(Note: this is a continuing series of key topics to build the foundation of a reboot to our democracy to create an economy that works for all not just the top 1%)
The COVID-19 crisis is causing deep psychological shock combining panic, depression and recession. It is a new type of crisis or ‘panipression’. To create this new word we combined three word stems: pan for all and Greek word for their god of terror in the word panic, press a state of pressing down and sion for state or quality of something. People are stressed, not sleeping well, and worried about their families as in other recessions butnow health is added to their worries.It is a sense of falling, that doesn’t seem to stop. This worldwidevirus contagion is incredibly pervasive going right to the heart, soul and experience of every American. The social fabric of our society has been shredded. Now, we are trying to stitch our social fabric back together.Everyday our way of living is turned upside down. The previous ways of doing things have disappeared, instead social interaction has shifted to digital networks. Yet, we are social beings we need to be hugged, touched and feel close together.
The coronavirus pandemic has ‘uncloaked’ the vast gap between the top 1 % in wealth and their safety net versus the free fall of the working class. Our first responders, nurses, doctors, delivery people, grocery store clerks, restaurant attendants, farm workers, meat packing employees and others are putting themselves at risk for us and many of them only make a minimum wage or less with no sick leave. While Wall Street investment banks get low interest loans, or even have the Federal Reserve buy their speculative debt, workers are left with one-time $1200 checks, temporary sick leave and unemployment bonus of $600 ending in eight weeks. Over 31M small business owners of which only 40% are profitable are applying for temporary loans which may be converted into grants if they keep employees on payroll for eight weeks. The virus panipression has stunned consumers to the point where they will be nervous and anxious about going out to stores to shop. Businesses will not rehire workers until they see renewed demand. What happens to the 36M on unemployment assistance when the eight week bonus stops and they are on 60% of their hourly wage for 26 weeks?
So, what is the path ahead? There is in embedded in this crisis an opportunity to transform our democracy into a more secure, resilient society where the economy works for all. What will get us through the convulsions of these times? The foundation of change in our nation has been the American Spirit has served us well through the Civil War, both World Wars, Civil Rights Reform, Vietnam War, and The Great Recession. It is time to renew that spirit and move ahead using it as a compass to navigate our future path in rebuilding our government, economy, education, and society – a reboot to version – P 2.0 (People). Below is a diagram of the key institutions that sustain our democratic values, ideals and functions to serve us:
Source: Patrick Hill – 5/22/20
The American Spirit is the foundation of our democracy. The American Spirit is typified by entrepreneurship, hard work, ingenuity, self-sacrifice, innovation, inclusiveness, equal opportunity, freedom of choice, and caring for others.
The American Spirit supports the creation of the Common Good. The Common Good are those values, things or institutions that support the ability of citizens to pursue their dreams from a common base unfettered by imbalances in what all people need to live. We all need clean air, water, and land to live each day. We need good health, a sense of personal safety and economic security. In common we desire that our families be protected, secured and allowed to grow in any way they desire. Our country was founded by those persecuted for their religious beliefs we need to have our religious beliefs respected, tolerated and protected. Core to a well-functioning democracy of citizens making wise choices is a public education system to ensure that every citizen is well educated to make intelligent choices. A well educated citizenry will make good choices voting for those leaders that will implement laws and policies for the common good and welfare of themselves and their country.
Consent of the governed is a guiding principle for our democracy and protected by the Constitution. This consent is carried out by voting, Voting is a right guaranteed in the Constitution and succeeding amendments to all people regardless of race, wealth, religion, or nationality. We will explore how voting has changed in America and future alternatives for safeguarding this core act of democracy.
There are three branches of federal government that sustain our democracy: Supreme Court, Congress, and Executive. Congress has become quite distant from the Will of the People, as well as the objectivity of the Supreme Court. The Executive branch has become a power center all unto itself with limited checks on it power. We will look at ideas for reform that ensure they are focused yet again on the People and the Common Good. Two other institutions are crucial to our democracy. The Press and Education. The Press acts to point a light into the darkness with facts, investigative journalism into the actions of our leaders and ongoing education of our government on our lives. Our educational institutions ensure that we continue to learn, grow and understand our world, ourselves and the universe in a way to build of society and live happier lives. We will look at how to strengthen these institutions and make them more accessible to all and how to support a more civil dialog.
Our federal government establishes laws and policies that establish the rules of our economy. The evolution of the highest concentration of wealth in the top 1% since 1929 has distorted our economy to the extent that the middle class is dwindling and with it the core strength of our democracy. A strong democracy is typified by a vibrant, robust, thriving middle class. The development of growing middle class has to be a goal of our next version of democracy.
The concentration of capital into a few families has left labor out of the benefits of a growing economy. The pandemic has targeted the consumer in ways we never imagined and now threaten the lives of most workers. Our federal government has scrambled to apply a financial band aid to a financially chronically ill workforce. Labor must have equal economic power with capital for a democracy to thrive and renew itself. We’ll look at how to bring labor into equilibrium with capital.
All Americans want to pursue happiness in their own way, whether it be wealth, family life, religious pursuits or service. Our democracy needs to focus on the core values of the American Spirit and ensure they are represented powerfully thorough the institutions that run the day to day operations of our government.
The ideas presented are founded on facts, so you will see a few charts or data references. Yet, each idea will be explained simply so that you as a citizen can be informed and participate in our democracy to your utmost ability. The 2018 election had 49.3% of the electorate vote the highest for a mid-term election since 1914. We would like to see more citizens participate in our electoral process, run of office and use civil dialog in the pursuit of law and policy making. You may disagree with some ideas presented here to get the dialog rolling toward a Democracy version P 2.0, and that’s great. The idea is to move to participation of everyone, not to be ‘right’ yet to be in tune with the American Spirit of progress for every citizen. You will find a focus on identifying a problem by using facts, and much larger focus on solutions. We need more focus on solutions. The solutions then become larger than the problems and we overcome the obstacles to achieving the positive result.
This is a time of unprecedented events. A virus induced panipression like we have never felt before or know what to do about. Yet, we can have faith that by going back to the American Spirit that binds us and unifies us we can all get through this together. To support our institutions that sustain our rights, due process and justice we need to do our duty. We all must take responsibility for forming a more perfect society. We need to participate in the democratic process with all earnestness. Plus, we must trust and obey our leaders when they formulate policies that promote, ensure and build the common good. We need to balance our rights with the duty to ensure the safety, security and happiness of our fellow citizens. Let’s build consensus across all points of view toward a more perfect union Because, on the other side of this transformation we will have a more equitable, just and prosperous democracy that works for all.
A recession is emerging with interest rate curves inverted, the end of the business cycle at hand, world trade falling and consumers and businesses beginning to pull back spending. The question is: will monetary or fiscal stimulus turn around a recession? In this post, we find both stimulus alternatives likely to be too weak to have the necessary economic impact to lift the economy out of a recession and will not help the middle class out of a stagnant financial position. Finally, we identify a new approach to government intervention based onan innovative ‘seed’ and multi-partner program to lift the middle class out of economic decline.
Our
economy is at the nexus of several major economic trends formed over decades
that are limiting monetary and fiscal options. The monetary policy of central
banks has caused world economies to be immersed in liquidity yet resulting in limited
growth. Central bankers in Japan and Europe have been trying to revive growth
with $17 trillion injections using negative interest rates. Japan can barely keep its economy growing with
an estimate of GDP at .5 % thru 2019. The Japanese central bank, holds 200 % of
GDP in government debt. The European
Central Bank holds, 85 % of GDP in debt and uses negative interest rates as
well. Germany is in a manufacturing recession with the most recent PMI in
manufacturing activity at 47.3 and other European economies contracting toward
near zero GDP growth.
Lance
Roberts notes that world economy is not running on a solid economic foundation
if there is $17 trillion in negative yielding debt in his blog, Powell Fails, Trump Rails, The
Failure of Negative Rates
. He questions the ability of negative interest policies to stabilize world
economies,
“You
don’t have $17 Trillion in negative-yielding sovereign debt if there is
economic and fiscal stability.”
Negative interest rates and extreme monetary stimulus
policies have distorted financial relationships between debt and risk assets. This
financial distortion has created a significantly wider gap between the 90 % and
the top 1 % in wealth.
Roberts outlines in the 6 panel chart below how personal income, employment, industrial production, real consumer spending, real wages and real GDP are all weakening in the U.S.:
Sources: Real Investment Advice – 8/23/19
Trillions of dollars of monetary stimulus has not created prosperity for all. The chart below shows how liquidity fueled a dramatic increase in asset prices while world GDP declined by about 25 %:
Sources:World Inequality Lab, Thomas Piketty, Gabriel Zucman et al – 2018
There are a number of reasons monetary stimulus by itself has not lifted the incomes of the middle class. One of the major reasons is stimulus money has not translated into wage increases for most workers. U.S. real earnings for men have essentially been flat since 1975, while earnings for women have increased though basically flat since 2000:
Source: U.S Census Bureau – 9/10/19
If monetary
policy is not working, then fiscal investment from private and public sectors is
necessary to drive an economic reversal.
But, will private and public sector sectors have the necessary tools to
bring new life to an economy in decline?
Wealth Creation Has Gone to the
Private Sector
The last 40 years has seen the rise of private capital worldwide while public capital has declined. In 2015, the value of net public wealth (or public capital) in the US was negative -17% of net national income while the value of net private wealth (or private capital) was 500% of national income. In comparison to 1970, net public wealth amounted to 36% of national income while the for net private wealth was at 326 %.
Source: Wealth Inequality Lab, Thomas Picketty, Garbriel Zucman et al – 2018
Essentially, world banks and
governments have built monetary and fiscal economic systems that increased
private wealth at the expense of public wealth.
The lack of public capital makes
the creation of public goods and services nearly impossible. The development of
public goods and services like basic research and development, education and
health services are necessary for an economic rebound. The economy will need a
huge stimulus ‘lifting’ program and yet
the capital necessary to do the job is in the private sector where private
individuals make investment allocation decisions.
Why is
building high levels of private capital a problem? Because as we have discussed private wealth
is now concentrated in the top 1 %, while 70 % of U.S GDP is dependent on
consumer spending. The 90 % have been working
for stagnant wages for decades, right along with diminishing GDP growth. There is a direct correlation between wealth
creation for all the people and GDP growth.
Corporations Are Not In A Position
to Invest
Some
corporations certainly have invested in their businesses, people and
technology. The issue is the majority of
corporations are financially strapped.
Many corporate executives have made profit allocation decisions to pay
themselves and their stockholders well at the expense of workers, their
communities and the economy.
