Finally, A Simple Plan That Can Reverse Inequality and Save America's Sinking Middle-Class
Editor’s Note: As economic inequality grows in America, very few people have put forth solutions that can revive the middle class. Peter Barnes is a writer and entrepreneur whose focus is improving capitalism to solve big problems like climate change and inequality. Steven Rosenfeld spoke with Barnes about his latest book, With Liberty and Dividends For All: How To Save Our Middle Class When Jobs Don’t Pay Enough.
Steven Rosenfeld: Your book starts with a very sober assessment of the American middle-class. It’s shrinking. It’s disappearing in our lifetime. And the reason is that most work-related income is not enough. It’s insufficient and that’s getting worse. Tell me about that.
Peter Barnes: One can throw out all the numbers, but rather than do that, just think back. Some of us, like myself, are old enough to remember when there were lots of good-paying steady jobs, both in the private sector and public sector. They had benefits, covered health insurance, and provided pensions. That was what the middle-class was built on when I was growing up. Now, for a variety of reasons, including globalization, and automation, and the decline of labor unions, that is no longer the case. And most of the younger people who are entering the labor market today don’t get jobs like that.
It’s kind of a “you’re on your own economy.” Everybody temps. They have more than one job. They’re always marketing themselves on LinkedIn or something like that to get the next job. They don’t get health coverage. They have to pay for their own pensions and so forth. On top of which, education costs are way up. Students have debts they have to pay. All these things are different and they are not changing. They are going down, not up, as far as the middle-class goes.
Steven Rosenfeld: Yes, but your crucial observation is that work-related income is not enough.
PB: Right, well, that’s the point. We can’t rely on good-paying jobs to sustain a large middle-class in the future. It’s not enough. It’s not going to work.
SR: Your solution comes from taking a close look at what you call the “river of money” flowing in the American economy, and redirecting or redistributing the wealth that comes from the assets and institutions all citizens share. You call it “co-owned wealth.” So break this down for us. What should be shared? What is co-owned wealth?
PB: Even though good-paying jobs are in decline, there’s a lot of wealth in our economy. It produces an enormous amount of wealth. So the economy, as a whole, is okay, but the money isn’t flowing to labor.
So if we want to have a middle-class we have to take somehow from the wealth that we actually do have, and spread it around in ways that aren’t tied to people’s time-clock labor. All right, so what is all that extra wealth out there that doesn’t come from labor? A lot of it, if you really start to dig deeper, below the surface, is wealth that is either stuff that we inherit—like all the gifts of nature; the soil, the water, the air, the minerals, the trees, etc. Also, a lot of our wealth comes from stuff that society created—all of our science, knowledge, techologies, that stuff.
Plus, and here’s the key to it, there’s a lot of social infrastructure—such as the financial systems, or legal systems, our copyrights and patent laws. All of these create enormous amounts of wealth. This is wealth that is not created by individuals, not created by private corporations, but created by society. So what I’m saying is that some of that wealth should be shared equally among everybody. And that would be the basis for supplementing labor income.
It’s kind of like in board game Monopoly, which I refer to a few times in the book. The game is supposed to be a great metaphor for capitalism. It is in lots of ways, but there are two other aspects of Monopoly that are quite interesting and not present in our current capitalist system, which is the fact that everybody starts off with the same amount of capital. Now that’s nice. That would make for an interesting and fair economic system. Plus everyone gets money every time they go around the board. That keeps the game going. Without that, in Monopoly, people wouldn’t have enough to play the game. Those features ought to be part of our real-.world economy. Everybody needs cash to play the game and to survive, and to have a basis on which to build, especially as I said, in these times when labor income just is not enough.
SR: You write that one of the founders of the American Revolution, Tom Paine, wrote about redistributing this kind of wealth. You note that conservatives in Germany in the late 1800s created a system of social insurance that became the model for Social Security as we know it today. And you point to the Alaska Gov. Jay Hammond, who created what today is called the Permanent Fund, where every Alaska resident gets $1,000 or more a year. That’s actually a dividend from oil and gas revenues.
So it’s not unprecedented. And what’s not unprecedented is that the common wealth of Americans can be treated like a giant mutual fund, paying dividents to all citizens. How does that work and take shape?
PB: You mention the Alaska model. That’s been a very, very successful and very popular model for over 25 years now. Republicans support it. Democrats support it. Everybody supports it up there. So what I’m talking about is extending that model to the lower 48 plus Hawaii, and funding it with other common wealth besides oil.
One important bit of common wealth that would start this off very nicely is the air. You would think that everybody would agree that we all own the air. If anybody owns the air, it is all of us together. So what is causing climate change and other forms of pollution is the fact that really nobody is seen as owning the air, so polluters dump their crap in it for free. If we were to create an entity that held the air in trust for future generations and charged polluters for dumping their crap into our common property, and then used that revenue to pay equal dividends to all, we would generate a substantial dividend flow.
That’s source number one. There was [federal] legislation introduced in 2009 to set up that sort of a system. It was just reintroduced, actually, a few weeks ago by Rep. Chris Van Hollen of Maryland. So that legislation is out there. It’s very simple. The Van Hollen bill is 27 pages long. It’s extremely simple. Just cap the input of carbon, sell permits, and divvy up the money equally. It’s a no-brainer. It would solve two huge problems at once, one being climate change and the other being widening inequality in America. So I would start off with passing a bill like that.
