I am convinced that without such "monkeying" we will continue to regress toward a very hierarchical society, with the vast majority of the populace in poverty. This has been the normal state of human civilization ever since the rise of large cities several thousand years ago. It is still the norm in most of the world.  I prefer a society where there is a well paid job for everyone who wants one.

Friday, September 20, 2013

Should people work hard?

I'm talking about the U.S.A., in the 21st century. What do you think, should people work hard? Our ancestors certainly did; shouldn't we keep doing the same?

Funny thing, though - part of the work that our ancestors did was to invent labor-saving methods and devices.  This is still going on, so that less and less labor is required as time marches on. One of the consequences is that we typically work about half as many hours per week as our great-great-grandfathers did. Nevertheless, at the present time we are able to produce all that we need without using the entire labor force. A large fraction of today's adult population is either unemployed or under-employed. And this is with millions of people in the military or in the some aspect of the defense industry. What if peace were to break out?  (actually, it already has. The U.S. is not currently at war, nor is it currently threatened by any major military power.)

Maybe it's time to reconsider the "protestant ethic"? After centuries of development of labor saving technology, perhaps it's time to start working less.  Otherwise, what was the point of all of that clever inventing?  Should we keep everyone working full time and simply produce a huge amount of stuff that is not really needed?  Or would it make more sense for most people to just work less, and have more free time?

Today in America, many people are struggling to get by.  How can this be, when there is so much technology, which accomplishes so much with minimal human input? The answer to that question is that most of that technology is benefiting the business owners and not their employees. The latter are mostly receiving rather low wages, because there is a labor surplus in America.  The market for labor currently favors the employers, in most cases.

If the nation were somehow able to get people to work substantially fewer hours, then many new jobs would open up, as people were hired to fill in the missing hours. This could lead to full employment, and a happier American workforce, with time for relaxation, sports, and hobbies.

In a future article I will describe how that might be accomplished.  Some thoughts in that direction can be found in these older articles:
http://earthchurch.blogspot.com/2011/12/full-employment-let-me-count-ways.html
and http://earthchurch.blogspot.com/2012/09/full-employment-revisited.html

Tuesday, July 2, 2013

A Petition on the White House Website

The White House has a website where anyone can post a petition, and then signatures are collected in support of that petition. (it's at petitions.whitehouse.gov)

There are many videos on youtube.com showing policemen in action.  Many of them show policemen doing bad things.  Not surprisingly, there are many instances of police punishing people for making videos, even though courts have held that people have the right to make them.  The particular video that inspired me to create this petition is here:
http://www.youtube.com/watch?v=WDBZr4ie2AE
This ends badly, but what the cops did wrong was to handcuff a person who did nothing to warrant it.

I want to let you know about this petition, and ask for your support. Will you add your name to mine?  If this petition gets 100,000 signatures by July 31, 2013, the White House will review it and respond.

You can view and sign the petition here: http://wh.gov/lcE6q

We ask the U.S. government to:
Ensure that the people have the right to create videos of police in action, and not be punished for doing that.

In recent years there have been numerous instances of police mistreating people because they were making video records of police in action.  These videos need to be made, to expose police who behave in a non-professional manner.  It's important to protect the people who make videos of police behavior.   If you are unsure about this issue, search for "videos of police brutality" on youtube.com.

Wednesday, January 23, 2013

Guns and Cars - Treat 'em the Same!

This essay is liable to annoy both gun enthusiasts and gun control advocates; the former because I'm advocating a lot of regulations, and the latter because I'm allowing every competent person to own guns.


I think guns and automobiles should be treated the same. Both are potentially dangerous machines which are very useful and also loved by many. You should need to be tested to get a license for either, and both should be registered.

There are some differences of course.  Cars are used every day by most Americans, whereas guns are used much less.  Of course many gun owners keep theirs in the home for possible defense, so you could say that it's being used every day.  Although the number of gun owners is much less than car owners, still there are roughly a third of the population that does own a gun.  It's estimated that there are about 300 million guns in the U.S., but many gun owners have several guns, which explains how there can be so many guns and also so many people who don't own a gun.  A big difference between cars and guns is that almost all deaths due to cars are accidental, whereas most gun deaths are either deliberate, or the result of a gun being used in a crime.