S & P 500 corporations are paying out more cash than they are taking in, creating a cash flow crunch at a – 15 % rate (that’s right they are burning cash) to maintain stock buyback and dividend levels:
In 2018 stock buy backs were over $1.01 trillion are at the highest level they have ever been since buybacks were allowed under the 1982 SEC safe harbor provision decision. It is interesting to consider where our economy would be today, if corporations spent the money they were wasting on boosting stock prices and instead invested in long term value creation. One trillion dollars invested in raising wages, research and development, cutting prices, employee education, and reducing health care premiums would have made a significant impact lifting the financial position of millions. This year stock buybacks have fallen back slightly as debt loads increase and sales fall:
Source: Dow Jones – 7/2019
Many corporations with tight cash flows have borrowed to keep their stock price elevated causing corporate debt to hit new highs as a percentage of GDP (note recessions followed three peaks):
Source: Federal Reserve Bank of Dallas – 3/6/19
Corporate
debt has ballooned to 46 % of GDP totaling $5.7 trillion in 2018 versus $2.2
trillion in 2008. While the bulk of
these nonfinancial corporate bonds have been investment grade, many bond
covenants have become lighter as corporations seek more funding. Some bond
holders may find their investment not as secure as they thought resulting in
less than 100 % return of principal at maturity.
In a
recession corporate sales fall, cash flow goes negative, high debt payments
become hard to make, employees are laid off and management is trying to hold
on. Only a select set of major
corporations have cash hoards to ride out a recession, others may be able obtain
loans at steep interest rates, if at all.
Other companies may try going to the stock market which will be
problematic with low valuations. Plus,
investors will be reluctant to buy stock in negative cash flow companies.
Thus, most
corporations will be hard pressed to invest the billions of dollars necessary
to turnaround a recession. Instead, they will be just trying to keep the doors
open, the lights on, and maintain staffing levels to hold on until the day
sales stop falling and finally turn up.
Public Sector is Tapped Out Too
In past
recessions, federal policy makers have turned to fiscal policy – public
spending on infrastructure projects, research development, training, corporate
partnerships and public services to revive the economy. When the 2008 financial crisis was at its peak
the Bush administration, followed by the Obama government pumped fiscal stimulus of $983 billion in spending
over four years on roads, bridges, airports, and other projects. The Fed funds
interest rate was at 5.25 % at the peak, so interest rate reductions had a
significant impact versus today at 2.25 %. It
was the combined monetary and fiscal stimulus that created a V-shaped recession
with the economy back on a path to recovery in 18 months. It was not monetary
policy alone that moved the economy forward. However, the recession caused lasting
financial damage to wealth of millions. Many retirement portfolios lost 40 – 60
% of their value, millions of home owners lost their homes, thousands of workers
were laid off late in their careers and unable to find comparable jobs. The Great Recession changed many people’s
lives permanently, yet it was relatively short lived compared to the Great
Depression.
As noted in the chart above, public sector wealth has actually moved to negative levels in the U.S. at – 17 % of national income. Our federal government is running a $1 trillion deficit per year. In 2007, the federal government debt level was at 39 % of GDP. The Congressional Budget Office projects that by 2028 the Federal deficit will be at 100 % of GDP.
Source: Congressional Budget Office – 4/9/19
We are at
a different time economically than 2008. Today with 80 % of GDP public debt, a
Fed balance sheet with $4 trillion while the federal debt level is projected to
grow to 100 % of GDP by 2028. In a recession federal policymakers will likely
make spending cuts to keep the deficit from going logarithmic. Policy makers
will be limited by the twin deficits of $22.0 trillion national debt and
ongoing deficits of $1 trillion a year eroding investor confidence in U.S. bonds.
The problem is the political consensus for fiscal stimulus in 2008 – 2009 does
not exist today, or probably even after the 2020 election. Our cultural, social
and political fabric is so frayed as a result of decades of divisive politics
it is likely to take years to sort out during a recession. Our political leaders will be fixing the politics of our country while
searching for intelligent stimulus solutions to be developed, agreed upon and
implemented.
What Will the Next Recession Look
Like?
We don’t know when the next recession will come. Yet, present trends do tell us what the structure of a recession might look like, as a deep U- shaped slow period over years, hurting the poor and working class the hardest:
Corporations
Short of Cash – Corporations already strapped are short on cash, lay off
workers, pull back spending, are stuck paying off huge debts.
Federal
Government Spending Cuts – The federal government caught with falling revenues
from corporations and individuals, is forced to make deep cuts first in
discretionary spending then social services and transfer funding programs. The
reduction transfer programs will drive slower consumer spending.
Consumers
Pull Back Spending – Consumers will be forced to tighten budgets, pay off
expensive car loans and student debt, and for those laid off seeking work
anywhere they can find a job.
World
Trade Declines – World trade will not be a source of rebuilding sales growth as
a result of the China – US trade war, and tariffs with Europe. We expect no trade deal or a small deal with
the majority of tariffs to stay in place. In other words, just reversing some
tariffs will not be enough to restart sales. New buyer – seller relationships
are already set closing sales channels to US companies. New country alliances are
already in place leaving the US closed out of emerging high growth
markets. A successor Trans Pacific
Partnership (TPP) agreement with Japan
and eleven other countries was signed in March, 2018 without the US, China is
negotiating a new agreement with the EU. EU and China trade totals 365 billion
euros per year. China is working with a federation of African countries to gain
favorable trade access to their markets.
Pension
Payments in Jeopardy – Workers dependent on corporate and public pensions may
see their benefits cut from pensions which are poorly funded today. GE
announced freezing pensions for 20,000 employees, the harbinger of a possible trend
that will reduce consumer spending
Investment
Environment Uncertain – Uncertainty in investments will be extremely high, ‘get
rich quick’ schemes will flourish as they did in 2008 – 2009 and 2000.
Fed Implements Low Rates & QE – The Fed is likely to implement very low interest rates (though not negative rates), and QE with liquidity in abundance but the economy will have low inflation, and declining GDP feeling like the Japanese economic stasis – ‘locked in irons’.
Unemployment Soars – workers in low wage jobs, support, non-core (HR, IT, Admin) jobs will be laid off first. Industries already weak in the economy feel the downward spiral the most: retail, materials, manufacturing, and energy. As the recession deepens, small businesses that can not get loans to get through the rough times so they close. Even medium businesses are hit hard, as they do not have the access to worldwide markets to offset declining US sales. The rate of multiple job holders is at an all time high now, it will continue to soar as workers try to sustain their standard of living in a contractor economy with no safety net for workers.
Next Steps:
A recession of the magnitude we expect will hit the middle class hard as they are the most vulnerable. Their wages have been flat for most of the decade while the top 10 % have enjoyed the majority of income and wealth increases. Due to the private sector holding most of the positive wealth in the U.S. a new approach to simulating the economy will be necessary.
1.Corporate Stimulus
While most corporations will be cash poor, some companies will be cash rich. Firms like Apple, Alphabet (Google), Microsoft all hold over $100 billion in cash. Cisco and Oracle both have over $50 billion cash on hand. These tech giants hold most of their cash overseas. To spur spending in the right places for the economy, tax laws could be passed to reduce taxes when repatriated funds are spent on employee development, research and development, productivity and wage increases. Google, Facebook, and Apple have taken a good first step on housing, with all three donating about $4 billion to housing programs. While housing may not seem like a ‘public good’ it has become a major issue in the San Francisco Bay Area from high growth businesses and long commutes to inexpensive housing 2 hours away. We would like to see the emergence of the ‘servant’ CEO from these companies and others in sectors of the economy with cash like banking, pharma, and health insurance. Over 180 Business Roundtable executives released a declaration that corporations need to take responsibility for their communities, not just seeking profits. The introduction to their statement notes
“Americans
deserve an economy that allows each person to succeed through hard work and
creativity and to lead a life of meaning and dignity. We believe the
free-market system is the best means of generating good jobs, a strong and
sustainable economy, innovation, a healthy environment and economic opportunity
for all.”
Ensuring economic opportunity for all means corporate executives make investments in the future financial health of their communities. Business leaders can take the lead by ending stock buybacks which totaled $1.01 trillion last year and investment those funds in employee development, pension plans, price reductions, productivity enhancements, maintain staffing levels and innovative research. Otherwise the safe harbor policy the SEC approved in 1982 can be revoked to prod executives to make investment decisions to ensure the future of both their businesses and communities.
2. Transfer of Private Wealth and Income to Public Sector
Wealthy business people and
individuals can take the lead in driving the passage of legislation transferring
some wealth back to the public sector. In November, 2017 over 400 millionaires
and billionaires sent a letter to Congress to strongly recommend against the
passage of the Tax Cut bill which created a $1.5 trillion additional federal
deficit while 80 % of the benefits went to the top 5%. We will need more of this kind of active
leadership across the political spectrum to make the necessary shift to finance
the creation of public goods and services necessary to turnaround a recession. Other wealthy individuals have called for
increased taxes on income and wealth of the top 5 to 10 %. Just changing the present tax laws back to
2016 levels would help to boost funding to fund fiscal stimulus programs in
innovative ways. There is backing by some wealthy leaders to end the carry tax
exclusion that hedge fund managers and others in the financial industry use to
reduce taxes.
Taxes as a percentage of profits has continued to fall from 1960 at 45 % to 15 % in the last year. Corporate lobbying of Congress worked to reduce company tax rates, create loopholes and subsidies for some industries.
Sources: The Wall Street Journal, The Daily Shot – 6/29/19
Corporate taxes can be evaluated as a percentage of GDP as well where it is clear corporations were able to lower their federal tax burden from a peak of 6% in 1955 to a low of 2 % in 2012 a 66 % reduction, and is estimated to be lower with the Tax Cut Bill of 2017 lowering the standard tax rate from 35 % to 22 %. The GAO in 2012 evaluated all the tax law benefits and deductions corporations enjoyed and found the effective tax rate was really 12.9 %. Today, the effective tax rates is even lower as corporate federal tax receipts fell to an all-time low of $204 billion for fiscal 2018 a 31 percent decline from 2017. Some corporations are paying no federal tax at all. Amazon declared $11 billion in income for 2018 and paid no taxes.
Source: GAO – 5/13
One way corporations evade US taxes is by depositing billions in profits in offshore tax havens to shelter their profits from taxes.
Sources: Zucman – UC Berkelty, Torslov & Wier – University of Copenhagen, The Wall Street Journal, The Daily Shot – 11/13/17
Clearly
the use of tax havens needs to end, as our federal government is losing
billions of dollars of receipts to invest in the public goods this country so
desperately needs.. Corporate taxes raised and loopholes
plugged make sense to begin shifting the necessary funds over to the federal
government.
The tax legislation process is critical for long term success and support. Bringing corporate taxes back to levels seen over a decade ago would go a long way toward reducing the federal deficit and fund public services at necessary levels to create more economic opportunities for all. Multiple points of view across the political spectrum need to be sought out and brought together in a special congressional committee focused on writing a fair tax bill to get the federal budget on a firm foundation and fund Medicare and Social Security programs.
3, Deploy Innovative Multi Partner Economic Innovation Programs to Solve Economic Challenges – Heartland Region Development
At the heart of political divisions in our country today is
the decline of a strong middle class and economic inequality at the highest
level since 1929. Building a strong
middle class that enjoys the economic benefits of a secure home, job, health
care and safe community will result in people seeing a common good emerging for
everyone. Monetary policy has failed to provide economic benefits to the middle
class, while boosting the values of financial assets largely held by the top
1%. If a recession comes, what will
happen to the middle class, and vulnerable people in our economy?