That might get us to between $500 and $1,000 a year, per person, in dividends. In my mind, I think we should get the dividends up to $5,000 per year, per person, in order to be significant in terms of helping the middle-class. In my book, I went around and looked for other bits of common wealth that do that. And each of these things would require different bits of legislation, and they wouldn’t happen all at once, but over time—just like Social Security started in 1935 in America and got larger over time. I would see the same thing happening with the mutual fund of common wealth paying dividends. It would start small and grow larger.
The second biggest bit of common wealth that could be a big source of dividends is our money supply and our financial infrastructure in general. This obviously is something that has been created by our society over the years. This is an extremely valuable asset and yet it doesn’t really serve everybody. It serves mostly private banks that have sucked an enormous amount of money out of our financial infrastructure.
Just to give one example from that. One could focus on how new money is made in our economy. Every year, we do have to increase the money supply a bit just to keep up with normal growth. The way it works now is that most of the new money that’s created in our economy is created by commercial banks by lending money. They can do that. They are required by law to keep about 10 percent of their deposits on hand. But then they can loan out—just out of thin air—about 10 times that amount. That’s how new money is created. It’s created as debt that has to be repaid to private banks.
That isn’t the only way we can create money. There’s been lots of thought given to this over the years, in fact by conservative economists, who think that creating new money by debt it not good. It leads to all sorts of excess debt, financial bubbles and instability. And that a much better way to create new money every year would be to just have the government print it and spend it. This is not a new idea. What is a new idea is the spin that I put on that—to say that instead of government printing and spending new money itself, government, as an alternative, could instead print new money and distribute it equally to all of us people, and let us spend it into the economy. It would have the same effect of the government spending it into the economy, in terms of stimulating the economy, but we would decide how to spend it rather than government.
SR: What does the business community think of this? Has there been a response from the Wall Street Journal editorial board?
PB: The book’s only been out five days. It’s a little early to say.
SR: After all, you’re not talking about tax increases. You’re talking about pay-as-you-go financing. You’re talking about giving consumers more disposal income. These are conservative fiscal ideas.
PB: Exactly. There’s nothing in this that would run counter to conservative principles and the notion of property rights. There’s no tax increases. There’s no increase in government bureaucracy. There’s no redistribution—although you did use that word. I prefer to think of what this system would be as a kind of predistribution. In other words, the government isn’t taking money from anybody, but it’s assuring that income is distributed more fairly in the first place.
SR: Let’s talk about some other obstacles. Too many people are greedy. Many wealthy people griped about paying higher taxes to subsidize Obamacare. Even in California, where another of your books, Who Owns The Sky, helped launch the state’s cap and trade system, we are now seeing some Democratic legislators who want to delay a gas tax that’s tied to it. They’re not talking about returning those revenues as a climate change dividend. So how do you turn ideas like this into action?
PB: The answer is there needs to be a movement to do that. If you look back at the history of Social Security in the U.S., there were massive popular movements prior to 1935 that put pressure on Franklin Roosevelt to set up Social Security. People don’t remember this now, but I mention this in the book. There was the “Townsend Plan” movement of the 1930s, which proposed that every person over 60 receive a check from the governent of $200 a month, which they would have to spend within 30 days, the idea being this would stimulate the economy. Remember, there was 25 percent unemployment at this time. And that it would help seniors, who didn’t have any source of income in those days.
This movement got millions and millions of supporters, and petitions, and all sorts of things. It was at the same time that Huey Long was advocating “Share the wealth,” and there were “Share the wealth” clubs all over America. Roosevelt responded in a number of appropriate ways, but it was movement itself that made this happen.
We have had things like Occupy. People are aware how wealth is concentrating in the top one percent. But so far, I don’t know exactly why, a movement for a fairer distribution, or predistribution of income, hasn’t really emerged. But it will.
SR: To go back to where your book began, as you say in your foreward, people are very overwhelmed by problems and they’re not able to see clearly to simple solutions. I think the elegance of this solution is that it is simple, but it is not just a bumper sticker, because you have done the research. The money is there. It’s just not widely acknowledged because the people on the receiving end essentially don’t want to share it.
PB: That’s right. It’s my hope that by having a simple solution available, that this will inspire a movement that’s focused on solutions. I think people are ready for solutions. Everybody knows what the problems are. But for some reason there is a void in the realm of solutions. The kinds of things that even the intelligentsia, if one can call it that in this country, talks about—everybody in the chattering class recognizes inequality. That’s not too hard to see.
But when they get around to talking about solutions, they scratch their heads and say maybe we should invest more in education or innovation, or raise the minimum wage. These are fine. These are all good things to do. But they don’t solve the problem. So I don’t know what’s wrong with our intelligentsia, but they’re not really coming up with solutions.
Anyway, I think the solution that I propose in this book is totally sensible, totally doable, simple, transparent, hard to corrupt—the way a lot of other things that involve subtle changes in the tax law; those are all extremely corruptible. I’m hoping that it will catch on as a viable solution.