If guns are to be treated like cars, that implies training, testing, licensing, registration and taxation.  In order to drive a car safely, everyone gets some training, either in high school, or by a driving school, or by a family member or close friend.  Then everyone gets tested to see that they do know how to handle the vehicle, and that they know the traffic laws.  Finally, they are issued a license, without which it is illegal to drive.   

All of that is apart from vehicle registration.  All vehicles that use the public roads are required to be registered, meaning that a state motor vehicles department knows their serial number, and who owns them.  When ownership is transferred the state must be notified.  If the car is stolen the state must be notified.  Every car has a unique serial number (VIN) which it is illegal to remove.  Cars must be tested for minimum safety requirements, such as functioning brakes and lights.   Finally, there is a registration fee, which is necessary in order to pay for all of the above.  (That's what I meant by taxation.)


The primary purpose of all of the above is to reduce accidents on the nation's streets and highways.   It has worked fairly well, since tens of thousands of miles are driven for every accident, and the accident rate per mile traveled has been steadily declining for decades.   Most of that decline has probably been due to improvements in roads and vehicles, but the system of training, testing, licensing and registration deserves some of the credit.  There are secondary purposes as well, such as recovering stolen cars, identifying owners of abandoned cars, and identifying cars involved in crimes


If we were to begin treating guns the same as cars, it would require the various states to create Departments of Firearms, just as they now have Departments of Motor Vehicles.  Then a system of training, testing, licensing and registration would have to be devised, along with a fee structure to pay for it all.   Serial numbers on guns would continue to be required; they might be called FINs.   So, under this proposed system, a young would-be gun owner would have to get some training in the proper use of firearms, and the laws governing them.  Then he would have to pass a test to demonstrate his knowledge.  Ideally, that would have a written part, and a "live" part, where he would shoot a few bullets at a firing range, and demonstrate his knowledge of proper gun handling.  Probably there would be a minimum age for a license, and there might be a one or two year provisional licence when the user would be required to have a fully licensed person present when using the gun.  There might also be advanced types of licenses required for more dangerous weapons.


The weapon itself would have to be registered with the state Department of Firearms.  The owner would have to be responsible for seeing that the registration is updated when the ownership changes.  Stolen guns must be reported to the police and the DF.  (Department of Firearms)

Thursday, December 27, 2012

A Proposed Way to Reduce Gun Violence


I support the right of sane & law-abiding citizens to own and use
guns. But many guns that were originally purchased by regular people
are now in the hands of criminals or mentally ill persons.  I think
that the law should make gun owners more responsible for preventing
such transfers.  So what I'm proposing is that whenever a gun is found
in the possession of someone other than the original owner, there is a
presumption of a crime by the owner. The crime would most likely be
culpable negligence. That would be the case if there was no criminal
intent, but the owner sold the gun, or left it behind when moving, or
failed to take reasonable measures to keep it from being stolen. In
order to transfer a gun from one private party to another, there would
have to be a registration process. To skip this registration process
would be culpable negligence.  If a gun is stolen, the police must be
notified so that there is a record of that event.  When an heir
acquires a gun due to a death, a similar procedure must occur.

What this would do is give gun owners additional motivation to prevent
their guns from falling into the wrong hands.  Would it have prevented
Adam Lanza from getting his hands on one of his mother's guns in her
basement, loading it, and killing her?  We cannot know that, but at
least Nancy Lanza, as part of her weapons training, would have been
told about the law. That might have made her more aware of the risk
she was taking.

But this approach certainly cannot prevent all gun violence.  What it
would do is cause many gun owners to think a little more about the
whereabouts of their guns. That ought to have a positive effect on our
national gun violence problem.

Monday, November 12, 2012

Safely Descending the Fiscal Cliff

I'm of course referring to the U.S. national debt, and the law that the congress passed in 2011, the Budget Control Act.   This law mandates substantial cuts to many government programs, including defense, and tax increases for most taxpayers.  This is to happen at the beginning of next year, unless congress and the president can agree on another plan for getting the national debt under control.