It is unlikely given the present financial structure of our
economy that monetary policy alone which has failed the middle class with
stagnant wages will somehow turn the economic status around for the middle
class. The decline of the middle class
is happening in parallel with a fall in
GDP to 1.9 % forecast for the 3rd quarter of 2019. Part of the decline in GDP is associated with
a declining labor participation rate. There were 7.6 million job openings, last
January with more than 8.6 million unemployed for a gap of 1 million jobs. This gap started in the spring of 2018 for
the first time in 18 years. Part of the
reason for the gap between job openings and job seekers is the imbalance in our
labor force by skills and regional limitations. Millions are not working due to
lack of education, skills, health, lack of child care or limited work
opportunities in their area. For the
core workforce between ages 25 – 54 the participation rate recently has been
declining since the peak in 2000.
Sources: Federal Reserve – St. Louis, The Wall Street Journal, The Daily Shot – 6/10/19Sources: Bureau of Labor Statistics, CBO, NBER, Morgan Stanley – 8/9/19
The most vulnerable regions are in non-metro areas of our country where the economic boom on the coasts and big cities has passed them by. Research indicates a key contributing factor to the decline in participation of 18 – 24 years old group is the lack of young workers in non-metro regions.
Source: USDA – 2017
Poverty remains a major issue in rural areas of the country, Midwest and South. These areas have lost millions of manufacturing jobs due to automation and moving factories offshore. Lack of economic health, forces supporting businesses to leave, closing of hospitals and support services. The opioid epidemic is highest in rural regions of the country.
Sources: US Census Bureau, The Economist, The Wall Street Journal, The Daily Shot – 10/18/19
Many of these rural, Midwest and Southern counties have been left out of the economic mainstream for decades as noted by the darkest purple areas of the chart. While, there single factor programs like enterprise zones with reduced taxes, or innovation institutes at major land grant universities we have not seen multi-factor programs that give a ‘focused force’ of economic impact necessary to turnaround these regions. The Heartland was chosen for the first implementation in addition to the reasons above, there are additional cultural, health and education issues that need to be addressed.
The
Heartland is where: (1) mobility to take new jobs is the lowest in rural and
small cities in the Midwest and South (2) there is the highest concentration of
young people without a 4-year degree (3) the lowest concentration of
entrepreneurs is holding back business formation and development to create new
higher paying jobs with a future (4) the largest number of people without
health insurance are found in the South and rural areas of the Southwest and
West (5) slow speed Internet connections are the norm leaving many
heartland regions way behind in the digital revolution where new jobs,
opportunities for education and quality health are being developed and accessed
(6) accounting for births, deaths and migration rural population has declined
for five consecutive years. It is
deplorable that a complete socio-economic region of the country has so many
factors that have not been addressed to extent necessary to transform people’s
lives toward good health and fair share of prosperity.
Rural
and small town America enjoyed a renaissance of increasing jobs and prosperity
into the mid 1990s. During this time rural counties were home to more than
one-third of all net new businesses establishments fueling the job creation
engine. Yet, in the past ten years the economic conditions have changed
dramatically, leaving these regions out of robust growth in coastal areas since
the Great Recession. For more details
and research please read our blog: The
Hallowing Out of Heartland America.
We think that the multi-partner program outlined below besides working in rural regions will work as well in economically depressed neighborhoods of our inner cities on the coasts or major cities of the Midwest with local modifications to take into account cultural, ethnic and societal differences.
The Multi-Partner Economic Innovation Initiative
The Silicon Valley innovation process is a multi-organization
model used as a base for the Multi-Partner Economic Innovation Initiative
(MPEII). Universities working as
incubators, with investors, local and state government support, investors,
highly educated workforce, and immigrants all contributed to making the Silicon
Valley model successful in giving birth to Google, Facebook, Apple, LinkedIn,
Twitter, and hundreds of other companies. We have added other necessary
elements to jump start a slow growth economic regions like non-government
organizations providing training or
recovery services, health providers to take on major issues like opioid
addiction, faith-based organizations for counseling and financial assistance.
Finally, federal government agencies will need to play a key role in turning
around a slow growth region vulnerable in a recession to a spiraling down turn.
We introduce the idea of a Federal Reserve Labor Bank, organized much like the
present Federal Reserve for monetary policy yet with a charter to constantly
build and renew our labor force for unimagined new jobs.
The MPEII would be structured as a non-profit corporation
with representatives from all the organizations necessary to drive the
coalition to success in meeting the economic objectives of the region. The federal government rather than building a
large bureaucracy would seed the development of the MPEII entities called
Development Centers with $25 – 50 million, joined by corporate foundations,
local and state government and social entrepreneurs. In our first imitative The
Heartland Development Center (HDC) is the central innovative entity bringing
all the partners together and taking leadership to drive solutions in rural
regions. The HDC is formed as an investment organization, putting out a call
for business plans from local social entrepreneurs to solve a local regional
problem with the help of the MPEII organizations. The economic goals could be
achieved by profit making companies or non-profit organizations where making a
profit is not appropriate or not fitting within the development goals.
The People
– At the center of this economic imitative are the people. The voter
participation level during the 2018 – mid-term election hit a 50 year high at
47.5 % with 110 million Americans voting in congressional races. This
engagement in the political process at the local, state and federal is crucial
if we are to develop the consensus moving forward to solve our economic
problems. Voters need to demand that
corporate, private investors, government and related organizations needs to
change polices to focus on building the middle class, protecting our
environment, cutting the costs of education and ensuring equal opportunities
and a level playing field for all that participate in our economy. In our
Heartland example implementation to bring our rural and southern regions into
the economic mainstream, local communities, and leaders from multiple
institutions need to be involved in making the changes necessary to bring a
lasting economic boost to the Heartland.
Universities
– The HDCs in selected rural and southern regions would be located in nearby
universities for support to be forward looking with local students and
professors – consultants as core staff along with local leaders to solve major
challenges. The Heartland Development Center acts as a catalyst creating an
innovation ecosystem to jumpstart local economics and social structures.
HDCs would focus on all the key issues that a region needs to address to
rebuild their economy and people’s lives: business formation, education and
training, digital infrastructure, affordable housing, engaged local innovation
media and health care. There already is an imitative by Congressman Ro Khanna,
to fund a modern version of the Morrill Act, that funded the development of
land grant universities to support agricultural development in the U.S in 1862.
Fifty universities would receive grants of $50 – 100 million to fund technology
centers to focus on training and development programs for 21st
century jobs. This bill is a good start, the HDC is extension of this imitative
to provide a ‘focused force’ on solving regional
economic problems and create an innovation ecosystem that is self-renewing.
Federal, State, Local Government
– Federal government funding is necessary for a cross regional program with
multiple components along the scale of the Marshall Plan after WWII for re
construction of Europe. State and Local
governments have the local knowledge, leadership and links to local
universities, health providers and non-government organizations that will be
helpful in forming the consensus required to focus people and resources on the
key problems with workable solutions. The Federal Reserve has analysts who have
completed research and continue to monitor the economic health of the 12
Federal Reserve districts that will be helpful to base programs on patterns in
the facts. We propose that a pilot
‘Federal Labor Reserve Bank’ (FLRB) be
created in the 12 districts to focus on the labor issues, composed of governors
in the 12 areas with labor expertise in corporations, universities or labor
leaders. The FLRB would set minimum
wages for key regions conduct studies like the Fed beige report, called a
‘lavender’ report on the health of the workforce in each region. The report would identify key labor trends,
wage issues, and obstacles to creating a thriving workforce. The FLRB would
offer loans to key entities with assistance from the Federal Reserve to
providing of key training and development initiatives, in a timely manner. The
FLRB’s mission is to build a thriving labor force and take on major challenges
like identifying why the labor participation rate is so low compared to pre –
2008 levels and implement programs accordingly to increase the rate. Every month
the FLRB would review how well it is doing in achieving goals of increased
labor participation rate, increasing wages for the middle class and other goals
as established by the Governors.
Corporations & Investors
– Companies in these slow growth regions need support in multiple areas that
are unique to the economics of each area.
Major employers should be included in the steering councils of the HDCs
to provide valuable local guidance to HDC leaders on where to focus resources,
training for job candidates and the product and sales direction of their
businesses. Many corporations have investment groups and can be invited to
participate in the HDC program, to achieve results for their business that they
are willing to share with the community. Venture capitalists, angels and
private equity firms will be encouraged to participate and may be invited to be
on the HDC steering council. Telecom firms need to be invited to bid on digital
infrastructure projects which may be funded by government grants. It is likely
that some of these Internet projects may not be profitable for telecom
companies or they would have already laid the fiber optic cables and setup the
links to homes in these areas. Like the Rural Electrification program in the
1930s, the digital infrastructure must be in place for rural areas to gain fast
access to the Internet. Plus, high speed
Internet access is a requirement to build innovation centers and create
businesses with 21st century high technology jobs.
Non-Government Organizations, Foundations & Health Providers – Health services in many rural regions has deteriorated along with companies leaving the loss of jobs. Unemployment rates are often twice the national average. The lack of health service providers and hopelessness of not having a job is driving disease and death rates higher. The CDC reports deaths due to cancer, heart disease and respiratory illness are 15 – 35 % higher in rural areas since the Great Recession. A number of communities have no hospital closer than 2 – 3 hours away. Doctors setup a practice based on government rural doctor incentive programs, then leave after they have put in their required tenure. Opioid overdoses are concentrated in rural states and Midwest region.
Source: CDC – 2017
A health services
revitalization plan needs to be developed by region which includes hospitals,
clinics and incentives for doctors to come, stay and build a practice in reach
region. Often, the lack of high speed Internet limits the opportunities for
health providers to shift to electronic records, services and even use of tele-medicine
which would be helpful to reach out over long distances. Health and job
candidate support are related as one research organization found that for many
manufacturing employers in Indiana that for factory floor jobs as many as 45 %
of the workers tested positive for drugs.
Training, career development, and apprenticeship working closely
with universities can make a major contribution in a coordinated effort to put unemployed
workers to work. NGO groups like the Opportunity@Work
program are one approach to attack the job training challenge. The
training group started in the Obama White House focuses on providing Internet
economy job training to workers in the heartland to gain digital skills for
jobs in fields like programming and information technology.
Colorado
has invested in its CareerWiseto
bring businesses, colleges and vocational training groups into partnerships
providing all Colorado high school juniors and seniors with a dual career path
leading to a community college associates degree plus key skills.
Students can begin working on the factory floor as juniors learning key company
job skills, and are guaranteed full time employment at the end of their
apprenticeship along with financial support to earn a community college
degree.
Faith Based Organizations – many faith based organizations provide counseling services, welfare, foods services and other resources to those in need. Working closely in the HDCs with their steering councils programs can be coordinated and focused in areas where churches, synagogues or mosques are located. FBO groups often have been in neighborhoods for many years, with a deep understanding of the needs, trends and social issues that are unique to their area. Leaders and staff in the HDC would do well to establish good connections with these groups to gain insights into which programs, services and resources are needed to turnaround the economic situation in their community.
