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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:

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:

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.


  1. Mitch, I think you underestimate the avarice of the ultra-rich as well as the desperation of the nearly-rich. As someone once said, "America has no poor people, only temporarily inconvenienced millionaires." Those who imagine they have a shot at the gold ring are happy to do whatever the already-rich tell them, in hopes of a "hand up to the top". No temporarily inconvenienced millionaire will be content with a hand up to mere non-poverty. And so we have cynical manipulators at the top who are getting theirs while the getting's good (like whalers trying to kill the last few whales before they go extinct); we have cynical manipulees in the middle trying to sell off their minds & bodies for enough wealth to survive the collapse they see coming; and cynical, despairing victims at the bottom who see all this clearly but can do nothing about it. Your plan is excellent; it would work; anyone can see that it makes perfect sense; it can't possibly happen. Unless of course it can.

  2. Our hope lies in the ballot box, but the public needs to wake up, which might not happen.

    1. This is very true and is the near-bottom line of why the caca is hitting the fan while everyone low-middle downwards are only thinking about getting through until their next paycheck, not about voting, etc since they're convinced that it's hopeless and they're helpless. Just my tired opinion lol!

  3. "We're all Keynesians now."

    Milton Friedman

  4. Bottom line: Capital and Information are nearly infinitely more mobile than labor.
    If you insist on beggaring capital, it will go on strike or go elsewhere... and information will follow it as certain as the sun comes up in the morning. And labor ends up suffering. American labor still hasn't figured out (other than to ascribe "greed") that the specifications for a high quality camshaft can now be sent anywhere in the world... and that they are competing with everywhere in the world.
    In the meantime, all the more power to you if you want to create cooperatives or corporations to exclude the rich and ultra-rich. Good on ya! That's the entrepreneurial spirit! It's been done before. Make economic decisions. Take risk. Maybe get rich! Be a taxpayer!

  5. Obama tried investing in solar energy and we all know what happened. When government gave a handout to those solar companies, they weren't constrained by the market, since the money was free. They predictably failed.

    How are the brilliant people we're supposed to elect, who are magically not greedy, incompetent, manipulative, or self serving like the rest of us, supposed to make these investment decisions? There again, they will be freed from market pressure since the money is 'free' tax (or printed) revenue. Like all humanity they will make mistakes. And we'll be left holding the bag. Freedom is messy, but I prefer 300 million Americans making individual decisions, some good and some bad, rather than an elite of politicians who are supposed to know better than the rest of us making decisions on a scale large enough to be disastrous.

  6. Government is supposed to fix the roads & bridges, right? There is a lot more to our infrastructure than just roads & bridges. There is the electric grid, railroad lines, public buildings, communication cables, waterways, seawalls. And should those be of low quality or high quality? I visited rural Germany in 2001. All of the highways were very smooth, and with very clearly visible painted lines. Don't you want the U.S. to be like that? Now that's just a start about all of the useful place where the government can spend money. And when the government spends money appropriately, not just giving it to rich people, jobs are created and more people have incomes to spend. Keeping everyone working maximizes the GNP.

  7. What are you specifically referring to when you say the government gives money to rich people? If you're referring to crony capitalism, both parties claim they want to stop that, but nothing is ever done because politicians get money from these capitalists for favors. As far as income taxes, the top 50% pay 97% of all income taxes. The top 1% pay 39% of all income taxes. Yes, I would like to have roads like Germany. They have far fewer roads to build and maintain; they have a culture that believes in building things right instead of quickly; and they have a skilled work force capable of building a quality infrastructure. The 750 billion that was to be spent on 'shovel ready' jobs in the first Obama stimulus plan was misspent or not spent.

    1. What you say about the income taxes is very deceptive for several reasons: First of all, it exludes state and federal withholding insurance and taxes, which can run,depending on the state, from about 14 to 17 per cent paid directly by the employee. Indirectly employees are paying double that. Employers supposedly pay about the other half. But where do they get that other half? They keep the wage of the employee lower by the same amount in order to pay it. So really, the employee is paying all of it. Also the employee is paying a large amount of what's left over in sales and property taxes. And even renters pay property tax, albeit indirectly. I speak as a former landlord and can tell that the rents I charged took into account that fact that I had to pay the property taxes. All these taxes are take a big percentage out of the gross wages paid to wage earners, and this happens BEFORE ANY FEDERAL INCOME TAX IS PAID. So I don't laud the hedge fund manager who has to pay out his special 15%, which he hasn't bothered to hide the corresponding gross income in his overseas account. As far as the 1% goes, that group in 2012 took more than one-fifth of the income earned by all Americans, one of the highest levels since 1913. And then there are the subsidies that Mitch mentions below, going to people that claim to believe in the "free market" and also complain about "handouts" to poor people. What a bunch of hypocrites.

  8. There are farm subsidies which mostly go to wealthy farmers and corporations. There are oil company tax breaks that benefit wealthy corporations. There are others also; congress tends to do things that benefit their campaign donors.

    We could have roads as good as the Germans have, if congress appropriated the funds. We also have a skilled workforce, although it has been declining, because of not enough funding of projects that would require it.

    Government makes a lot of mistakes, but no more than private industry. Recall how many companies have not protected our personal data recently? That's just one example. People make mistakes, whether they work for private or public enterprises.

    Now I don't claim that government is as efficient as private enterprise. What I claim is that the America we knew, with a high standard of living for the common man, is being lost. We are headed toward being a nation where half of the population is struggling to get by. Ironically, the wealthy will also lose, because of lack of customers for their businesses. I'm convinced that only massive government funding of many projects will reverse this trend.

  9. The unemployment rate is dependent upon what (e.g. full-time, half-time, etc.) counts as "employed." Mexico has a low official unemployment rate because anyone who works at least one hour/week is counted as employed. The wage rate is very low but for those lucky enuf to be more steadily employed (and prefereably on the books), there are a few economic "perks", e.g. the "aguinaldo" at the end of the year (two weeks additional pay), triple time for working on Xmas, etc. Mexico's "salario minimo" is actually primarily a statistical figure and not a wage with which anyone other than a subsistence farmer with a job would be expected to thrive

    By "one hour a year" you did mean one hour per week per year, ?no?


    1. I would very much like our government to publish a "true" unemployment rate of some sort, or perhaps a trio of numbers that describe the true picture.

      I was talking about the typical work week when I used the phrase "one hour per year", so you are correct about that.

  10. In further response to Bryce above: In my comment above the "withholding" taxes I referred to are more commonly known as "payroll" taxes. I would like also to add Tesla repaid early that Dept of Energy loan, which was harshly criticized by some amid predictions that Tesla would fail. Tesla seems to be doing fine. Most new companies fail. Yet last time I checked the failure rate of companies invested in by Bain Capital was three times the failure rate of companies receiving Federal money.

  11. Thank you for your Earth Church organization and efforts.

    You say that "If the populace were to smarten up just a little ..." The first step toward full employment would be to hire teachers to help people "learn to appreciate" and "care for" the earth and be earth-caring active citizens and consumers. This could be done in every country around the world.

    Using the US as an example, the US Census estimates the number of people enrolled in school in 2012 in elementary through college is approximately 69. 6 million students or 23.4% of the US 2012 population. These teachers will be needed n every grade for many many years. This would be a huge employment effort. This one action would help drive all the political and consumer ("70%" of "goods and service") choices toward "non-exploitation", "stewardship", and "care of each other" (Earth Church goals).


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