This has been called the "Fiscal Cliff" because it would throw the economy into recession, due both to the large number of layoffs that would result from program cancellation, combined with the money removed from the economy by the tax increases.

However, doing nothing, and continuing business as usual, is not an attractive option.  The U.S. now owes an amount roughly equal to our annual Gross National Product (GDP).  At the moment this is not really hurting us, because interest rates are very low, so we can afford the interest on the debt.  However, this debt is rapidly growing, since our government spends a lot more than it collect in taxes each year.  This difference is called the deficit.  In order to keep the debt from growing, we need to reduce the deficit to zero.  It does not have to be done in one year; taking a decade might be OK, as long as it is clear that it will happen.  But the longer it takes, the larger the debt will become.  Furthermore, interest rates will not stay low forever, and a growing debt will eventually cause interest rates to rise sharply.

There is no good way to reduce the deficit; but we (the congress and president) can try to choose the least bad.  Let's look at some of the options:

What if we just keep doing what we have been doing, running a large deficit?  At first, nothing special happens, but the national debt will continue to grow, and therefore the interest payments will also grow, and these interest payments add to the deficit.  But that's not the worst of it; what's really bad is that the interest rates will eventually rise, and what's more they will shoot up sharply.  The rates are low now because the U.S. still has a great reputation as a very safe country to loan money to.  If our debt continues to grow we will lose that reputation.  It might take 2 years, or 5 or 10, but once we are considered a risky place to loan money to, the rates will rise, and once they do, we quickly become much riskier, because the rising interest make the deficit worse!  Then we will no longer be able to borrow money at reasonable rates.  Then we will default on some of our debt, or, more likely, very high inflation will ensue, permitting us to repay the debt with dollars that are worth much less.  If either of these things happen, then we will no longer be able to borrow money.   The government will still be able to pay it's bills, but with dollars that don't buy as much, so most Americans will be much poorer.

OK, suppose we simply cut government spending a whole lot.  This is the austerity approach.  If the economy is strong we can cut it a little bit without harm, but most government spending is income to someone, so if spending is cut, lots of people will have less income.  That means they will buy less, and that means layoffs at the businesses that lose that business.  If the spending cuts are small, and if the economy is producing lots of jobs, then those that lose work due to the spending cuts can find other jobs.  But if the spending cuts are large it will tip the economy into recession.

What if we raise taxes enough to greatly reduce the deficit?  This will also be bad for business, since taxes used for deficit reduction are not spent on goods and services.   Depending on the size of the tax hike, and who it is applied to, we may have just a slowdown, or a recession.  Either of those results mean that the tax hike does not bring in the money it is supposed to, since tax collections depend on economic activity.  A slowdown or a recession reduces tax collections substantially, thus it is at least partially self-defeating.

Are there any other options?  I don't think there are any other major options, but a careful mix of selected spending cuts and revenue increases, along with keeping total employment high, gives us our best chance of successfully handling this problem.

A first principle here is that it's very important to keep almost everyone working.  The unemployed do not pay taxes, they do not buy much stuff, and they get money from the government.  All of that worsens the deficit.  When total employment is very high then most businesses have plenty of business, and plenty of taxes are collected, which directly helps the deficit problem.

A relevant fact that most economists agree on is that people in the less advantaged economic classes quickly spend all or most of the money they earn.  Conversely, wealthy people put a large fraction of their earnings into long term investments of various kinds.  Hence if taxes take an extra dollar from a typical wage earner, there will be a dollar less spent on goods and services.  But if taxes take an extra dollar from a rich person, there might be only fifty cents less spent on goods and services, depending on how rich they are and what their spending habits are.  A clear lesson to draw from this is that, if you want to reduce the deficit by increasing revenues, you should get that revenue from the wealthy.