In the end, Americans have always pulled together, solved problems and moved ahead
toward an even better future. After a reversion to the mean in our capital
markets and an economic recession things will get better. A reversion in social and culture values is
likely to happen in parallel to the financial reversion. The complacency, greed
and selfishness that drove the present economic extremes will give way to a new
appreciation of values like self-sacrifice, service, fairness, fair wages and
benefits for workers, and creation of a renewed economy that creates financial opportunities
for all not just the few.
On Bloomberg TV, VMware CEO, Pat Gelsinger, observed that with
escalation of the trade war he sees, “two
separate trading blocks forming the United States and China, we want to be a
player in both and will have to adjust, our
strategy, investments, supply chains and operations as a result.” He sees both countries digging in for the
foreseeable future.
The evolution of a two trading block global economy has a major
impact on how businesses operate in the next five to ten years and integrated
economies. Those companies with major
operations in China that ship products to the U.S. will continue to be
adversely affected by U.S. tariffs on Chinese goods. Growing trade headwinds
also face U.S. companies shipping goods to China. Besides tariffs, trade
research shows Chinese importers will need to deal with U.S. non-tariff
barriers that are the most stringent and time consuming. Recently, China has
allowed the exchange rate for its currency to rise against the dollar
effectively mitigating about 5 % of increasing tariff costs on U.S. imports.
Here is a list of industry sectors most impacted by the trade war with businesses exports and imports to China:
Sources: Census Bureau, Marketwatch – 6/27/19
Major software and electronics companies like Apple with $56b in
sales making up 20% of total global revenue from China will continue to see declining
sales. Apple, and other companies in the same shoes, will have to radically
shift supply chain and sourcing for manufacturing. CISCO, a global network systems manufacturer recently
reported to shareholders a 25 % drop in sales of network products to both state
owned and private corporations in China. Many American manufacturers’ source
components and sub-assemblies from China and are shipped to the U.S. mainland
for final manufacturing. These supply chains will have to change if they are to
sustain profits. Caterpillar, in the transportation sector, recognizes 10 % of
global revenue from China, and has experienced a significant drop in
sales. Tariffs have significantly
reduced soybean exports to China by U.S. farmers to nearly zero. The Federal
Reserve in Minneapolis reports farm bankruptcies have reached 2008 levels. These are just a few examples. Each day the
list of impacted industries and companies grows longer.
What does a
two block trading world mean to our democracy? The trade war seems to be here to stay. As such,
we need to go to the strengths of our democratic government and our
multilateral approach to global development to ensure peace.
Tariff Alternatives – blanket tariffs as the present GOP Administration has implemented are driving up prices for consumers, created reduced sales for corporations and crated a world economic environment of confusion and uncertainty. Working with our alliance partners in the EU, Australia, Japan, South Korea and others to pressure China to change its laws related to intellectual property theft, state subsidized industries and unfair tariffs would be a far more effective approach than America trying to go at China alone. The U.S. needs to reach out to the free trade capitalist leaning economic entities that the government allows to operate – like entrepreneur owned and operated companies within China to build both economic and political links.
Trade Policy Consensus Development – Democrats
and moderate GOP congressional members need to drive the national dialog instead
of letting our POTUS use threatening, bullying and constantly flip-flopping tactics
in trade discussions. Reasonable well
thought out policies built on consensus from both parties is crucial otherwise
any agreement may not be ratified by Congress.
Federal Reserve Independence – our President has continued in a blitz of tweets to attack Chairman Jay Powell, and the Federal Reserve’s policies totally not respecting the independence of Fed to make decisions in what is in the best interests of the country. POTUS wants the Fed to reduce interest rates to push the U.S. economy so he can continue his trade war with China. The political use of Federal Reserve powers never be implemented. Democrats and Republicans need to come to the defense of the Federal Reserve and push back on these attacks and ensure in every legislature way possible to ensure the Federal Reserve stays independent of politics. Analysis by researchers shows that independent government central banks far better in both economy growth and recession cycles than politically motivated central banks. When central banks are focused on the long term health of the economy they may raise interest rates even when it may cause a reduction in GDP growth or recession to burst the bubble of low rates and speculation in risk assets.
Commit to a Just and Thriving World Economy – since
the end of WWII, and the devastation it caused to people throughout the world,
government leaders have been committed to ensuring that all countries are
growing, have strong economies and support integrated economies. It is a simple thesis: countries that are
trading and growing together become more trusted partners, depend on each other
for economic growth and thus are far less likely to see war as a mechanism for
economic gain and power. Certainly,
countries like China have taken advantage of US trade policies, not ensuring
worker protections, or protecting intellectual property rights. We need trade policies that focus on these
issues, using targeted trade tools not blanket massive tariffs applied at the
whim of a tweet. The U.S. should support using the World Trade Organization
which is a founding member, appoint staff left vacant right now, and adjudicate
disputes in an hearing of a world agency to ensure trade justice.
Integrate a One World Economy – by forcing a
two block trading world, the U.S. and China will be forcing other major trading
groups like the EU to choose sides. Other countries like Australia maybe become
bridging countries between the two dueling economies for world economic power.
This two block trend needs to be shifted into a one world view, where all
economies are working together to solve economic problems. To solve existential problems like global
climate change will require all countries to cooperate, make joint sacrifices
and innovate to ensure the existence of our planet 25 to 50 years from now.
Our democracy will thrive when we implement policies which our world allies and others see as just, providing equal opportunities for all businesses to thrive and ensure innovative solutions to world economic problems.
Goldman Sachs just completed an analysis of corporate payouts and found that dividend and stock buybacks were 103.8% of their free cash flow. Meaning that they were paying more out in cash than they had on hand! Free cash flow has dropped to – 15 %, while debt is up 8 %.
This squeeze is unprecedented, it is the worst cash flow crisis since 1980, and is unsustainable. Corporate executives have turned to extremely high borrowing levels to keep this financial merry-go-round going. While, turning to stock buybacks to hype the price of their stock and keep earnings per share high to the tune of $1.5 trillion by S & P 500 companies in the last year.
If sales and profits drop due to the trade war and consumer spending declines as it has in the last four months, corporations will default on their debt. A downward economic spiral will be triggered.
Maybe this is another reason the Fed announced a cut in interest rates and shift to an ‘inflation averaging framework’. JPMorgan recently commented to Marketwatch they believe Fed economists are shifting to a position of not worrying about inflation but instead on keeping money flowing to corporations at low interest rates possibly to zero. By keeping rates super low the Fed is enabling executives to waste profits on stock buybacks to hype their pay and stock price. We need strong companies making investments in research, development, innovation, productivity improvements and raising wages for workers. When the economy works for all then democracy is strengthened.
The financial music will stop when sales and profits decline, an already desperate cash flow position becomes untenable putting company viability in doubt. Looking out a year or two, we expect the Fed to come to the rescue after possible zero interest rates have panned out. Last March, former Fed Chair, Janet Yellen recommended that the Fed be authorized to purchase corporate stock and bonds to keep the economy going if a recession hits.
Technology is constantly pervasive in our lives. Let’s think for a moment about how one incredibly pervasive technology has changed the way we live twenty four hours a day. The Internet was built by the Defense Advanced Research Projects Agency (DARPA) contracting with universities and research centers to build a powerful internetworking protocol and network for the military research and communications beginning in 1969. The network evolved with more research centers and government organizations using the system for communication and joint projects. By the mid 1990s the Internet was opened to the public primarily for email, though soon websites and messaging systems were established. Commercial common carriers were offered government contracts to provide more communication network support and services. In 1993 the Internet provided 1 % of all two way communications, by 2000 51 % of all communications were over the Internet, then growth exploded to 97 % of all telecommunications information in 2007. As recently as 25 years ago there were no companies like Facebook, Netflix, Google, Twitter, eHarmony, LinkedIn, Instagram, Amazon, et al. Yet, these companies were allowed to grow into behemoths largely unregulated with young entrepreneurs maximizing profits not focused on the public trust.
Just
twenty-five years later just about everything in our daily life is changed,
from task assistants like Siri, dating with eHarmony, finding a job via Linked
In, searching for answers on Google, watching on demand movies in our homes via
Netflix, sharing photos via Instagram and taking a picture on our smartphones
and sharing it with our friends via Facebook.
Corporations embraced the Internet for new applications, channels of
distribution, low cost communications, outsourcing of work remotely and low cost
entry to new markets.
Along with all these applications, democracy pundits had visions of a more engaged electorate, citizen forums, exchanges of ideas, more facts based discussion, online referendums on key issues and more responsive government. It certainly has not worked out that way, corporations give hundreds of millions of dollars to congressmen and senators, there is certainly more dialog via blogs and websites in the millions – but do we see more heat than light? Plus, with technology gone wild; more fake videos (not the authentic video but edited words and pictures), more hate stories and posts from adversaries like Russia to influence our elections. The lowest common denominator has certainly been hit with the present POTUS and Congress in place largely not responding to the people’s opinions due to corporate and special interest group lobbying and influence from campaign financing. For instance Pew Research completed a recent poll on climate change, the existential issue of our time, where 56% of all voters view protecting our environment as a top priority for the President and Congress.
Source: Pew Research Center – 4/19/19
Instead,
we have an administration loosening targets for auto emissions to static
levels, EPA rolling back fossil fuel emission standards and wilderness preserves
being opened up to oil drilling.
We ask a fundamental question: is
technology in the instance of the Internet serving the needs of democracy or undermining
its very foundation? We will also look in this series of Saving Democracy
chapters on other technologies; automation and robots, AI and content platforms. First, we look at the backbone of the
Internet, its vast network built by the federal government, universities and
research agencies and now being subverted by corporations.
Net Neutrality – Corporations Undermine
the Common Good
Built by taxpayer money by DARPA
for military communications, next universities and research
centers, then open to the public and commercial enterprises. So, why do
companies like AT & T, Verizon, and Comcast think they should control how
Internet is offered to our people? We paid for it, as it evolved the
Internet was envisioned is new way to engage citizens in the political process
and to level the playing field for new companies.
We certainly, have seen how innovation with a
plethora of new services has emerged in the last 20 years, yet now a few giants
run the content side: Google, Facebook, Netflix, Disney and the network side
run by AT &T, Verizon, and Comcast. As the content companies merge
with networking companies we have huge companies deciding how to make more
money from a network entity that is actually a public trust built by taxpayer
money.
One way we see inequality growing is access to the Internet for many in poor, or rural regions of the country is limited in speed and services. Without Internet speedy Internet access or innovative services for universities, hospitals, and companies in these regions it is difficult for the working class to gain the skills to get a better job, or companies to compete with their high speed competitors. Investment is declining in some regions of the Midwest and South due to poor Internet infrastructure which means fewer jobs for people living in the area.
Source: ISSR – 12/20/17
An analysis in December, 2017 by the ISSR shows that over 177 million Americans would be left without protection if the net neutrality policy were reversed. Note all the light yellow regions of the country that have no broadband provider at all. Orange and red regions have providers who have violated net neutrality rules. Without high speed Internet access these mostly rural regions are left to declining investment, fewer jobs and poorer health care.
Next Step:
The Internet backbone network is really a Common Good. It is a utility, not a platform for companies to make profits and take control of access, speed and content which was the original purpose in designing the Internet as a peer to peer protocol rather than hierarchical.
The present GOP administration
installed a company lobbyist as chair of the FCC who immediately decided that
the network neutrality doctrine of the Obama administration should be
overturned, giving control to for profit entities to charge whatever they
wanted for speedy access or content. It
is as if we turned the interstate system of freeways over to GM, so GM could
give special lanes to GM cars and the others would have to go in slower lanes.
No, we don’t see the Common Good being
protected by a for profit doctrine, the profit policy just can’t do the
job. In July, 2018 when firefighters in the California Mendocino fire
went over their mobile data plan limit, Verizon throttled their data
transmission to 1/200 of the speed. After the outrage over such predatory
practices Verizon relented and will now offer all western state first
responders standard data plans without throttling. Why should they even
be able to throttle? If a user needs more data then just charge more over
a certain limit – but throttling their network speed is coercive.
Network neutrality for all content, all websites, all messaging is the just doctrine for a Common Good like the Internet built with public funds. An equal access Internet provides a critical column foundation for democracy to serve all the people not just the rich. The fact that corporations think they should be able to do whatever they want shows once again that corporations have control and power over the public interest. Their position needs to shift to supporting the public interest as priority one, not profits. We need to have the common carriers see they have a public trust, and social responsibility in operating a public Internet utility.
(Saving Democracy Series: this post focuses on how our POTUS has agreement by agreement ripped up the post WWII integrated global world that provided most of the people in the world with peace and prosperity that is unparalleled in history. He has replaced peace with random acts of impulsiveness, doubt, uncertainty and threats which have caused major economic, cultural and societal damage to both emerging and developing countries. A more dangerous world of nationalism along the lines of the 1930s is now emerging with all its possible horrible results. First economic loss, then war. It is time to establish a new global order fair to labor and capital in a world order of respect, freedom of thought and speech with economic opportunities for all to establish global stability and peace.)
On July 2nd, the US Trade Representative announced possible $4b in new tariffs on the EU for subsidizing of Airbus, responding to Boeing concerns. Another episode of impulsive threats happened last May when POTUS threatened Mexico with a 10 % tariff on all imported goods if the flow of immigrants across the border did not stop by June 10th. The action against Mexico threatened support for the just recently announced new trade treaty with Mexico – why sign a treaty when the US is just going to do whatever it wants. He backed down on the threat after the Mexican government made a commitment to redouble efforts at stopping the wave of immigrants from Central America. We can add these trade attacks to a long list of treaties, agreements or international organizations that our POTUS has taken the US out of (or renegotiated):
Nuclear
Arms Treaty – Russia
Iran
Nuclear Treaty – EU joint signators
Trans
Pacific Partnership – TPP – with 10 emerging countries, Mexico, Canada and
Japan
NAFTA
– replaced by two bilateral agreements under consideration by Congress
UNESCO
– UN cultural program
UNHRC
– UN Human Rights Council
UNRWA
– UN Refugee and Works Agency – supports 5M Palestinian refugees, when the US
pulled out riots broke out for a week
Paris
Climate Treaty
Global
Arms Treaty
G7 – developed countries council –
POTUS wants Russia added back in, they were barred after annexing the Crimea
Brexit – US has been cheering the UK
leaving the EU, offering a ‘big agreement’ if the UK leaves the EU
POTUS has continued
to bash NATO, a long standing military organization uniting Europe and the US
against an aggressor. The constant undermining of the group opens a divide that
adversaries may see as a crack to drive division and move ahead with probes or
territorial gains.
The president has also focused on economic agreements – taking a unilateral approach around the provisions of the World Trade Organization and standing economic agreements on tariffs. He calls himself the ‘Tariff Man’ and has implemented with the acquiesce of Congress tariffs on allies like Canada & Mexico (new separate agreements under Congressional review), competitors like China, and cancelled a favorable import agreement for India. Businesses are worried:
Source: Moody Analytics, The Wall Street Journal, The Daily Shot – 5/28/2019
Consumers have been hurt already in nine different product classes with increases in prices of over 10 %, as consumers or the importer pay the increase tariff on an imported goods including appliances (washer and dryer tariffs 12 months ago), furniture, bedding, floor coverings, auto parts, motorcycles, sport vehicles, housekeeping supplies and sewing equipment:
Sources: Department of Labor, Department of Commerce, Goldman Sachs, The Wall Street Journal, The Daily Shot – 5/13/19
The United States and China have been sparing since July 2018 in an escalating trade war, which seemed to be coming to a conclusion as recently as last April. Then, the President announced in a tweet that China a reneged on commitments it had made and was ending negotiations. The Chinese sent a delegation to try and restart negotiations but it was fruitless. For two months tensions escalated until a truce with a restart in negotiations was called as a result of a summit between President Trump and Chairman Xi at Osaka on June 29th. The US relented on planned additional tariffs on all China imports up to $325b, and eased restrictions on Huawei sales by American companies in return for a vague promise by the Chinese to purchase more farm goods and to negotiate.
Sources: The Peterson Institute, for International Economics, BBC, The Wall Street Journal, The Daily Shot – 5/15/19
The Chinese have dug in for a long haul, threatening to cut rare earth shipments to the US and curtail further purchase of US Treasury bonds, with additional $60 B in tariffs at 25 %. We must remember the Chinese form of capitalism is really not ‘state based capitalism’ as the financial media likes to label in a benign way. The China economy is really ‘authoritarianism cloaked in capitalism’. This is a mixed economy of state based industries subsidized with some free capital sectors kept in place by central planning. A key aspect of the this cloaking activity is the lack of transparency about who actually owns a Chinese company. In addition, the China Central Bank (PBOC) and sovereign wealth fund own about $200 B in US stocks providing insights and investment control. The Chinese government has deployed Orwellian digital surveillance to keep the people loyal to the state and not thinking or speaking freely. Internet news and social media sties are heavily censored by the state. That’s not democratic based capitalism. Another twist in the relationship with China, is Wall Street leaders have been instrumental in assisting the Chinese government in gaining approval to join the WTO years ago, and still make billions of dollars from fees and investments. The recent Chinese overture to open financial markets maybe a way for the Chinese to win over Wall Street and blunt the trade war of the GOP administration. The Trump Trade war with China is a failure, because it misses the true character of authoritarian government and economics how it uses the economy and capitalism to placate the masses to increase state control. Central government loyalty is the prime directive. Trust is missing between the people and the state – yet the people give up freedom for money when we here the Hong Kong protesters who vandalized the legislature building in late June criticized by mainlanders with comments like ‘they need to quit protesting and get a good job and buy things’. This is a bargain with manipulative leaders resulting in an unhappy ending, as people’s hearts and minds are imprisoned for money, the benefits with be fleeting and the costs dear.
Farmers in the Midwest, growing soybeans have seen their market collapse, other crops like corn, sorghum, wheat have seen huge price drops as China stopped buying from US suppliers. As soybean prices have fallen farm income has dropped almost 20 % and Midwest bankruptcies of farmers have risen above levels seen in the Great Recession.
Sources: Bloomberg, The Wall Street Journal, The Daily Shot – 7/15/18Sources: The Federal Reserve Bank – Minneapolis, US Courts – 11/28/18
Since last fall when this Federal Reserve report was filed, bankruptcies have continued to increase at an accelerated rate, as farmers cannot get loans from banks to buy seed when prices are so low. The Administration has promised subsidies to farmers totaling $16bn yet the president of Soybean Farmers Association says he has not been able to see Agriculture Secretary Perdue or any of the subsidy money nor farmers in his group. Many farmers believe that when the money does come from the government it will not be enough and not replace the contracts for farm goos lost to Brazil, Russia and other countries.
Next Steps:
World War II was catastrophe for the world, millions of people killed, whole societies wiped out, along with an aftermath of starvation and depressed economies. World leaders did not want to see a repeat of the WWII disaster. They knew if they built a set of world-wide agreements and regional organizations to sustain and enforce those agreements there might be a better chance to prevent war from happening again. The United Nations was founded in October of 1945 in San Francisco to provide a forum for discussion and implementation of world community building programs. The NATO alliance was founded by 29 countries who were WWII allies by approving the North Atlantic Treaty in Washington in April, 1949. Economic disputes were to be settled by adhering to the General Agreement on Trade and Tariffs approved by over 100 countries in 1948. The World Trade Organization charted in 1994 succeeded GATT, headquartered in Geneva, Switzerland. Thus, many treaties and organizations were founded by most developed countries and many emerging countries to give economic, cultural and governmental support toward building a world community. Presidents from both parties through the years since WWII have supported the uniting of diverse people around the globe so they all have a piece of the economic pie and security.
Now, our POTUS seems to think that ripping up global treaties and organizations, undermining them, and going it alone will somehow be better for the US. Maybe things will get better for a few companies or sectors for a little while. However the trade deficit continues to trend worse since the January 2017 term of POTUS to the highest deficit ever with $55 bn last May,
Source: Department of Commerce,, Federal Reserve of St.Louis, Marketwatch – 7/2/19
Some soybean contracts have returned, yet the US still imports more from Europe, Mexico and Canada than we export, the tariff war is just making the deficit worse. Already, we have seen with retaliatory tariffs from China, threats of reunification to take Taiwan – as a national publication likened to Lincoln unifying the United States. Today countries are going after their own goals spiraling downward into economic wars and eventually military action. The lessons of the Great Depression, the Smoot-Hawley Tariff Act, harsh reparations on Germany and nationalism (rising today in a hideous way) led to WWII. When other countries see the US leader of the free world embrace ‘America First’ ambitions, why should they sit back and let America get ahead, the fight is on. We should work with the capitalism elements and businesses in the China that are largely free of state control, building bridges to them, empowering them so country leaders see that the only path to lasting prosperity is when the people’s minds are free to innovate and create.
Yes, it is true, there were unbalanced agreements, the US did lose jobs to overseas countries, and maybe a few emerging countries took advantage the US. But, we need to be thinking about helping people build their economies, or they will want a piece of the economic pie by force from the US. Job safeguards for American workers should be in place in all agreements, and fair levees and access to markets, protection of intellectual property, yet we need to work within the world order to make structural changes supported by all countries.
(Saving Democracy Series: this post focuses on how unfair, and undemocratic the minority vote of a President can be. Two ideas are summarized on how to reform the Electoral College which are most often proposed by scholars and political leaders, electors allocated by congressional districts or, The National Popular Vote Interstate Compact)
With the kickoff of 2020 presidential campaigns by 23 democratic candidates and one GOP president, we are reminded of how our democracy failed to elect the popularly voted candidate, Hillary Clinton in the last presidency contest. The 2016 presidential election results were: Donald Trump receiving 290 electoral votes to Hillary Clinton’s 228, yet she won the popular vote by almost 3 million votes. That event continues to cause protests, fear, anxiety and sense of injustice across the country. The Electoral College was developed by the foundering fathers as a way to make the Office of the President a powerful branch of government, not beholding to the majority of representatives in Congress. They developed a state based election system where presidential electors were allocated by state for each senator and congressional representative. Including the 2016 election, there has been 6 times in U.S. history that a president was elected who did not receive the most popular votes. A minority elected president is viewed by many people as illegitimate. While the minority candidate has been constitutionally elected, the candidate does not have the majority mandate necessary to execute the responsibilities of the office outlined in the Constitution.