Another principle to consider is how different types of spending cuts will impact the economy.  We want to cut spending to reduce the deficit, but if the economy shrinks as a result, then less taxes will be collected, and we will not get the hoped for deficit reductions.  Since the people with lower incomes spend most of their money quickly, it is self-defeating for the government to reduce their income.  An example of this is unemployment benefits; those are almost all spent on goods and services, so if those are cut, business is reduced and less taxes are collected.  The same can be said of all kinds of federal assistance to poor or lower middle class people.

So if the goal is to cut spending without harming the economy, then we must reduce payments to the wealthy.  In most cases this would also apply to corporations, since wealthy people own most of the shares of most corporations of significant size.  Hence we should reduce or eliminate subsidies that are paid to agribusiness, oil companies, and any other large corporate interests.

What about defense?  The military industrial complex receives roughly one sixth of all government spending.  Can this be cut without harming the economy?  Any cuts will have some negative  effect, but the size of the affect depends on the program.  For example, if we bring soldiers back from Germany or Japan, that has a minimal effect on our economy.  It may do some damage to those foreign economies, and they may then have less money to buy stuff from us, but that is a relatively small effect.
But if we halt production on a weapon system that is ongoing, and has many workers involved, that may have an immediate negative effect.  So my conclusion is that the myriad ways that money is spent on the military and the defense industry, need to be carefully evaluated to identify those which have a relatively small near-term economic impact.  Those are the ones that should be cut.  Of course a related issue is that we cannot cut programs that, realistically, would endanger national security.  However, many people, including myself, feel that our military could be pruned substantially without risk to our national security.

My conclusion is that the way to get the deficit under control is with a careful mix of spending cuts and revenue increases, and which are oriented toward keeping a high level of employment.   This would mean getting most of the added revenue from those with high incomes, and from medium and large corporations.  The spending cuts must be those that have little impact on people with incomes below the U.S. median income.

Wednesday, September 5, 2012

Full Employment Revisited

During the last two decades there have been major structural changes in the U.S. labor situation. These are primarily the result of the microcomputer revolution. Computers, with appropriate software, enable a great reduction in required staffing levels. This is true both in the office and the factory. In the factory it is by the use of manufacturing robots, and also by automated logistical systems. In the office it has eliminated typing pools, and reduced the number of bookkeepers and accountants and inventory clerks required. So nowadays the goods and services that are really needed can be produced by a fraction of the total workforce, and many people are left without jobs.

But there exist numerous ways to keep almost everyone working, if the government had the political will. Many of them are already in use, else we would have much higher unemployment than we currently do. Many of you probably have read my article here:
http://earthchurch.blogspot.com/2011/12/full-employment-let-me-count-ways.html
Now I want to expand on that a little.

What some business people would like would be to emulate China. If real wages are made low enough we can sell lots of stuff to the rest of the world at very low prices. This would be one way of having low unemployment. But most of the U.S. population would not like this at all. The bulk of our population would be in poverty, as in China. The business owners, however, would be raking in previously unimaginable incomes.

The biggest make-work program that we currently have is defense. This uses tax receipts to employ tens of millions of people. Most of these are employees of the various defense contractors. Many more are military personnel. And then there are the many cities with military bases. These local economies depend on the personal spending of the local military personnel. Why do I call this a make-work program? Isn't it necessary to defend the nation from foreign aggressors? Well, our defense establishment is about twice as big as necessary for this purpose. (So it's only half a make-work program, and half a necessary program.) Defense is also a form of corporate welfare, and that in fact is why it's so large. The various companies that manufacture all of that military stuff also spend lots of money lobbying our congress, and contributing to the campaigns of favored politicians.

If it was up to me I would greatly increase spending on all kinds of scientific research, including the space program. Plus I would embark on a vast infrastructure improvement program to give us roads, bridges & railroads as good as they have in Germany. Also, we should be building many medical schools and clinics and providing scholarships to train medical personnel at all levels. Money for all of this stuff would come from restoring the tax code to what it was in America's best economic years, the 60's and 70's, but also, the greatly increased GDP that would result would bring in substantially increased tax receipts.

Finally, I would start a long term program to gradually reduce the standard workweek from the present 40 hours.