This author asked his mother when he turned 18 years old, ‘how do you vote
for President?’ she replied, ‘I think of the President like a child with a
hammer, how much damage can he do, so I vote for the least damage.” Our
POTUS 45 must have listened to her as he is hammering away at a variety of
democratic institutions, alliances and principles.
Why do we have the Electoral College anyway? The founding fathers had just come from a monarchy based government, so they did not want to repeat a system of a proclaimed leader (everyone wanted George Washington to be President at the time) with the leader appointing the next in succession. Another approach under consideration was to have a national leader based on representational majority in Parliament. Yet, they believed in balancing the powers of Congress and the Executive branch. Plus, the founders were looking for a way to motivate the President for good behavior by allowing a second term. If the President were elected by Congress it would have to be for one term, or he would become a tool of the majority in Congress. They did not want a direct popular vote because they were concerned that a national constituency could not be developed with so many regions and states likely to have favorite son candidates. James Madison, Constitution Convention recorder and leader, was looking for a compromise because southern states felt they would lose out in a national constituency with blacks being 3/5 of a citizen to vote. So, a compromise was established to have a set of electors voted on by the people in each state based on popular vote. These electors that would then vote in a separate Electoral College vote in December with ballots read in a session of Congress. If there was a tie 269 – 269 of electors between candidates, then Congress would vote on who would become President. In our history there have been 5 Presidents who have not won the popular vote but have won by electors.
Why is this a problem? The popular will of the people is thwarted. A major issue is that the Electoral College is not one person – one vote as identified in our Constitution for a representative democracy. A vote in California with 55 electoral votes and 8,458,000 citizen votes means that one electoral vote represents 153,781 citizens. In Wyoming, with 3 electoral votes and 230,197 citizen votes means that one electoral vote equals 76,732 citizen votes. A voter in Wyoming enjoys twice as powerful citizen/electoral vote than a citizen in California. The balance of power in the Electoral College swings to mostly sparsely populated inland states deciding who our president will be. In the 2016 election inequitable voting power certainly is evident looking at an electoral map (right click on image to enlarge):
Source: Wikipedia – December – 2016
Voting
power inequity creates great frustration and anger. In the days after the
November 2016 election, there were protests in 37 cities across the country
against the president elect due to the injustice of the non-popular vote. All
our representative government functions are based on majority vote from local
city councils to state legislatures and the US Congress. It only makes
sense to have a popular vote for president in the modern era. With growing
economic inequality and divisive politics particularly between inland and
coastal people a fair vote for president would go a long way toward building a
united country.
Next
steps:
Why
not just have a direct popular vote? This would be a good solution except
that the Constitution needs to be changed in a two-step process by creating an
amendment followed by ratification. The US Congress can create an amendment by
a two-thirds vote of the House and Senate or two thirds of the state
legislatures. The proposed amendment then must be ratified by
three-fourths of the state legislatures in a time frame approved by
Congress. This is a long and difficult process as 11,539 amendments have
been introduced in Congress since 1789 and 27 have become part of the US
Constitution.
How about apportioning electors by congressional district? We already portion congressional districts by population which is updated each decade by the Census Bureau. The congressional district approach provides some equity for citizen to elector representation – though it will not fix the inequality completely due to the two senate electors. Maine and Nebraska apportion their electors by congressional districts today, with their two senatorial electors representing a statewide vote. The congressional districting approach would be fair and take care of 80 % of the vote inequity issue. Plus, candidates would need to focus their campaigning on congressional districts not the whole state for a winner take all result. For example, California rarely sees presidential candidates from either party for the presidential race because it has gone for the Democratic candidate in the last 6 elections. Candidates would benefit by campaigning in key congressional districts in even majority states to gain support of electors by congressional districts which may not vote with the majority of the voters on many issues or candidates.
The
best approach would be to have congressional districts mapped by an independent
commission as California does to ensure that the district is open to diverse
political viewpoints. By establishing congressional districts as the key
representative unit with fair boundaries for inclusion of multiple points of
view we might see more dialog at the local level. The increased dialog
will induce more consensus building and possibly break the grasp of incumbents
who are re-elected 93 % of the time. State legislatures can decide on
their manner of apportioning electors – so we could build a national census to
have the states enact changes by the 2024 election.
Professors Akhil and Vikram Amar propose a National Popular Vote Interstate Compact. Whereby, states legislatures would agree to vote their electors for the winner of the popular vote. This compact would take effect when at least 270 electoral votes would be in the Compact. To date fifteen state legislatures have ratified this Compact, swing and inland statues are reluctant to make the switch because they may lose some of their power in electing the next president. Yet, an analysis of advantages to either party are even when viewed over elections back to 1880. Both major parties back the Compact with former senators and congressman on a steering committee supporting the legislation in state houses. Both approaches: congressional district electors or the Popular Vote Interstate Compact are fair to both major parties and third party candidates.
Source: Wikipedia – April – 2019
A way to get the reform of the Electoral College off of dead inertia would be to file a suit in federal court seeking a finding that the present system violates one man – one vote provision of the Constitution, thereby forcing the states to redistribute their electors by another method preferably by congressional district with independent commission mapping or Compact. Persuading additional states to pass the Compact law where legislation is pending like New Mexico, Arizona, Oregon, Minnesota, Wisconsin, Kansas, Georgia, South Carolina, North Carolina, New Hampshire and Maine would gain the necessary 270 electoral votes for the Compact to take legal effect.
(Saving Democracy Series: this post focuses on what factors are causing labor to lose it rightful position as an equal partner with capital in the US economy and concludes with ideas on how to bring labor back into an equal role; from new institutions like a Federal Reserve for Labor, to corporate law reform, ending stock buybacks, and training with a powerful apprenticeship program)
Labor has been viewed as a cost for hundreds of years. Somehow the early accountants working for Middle Age Venetian families invented double entry accounting systems with debits and credits, These accountants called credited assets like money, land and equipment while labor was a debit labeled as an expense. Labor is viewed as an expense to this day because the owner-entrepreneur has to pay employees to work – in effect ‘renting labor’.. Workers have had the ‘cost’ yoke around their necks ever since. Yet, are employees really a cost? The staff are the ones doing the work, creating the product or service and solving the problems – money does not create the product or service only people do. CEOs are often heard to say that employees ‘are our most important asset’ but then treats them like second class citizens in making policies for the company, gaining a fair share of the profits or enjoying job hours flexibility. Today, Wall Street applauds wages being stagnant for the 80 % while profits go up while wealth accumulates for The Elite.
Over the past 20 years in particular, workers have seen their ‘economic position’ continue to deteriorate. Labor sovereignty continues to decline on multiple fronts: wages, benefits, standard of living, job negotiating clout, choice of companies and the constant sword of Diogenes held over their job by automation. For example over the past fifteen years wages for workers have been stagnating. However, this declining wage trend is not new, it has been happening since the early 1980s, when President Reagan took office and ‘trickle down economics’ was promised as a way to give workers a fair share of the economic pie. Workers have lost their wage share of business sector income ever since.
Sources: The Federal Reserve Bank – St. Louis, The Wall Street Journal, The Daily Shot – 5/3/19
Labor’s share of business sector income has dropped by 15 % since 1950. While, this labor share statistic uses wage employment data and estimates for self- employment, some observers think the decline is largely due under estimates of the size of the ‘gig economy’. However, separate wage data supports the declining wage trend:
Source: Global Technical Analysis – 5/3/19
When real
wages calculated after inflation are allocated across all employed workers the
decline is most apparent, a 34 % decrease since 1983. The softening wage trend is not getting
better, Bankrate surveyed 1,000 workers last year and found that only 27 %
received a wage increase.
Why have wages continued to fall the past 50 plus years? There are multiple factors combining to put workers at the lowest point of wage negotiating power in recent times. Automation is one of the prime reasons for the loss in wage bargaining power.
Sources: FiveThirtyEight, The Federal Reserve, Bureau of Labor Statistics – 3/2016
Almost 5 million manufacturing jobs have disappeared since
2000, yet over the past 9 years factories have been coming back to the US by
increasing employment by 5 %, but with far fewer workers. Yet, the US is taking
the No. 2 position in worldwide manufacturing output with a 20 % increase in
output
The reduction of manufacturing jobs in the US, automation has been a key
factor weakening the worker wage bargaining position. A recent Ball State
University study found that over 88 % of lost manufacturing jobs were due to
automation and productivity increases not offshoring.
Automation started decades ago, as IT applications deployed in offices and
manufacturing plants in the 1970s and 80s displaced thousands of workers
performing repetitive manual tasks such as data gathering and reporting,
answering phone calls, editing and copying documents, sending and receiving
status reports, manufacturing reporting and others that were easily automated
by software. By 1995, the Internet began to impact the workplace,
networking software applications so that jobs once requiring local support or
data could be performed overseas for far less. In Silicon Valley, an
entry level software engineer would be paid $65 – 75 @hr., while an engineer in
India was paid $20 @hr. or less. Thus, most business processes for ‘non-core’
functions like accounting, IT, customer support and benefits processing were
moved offshore to reduce costs by 50 – 75 %.
In addition, major corporations have been outsourcing non-core services to US contracting companies to the detriment of worker’s pay security or benefits. For example, in Silicon Valley starting in the 1980s until present – many core IT functions were outsourced with ‘facilities management’ agreements, where IT workers are fired, and rehired by outsourcing companies at 30 – 40 % less in salary with no benefits or health insurance. The workers were faced with no good choice – look for another job or take a pay and benefits cut for the job they had before. In the Bay Area, H1-B visas are often used to keep wages low by offering a worker from India 40 % of the local prevailing wage for a software engineer. The present GOP Administration has significantly reduced H1-B visas by a ratio 1 accepted of every 4 applications the lowest rate in 10 years.
Automation investments continue as software firms develop applications that automate many business activities previously thought to be difficult to automate:
Source: McKinsey Global Institute – 2/28/17
Jobs requiring skills from sensory perception fine motor activity or navigation are going to be automated over the next 30 – 50 years. All this investment in automation results in less competition for employers to find employees to do the work they need – a machine will do it. The machine shows up on time, requires no vacation, is not absent, and does not sue the company for management miscues. Plus, the added benefit is in well implemented automation projects costs are driven down, profits up so executives see their compensation increase.
Corporate Oligopoly
Another way corporations limit worker job options is by merging with other companies and then laying off workers in the newly combined firm. Since 1997 the average market share for the top four firms in most of 893 industry sectors has increased from 26 % to 34 %. For a tenth of these sectors where the top four firms have 33 % to 66 % market share their revenues have increased by 37 %!
Sources: Census Bureau, The Economist – 3/2016
The antitrust section of the Department of Justice has been asleep the past two decades. In the airline industry, there are now 4 airlines that own 80 % of the business. In finance, just 5 banks have 50 % of $15 trillion in total assets. In the information search sector – the top 4 companies have 98.5 % of the search industry market. The wireless communications industry is dominated by the top 4 companies control 94.7 % of the market between them – Verizon, AT &T, Sprint and T-Mobile. In the tire manufacturing sector, the 4 top firms dominate the US market with a total market share of 90.1 %. In 2012, entertainment, media and distribution markets were concentrated in 6 conglomerates with a total of 90 % market share. In 1983, 90 % of entertainment and related markets was distributed over 50 corporations, this chart sho concentration in the fastest growing streaming markets:
Sources: The Wall Street Journal, The Daily Shot – 4/22/19
The advertising industry has consolidated into a two Internet behemoths – Google (Alphabet) has nearly 50 % market share and Facebook with 16 %:
Caption: Bloomberg, Zenith Media, The Wall Street Journal, The Daily Shot – 9/25/17
From 1997 to 2017, the number of publicly listed corporations has declined by 50 % overall. Fewer corporations for job candidates translates into fewer corporations offering good paying jobs with high quality benefits. Plus, an analysis of corporate concentration in the five year period of 2007 to 2012 in the services sector, found that where corporations control markets and reduce the number of workers to support sales wages are likely to decline.
Sources: The Wall Street Journal, The Daily Shot – 6/27/17 Sources: David Autor, Professor oF Economics, MIT et al, The Wall Street Journal, The Daily Shot – 7/23/19
Gig
Economy
The ‘gig economy’ of freelancing and independent contractors has ballooned to about one-third of our workforce or 56 million workers in 2016 according to the McKinsey Global Institute. A survey by Gallup indicates the types of gig jobs; full-time gig job, part-time gig job, two part-time gig jobs, one traditional job and one gig, or where the first job is a gig and the second job is a traditional job for 36 % of the the total workforce:
Sources: Gallup, The Wall Street Journal, The Daily Shot – 9/5/19
Workers in the bottom 80 % in income have seen their wages actually decline over the past 10 years. So, it is no surprise middle class workers need to hold at least two jobs to maintain their standard of living. The number of workers holding multiple jobs has skyrocketed in the past few years to the highest level since 2008 (note the recessions at the peaks of multiple jobs).
Sources: Deutsche Ban, The Wall Street Journal, The Daily Shot – 9/5/19
When major corporations experience a slowdown in sales, as
has occurred in the last quarter, temporary and gig workers are the first to be
laid off or see their contracts cut back along with rates.
The growth of ‘shared economy’ companies like Uber, Lyft, Lime, Airbnb, VRBO and many others have provided these gig workers new flexible income opportunities without the financial safety net of traditional employer jobs. Gig economy workers often have limited or no access to worker’s compensation, unemployment insurance, 401K retirement plans, disability insurance or health insurance. Independent workers are required to pay both the worker and company portion of Social Security taxes and worker portion of Medicare each year on their income. In the Gig Economy, 33 % of our national workforce is not organized into a union or any bargaining unit. These contract workers are at the mercy of corporations or businesses that set the terms of a work contract, and if there is a problem they quickly find another contractor with no obligation to the contract worker. Uber, and Lyft dominate the ride sharing market, pushing out taxi cab firms, car companies and shuttle businesses – many with full time employees including benefits. While the cost of rides maybe going down for the passenger, workers are seeing their wages held steady or reduced (Uber reduced driver share of fares by 20 % a year ago) with estimates of an hourly wage ranging between $8.55 to $10.00 per/hr by Stanford researcher, Stephen Zoepf. Drivers receive no compensation for gas costs, auto depreciation, car insurance, Medicare and Social Security – paying both personal and self employment, car repairs and or financial protections. Uber and Lyft receive fees ranging from 25% to 39 % of fare totals. Drivers do receive tips. Financial protection for gig economy workers is in the infant stage, where companies are holding off any meaningful changes until class action suits are brought against them. Last March, Uber settled a suit filed by drivers from California and Massachusetts to be declared employees. The suit settled for $20 million to the drivers, without changing their employment status which stays independent yet they will be given more transparency on driver deactivation and a chance to purchase shares in Uber’s coming IPO.
Source: Marketwatch.com
Uber’s public stock offering demonstrates the gross inequality of income and wealth, as the drivers are providing the service, yet only a few drivers were offered stock options and the founders made billions of dollars from the public offering. The IPO is a good microcosm of how the Silicon Valley economy works rewarding a few while others providing the services or making products gain very little compensation in comparison.
Productivity
In 2018, Goldman Sachs estimates S & P 500 corporations will spend over $1 trillion in stock buybacks, and they forecast a similar figure for 2019. None of these funds are being invested in the business to develop new technology, processes, training or systems to increase productivity or cut costs. Business executives are using stock buybacks to goose the price of their stock artificially adding to their compensation packages and the stock returns of shareholders most of which are in the top 1 % in income. Essentially, management is robbing workers of increases in future wages due to the nearsighted allocation of funds to take care of them themselves and pander to the wealthy.
When productivity is anemic, offering wage increases to workers cuts into profits. Executives are compensated well based on hitting profit targets, so wage increases are not going to happen other than low inflation level 1 – 2 % increases. Over the past nineteen years manufacturing productivity has dropped from 8.0 % to 1.0 % this past year.
Source: Bureau of Labor Statistics – 5/2/19
Most of our economy is services based, and productivity improvements in the services sector have been slow in coming compared to the goods based sector. For example in social assistance, education, and healthcare there has actually been a reduction in productivity by about 9% since the 1980s. Plus, hiring has centered on our services sectors so productivity increases are likely to be limited into the future. Our fastest growing sectors in the economy are among the least productive. Artificial intelligence and software services may change this trend, but the results are still to be seen.
Sources: Brookings Institution, The Wall Street Journal – 10/30/16
Job changes are the lowest in the least productive services sectors, indicating work to be done to automate or implement productivity systems in these services sectors.
Sources: The Brookings Institution, The Wall Street Journal – 10/30/16
Executive
Pay
Today, executive compensation at S & P 500 corporations is on average 300 times the average pay of their workers! Senior management enjoys a combination of high salaries, executive healthcare, house low cost loans, stock options and bonuses for achieving earnings targets (hyped by stock buybacks). In 1975 CEO pay to mean employee pay was 25:1, in 1995 112: 1 and in 2017 312:1.
Sources: Adam Grant, Professor at Wharton, Compustat, Bureau of Labor Statistics – 9/27/18
Note the ratio of CEO to worker pay soars in the 1990s as a
result of the the de-regulation, trickle-down and stock buyback allowance
policy of the Reagan – Bush administrations. Extreme executive compensation is
taking wages from workers who would otherwise receive their fair share wage.
Corporations have committed over $1 trillion to stock buybacks, according to
Goldman Sachs in 2018 which only go to increase their stock compensation plans
and the top 1 % who own most stocks. That trillion dollars could be
better allocated to increasing worker wages so the economy works for the 80 %
in income.
Worker Compensation
One aspect of worker compensation that has increased by 12 % since 2006 is total worker compensation in the form of benefits. While wages have increased by just 4 % in the same period. Paid leave, health and other benefits have grown faster than wages, except in a few months. Wages as a percentage of total compensation have dropped from 70 % in 2006 to 68.3 % in 2017.
Sources: Labor Department, The Wall Street Journal – 6/9/19
The
health component is somewhat misleading, while corporations have seen increased
costs for medical coverage, they have reduced those costs by moving the
majority of cost increases over to employees. Corporations have done this
by increasing the deductibles covered, reducing the number of plans and
increasing premiums. Worker households are caught in a cash squeeze by
having to pay more for the health care coverage they had previously while
corporations are holding their costs in line with inflation or slightly more.
Federal minimum wage laws are not keeping up even with inflation. Some states are making up the difference, by requiring higher minimum wages than the federal minimum wage (dark blue, blue and light blue). Other states offer the same minimum wage (yellow) and yet in the South many states don’t have any (dark grey) wage minimum laws with others (light grey) below federal minimum wage rates like Georgia and Wyoming. Note many foreign car manufacturers have deployed plants in no minimum wage states like Tennessee, Alabama and South Carolina.
Sources: National Conference of State Legislators, Bloomberg, Quick Take – 2018
Job
Market Automation
LinkedIn was designed for corporate recruiters with the features and services they wanted to speed the recruiting process. The edge to recruiters is obvious in the design of the service. For example job seekers cannot have multiple resumes or experience sets styled toward different jobs. Unless the candidate – user is adept at settings updates to profiles are immediately sent out to all people in their network. Recruiters have dashboards with filtered candidate lists around search preferences and locations. The majority of LinkedIn’s revenue is from the corporate recruiting market – candidates are promoted to meet the needs of recruiters. The use of LinkedIn, Monster, Indeed and other Internet job search services create and sustain a powerful recruiting edge for corporations. Businesses can identify hundreds of high quality resumes and candidates quickly from all over the world in just a few hours or less.
Source: Zety.com – 4/7/19
Resume
scanning programs (recruiting bots) further refine the candidate list, filtering
content by keywords, phrases or other text targets. Candidates are left with the challenge of
figuring out what keyword ‘hits’ the bot is looking for and entering them into
their resume so their resume will have the most ‘hits’ and rise to the top of
the list of 250 plus candidates. Job seeking workers try to promote their job
skills and experience with workers via social media sites, but are caught
between being too public in their search with their boss finding out, or
tipping off other candidates to the job they are seeking. Employers use their
vast recruiting power in salary negotiations (‘we can always go to plenty of
other qualified candidates’) and even after hiring keep all those candidate
resumes online to fill the position if the new worker does not meet
expectations. Only executives get promoted by an executive recruiter paid by corporate
HR departments for find the right executive for an open position, once again
the executives get a powerful edge over all other workers.
HR departments often hide behind Internet screens, offer no phone contact numbers and provide few ways for candidates to follow up with key staff. Often, the trend now is to interview a candidate and not get back to them after the interview if they aren’t interested – sending a de facto message of ‘if we were interested we would send you a message or call’. Without an inside contact, a candidate is left to be a cog in the corporate recruiting machine.
Unions
When the manufacturing sector had the majority of American jobs, union power in representing employees was paramount. Unions are still a key bargaining entity for public employees, nurses and teachers. U
Fifty years ago 33 % of all US workers were members of a union, by 2015 membership had declined to just 10 % – a greater than 66 % decline. The decline was quite pronounced in ‘right to work’ states in many in inland regions and the South:
Source: NPR – 2/23/19 Percentage of Workers – in Unions 2014
Unions played a crucial role in working to raise wages, benefits and ensure that people worked in safe conditions. Due to automation and offshoring the manufacturing sector has lost millions of jobs, thus unions and their role will need to evolve to the new services technology based economy.
In summary, workers are faced with a daunting set of economic forces holding their wages down – diminished bargaining units, the juggernaut of automation, stock buybacks instead of wage increases, fewer jobs at merged corporations, temporary jobs in the gig economy, reduced productivity, exorbitant executive pay and corporate control of job markets.
To make our democracy work, labor needs take an equal place in our government, corporate and social structure with capital. Democracy = capital + labor where capital and labor have an equal political, economic and societal position.
Next Steps:
Federal Reserve Bank of Labor – the Federal Reserve system of Governors represents the nation’s largest banks with the President appointing each Governor. The system has worked well for the banking system to manage financial crisis’s and interest rates. The business community and national policy makers await a continuing stream of reports and the Beige book on the status of business throughout the 12 regions with baited breath. The Federal Reserve made up of 12 governors from regional banks, do not represent workers, or really have the tools, levers or policy role to solve labor problems. The Fed’s real mission is to ensure that banks stay viable and the financial system is sound. Yet, Congress charted the Fed with a dual role of keeping inflation in check and supporting full employment. Using the unemployment rate as an indicator of labor’s health is a mistake. The number does not include the millions of workers who have quit looking for work, those without the skills, or those possible workers who are suffering in the drug epidemic because of despair in part from lack of work. The miss match between the millions unemployed vs job openings is a huge challenge and needs to be undertaken by an organization lead by executives from labor focused organizations.
Source: The Wall Street Journal – October 18, 2018
Labor needs an equal organization to represent labor at the table with capital. The new organization would advocate, collect research, and make decisions to promote the welfare of workers, improve wages and lead efforts to fill U.S. job openings. The mission of the Federal Reserve Bank of Labor (FRBL) is to ensure the United States has the most competitive, up to date skills in a labor force to fill all positions that US corporations have open. In short, the FRBL is in charge of the Labor Bank. The Federal Reserve of Labor would match the 12 regions of the Fed, would be composed of 12 Governors selected by the President from academia, corporate human resources, unions, government worker groups and worker rights group leaders to guide labor policy and programs for the country. The Governors would meet monthly, setting minimum wage rates by state in the country, review the results of labor statistics, write a Lavender report on the status of labor in each region, with a focus on putting unemployed workers who are seeking work back into the labor force and target an increase in the national labor force participation rate. The Governors establish interest rates and the size of allocated loans from a bank of $100 billion in labor development loans which are allocated to corporations, NGOs, Unions, universities and others to drive the development of the labor force. The Governors establish the Federal Minimum Severance rates by industry sector state, executive, manager and worker. A minimum severance rate is the proportion of salary received in severance for example 3 months salary. The FRBL board drives research into issues like why so many workers are still unemployed even with the unemployment rate being at a 50 year low, and why wages have stagnated over the past 20 years. The FRBL is charged with upgrading our labor indicators to assist policymakers in what is really happening to our labor force by industry, job type, racial group. The Governors are chartered to establish a labor force set of goals that are updated by month to measure the results of labor force development, both qualitative and quantitative. Labor experts in the Fed would move to the FRBL, coordinate surveys and research with Census and Labor departments. The Federal Bank of Labor Governors meet quarterly with the Fed Governors to coordinate capital and labor development plans and programs. Regional FRBL and Fed Governors meet monthly to coordinate regional programs.
In addition to building the FRBL these policy initiatives need to be implemented or similar:
Place Workers on Boards – as Germany has so effectively setup, engaging management with required representation of workers on Boards, through Worker Councils or Unions if so voted by the majority of workers.
End Outsourcing – corporations would pay 50 % tax on each job moved overseas making the move costly, encouraging corporations to move jobs to low cost or inland areas of the US, or innovation economic zones (special tax geographies) and to invest in worker training to receive training tax credits.
End Low Cost H1-B Visas – the practice of importing inexpensive labor to drive down wages in US markets would be ended
Focus Repatriated Funds on Labor – profits parked in banks overseas are invested in productivity programs, increasing wages of workers (not executives), reducing costs or innovation research. Stock buybacks or dividends would be prohibited
End Stock buybacks – these funds are totally wasted, mislead investors on earnings reports and only serve to increase compensation for executives and shareholders. These funds are better allocated to increase worker wages or increase productivity so workers can receive higher wage increases
Breakup Oligopolies – breakup market concentrations in key sectors: information technology, banks and financial services, health insurers, airlines, hospitals and clinics, entertainment, media and distribution and others as deemed in the public interest
Balance Job Market Process– require companies over 100 employees to offer information on their website for contacts, phone numbers, job listings with identified contacts, and to let the candidate know the status of his consideration, and candidate introductions held monthly for F2F communication
Balance Worker and Executive Pay– Empower Work Councils and labor representatives on Boards to approve all executive pay packages. Work Councils in industry sectors would meet and decide on executive to worker ratios of average salary to enable all companies to remain competitive within an industry yet require labor approval. End golden parachute packages by taxing 50 % of every dollar received above $1 million. Severance packages for workers would have to be in proportion to the highest executive package ie, executive receives a minimum of X dollars in proportion to total salary then a worker receives the same portion with a minimum of 50 % of their yearly salary or the Federal Minimum Severance Rate whichever is greater
Fund Worker Training related to Robots and Increase Wages – for each robot employed, the corporation would be required to offer training, skills development for the displaced worker to find a comparable job within the company or outside. Where automation software or technology is deployed 10 % of the realized cost benefit would be used to raise the wages of all workers in the company. Tax deductions of up to a 50 % credit would be offered on the cost of training and development programs. For individual workers, if they pay for career development training they would be able to deduct the full cost of their investment in themselves from their taxes.
Fund Education and Apprenticeship Programs – Representative Ro Khanna has introduced an idea to fund a 21st century Morrell (1862 Land Grant) Act that would grant to 50 rural and urban universities funds to establish a United States Technology Institute where students would gain technology skills needed in a technology based economy. In addition, our country needs a stem winding apprenticeship program patterned after the German model to bring skills needed for today’s manufacturing without a college degree. The program would be given the same prestige and recognition as college programs, companies would pay the same wages, benefits and compensation for skills achieved in this program as any college skills program.
Pool Stock at Public Offering to Workers – all drivers at firms like Lyft and Uber, and workers at other new corporations should be able to receive compensation for their hard work in providing service or building a product. While, some key workers receive stock options with a strike price below the IPO price, we propose that all workers receive stock shares in a pool at the time of IPO, they can cash out or keep the stock then they receive a reward as well as founders (workers should not be forced to hold shares longer than management). Stock pool shares can be awarded based on service years, performance ratings or other recognition approach that is objective and fair to all workers. After all, isn’t it worth it to founders to build a workforce that is loyal and excited about the company, by letting go of even 10 % of their billion dollar stock reward or $100 million to workers?
(Editor Note: This is the third post in a series on renewing the institutions of our federal government and democracy to ensure that it will endure. Looking at trends today with data, analysis of the present situation and recommendations for changes. Todays post focuses congressional districts being set by an independent commission not legislators. )
Sources: North Carolina General Assembly, Kontretykieta.com – NC Redistricting 2016
The next census count of the population of 50 states is to be completed in 2020, with states losing population or gaining population being forced to redistrict their Congressional Representative districts. Southern and Western states like North Carolina, Texas, Florida, Virginia, California, Oregon, Arizona, and Colorado are likely to gain seats. Northeastern and Midwestern states like Pennsylvania, New York, Rhode Island, Ohio, Michigan, Illinois, and Minnesota plus Alabama and West Virginia are likely to lose seats.
The redistricting process must be completed by the time ballots are printed for the 2022 election. Only 6 states use independent commissions of equal representation of each party and varying numbers of independent non-partisan members. The other 44 states use some form of state legislature approved redistricting. The legislatures are given the power to establish congressional districts by the Constitution.
Source: Wikipedia – 4/1/19
Does it really make sense to have the foxes running the hen house? All states have partisan legislative bodies (except Nebraska), the majority party ensures that they can dominate the next congressional election by gerrymandering the state district map. Legislators should not be deciding who voters vote for, voters should be making that decision. In North Carolina, General Assembly Republican, Rep. David Lewis said, “I think electing Republicans is better than electing Democrats,” of a map plan passed by the legislature in 2016. When voters went to the polls that fall, 10 GOP representatives won seats, while only 3 Democrats were elected yet the GOP only won 53 % of the popular vote Now this redistricting issue is before the Supreme Court to be decided later this year. Other states have been in and out of federal courts including Maryland and Wisconsin for redistricting violations based on party affiliation. State legislatures have a long undemocratic history of creating poll taxes for ethnic groups they didn’t like or discriminating against minorities by placing them in loaded districts away from their logical geographic location.
Let’s safeguard from partisanship the most important of democratic institutions – voting, by ensuring that voters will be located in diverse districts from all political points of view. Congress needs to pass a law requiring all states to institute Independent Commissions to draw congressional district maps. Maybe if we had more representative districts candidates would offer more compromising positions, so when they go to Congress they might just learn to work together and do what’s best for the people not corporations or the Elite.
Millennials have seen the lowest level of GDP growth of three major generations since WWII. Baby Boomers, Gen X enjoyed GDP growth rates of between 30 – 40 % in the ten years after they turned 18 years old. While, Millennials experienced half those GDP growth rates .
Sources: Commerce Department, The Washington Post – 3/15/19
To gain
entrance to good jobs, Millennials became the most educated cohort in America’s
history – yet at a price. Student debt
is at an all-time high of $1.5 trillion. This debt level has caused at least
400,000 potential young buyers of homes to be left out of the housing market in
2014, according to Federal Reserve economists. One reason students needed to take on such
massive debt loads is states for the past 30 years have been drawing down their
financial support of college education by between 60 – 50 %. Universities were left no choice to fill the funding
gap except by raising tuition.
We have documented in previous posts that real wages for the 80 % in income group have been basically stagnant for the last 30 years. As the nation’s top 20 % gains 90 % of the income and wealth gains since the Great Recession, Millennials have been further challenged to keep up, particularly if they have no college education living in inner cities and Midwest rural regions. The hallowing out of manufacturing in the Midwest and South has produced low wage, low benefit, limited future jobs for young people. Add the slow Internet infrastructure and lower quality healthcare makes the future look dim. Is it any wonder that the Heartland has the highest opioid death rate in the country?
Millennials
feel their lack of an economic future in other ways, delaying marriage by
8 to 10 years and having children 5 – 6 years
later than other generations.
Next Steps:
A whole
generation has been missing out on the benefits of the fastest growing wealth
generation economy in the world. As
income and wealth goes to the top 10 % to the highest level of concentrated
wealth since 1929, the education services that make for a broad based
pluralistic economy have fewer student slots and extremely high tuition. Corporate and wealthy individual taxes are at
the lowest levels in 50 years. Our
higher education system is turning into a grinder for people of modest means,
carrying a heavy burden of debt for young people to begin their careers and
families.
The number
one issue for Millennials is student debt.
We need as a country to deal with this problem. Students did not withdraw support for state
colleges and universities, taxpayers and state governments did withdraw
financial support with huge consequences for our young people and our economy. There have been a variety of proposals to
reduce student debt including, forgiving debt completely, or forgiving debt for
service to the country (as a proposal
we made in a post to focus on investing in our Midwest communities),
require corporations to provide more training for employees, and corporate
support of a national apprenticeship program at a funding level and quality of
Germany’s apprentice program for non – college careers.
The key is we need to end the bickering between conservatives, independents and liberals and take on the economic challenge of huge debt that our young people have today. Certainly, these people need to take responsibility for their own economic future, but we who created the present economy of winners and losers need to do better by our young people or when they gain positions of economic power we may not like the economic system they setup.
