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Bureaucracy-Ridden Welfare System vs. Guaranteed Income

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Author Topic: Bureaucracy-Ridden Welfare System vs. Guaranteed Income  (Read 12256 times)
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« on: August 24, 2010, 11:15:37 am »

In his excellent book, We Hold These Truths: The Hope of Monetary Reform, Richard C. Cook advocates as a solution to “poverty in the midst of plenty” what he calls the “National Dividend.”

What, specifically, is this Dividend?

It is a “cash stipend” drawn from our national credit and paid out equally to all the legal residents of the U.S. (or, if you live in England, Canada, or some other country, from the national credit -- and to the legal residents -- of that nation).

If you’re now asking, “What is our national credit?”, the answer is that it’s the very same abstract (yet unquestionably real) source that private banks as a whole currently draw from -- in effect -- when they “extend” financial credit to cash-strapped loan customers.

More specifically, and in the words of Richard C. Cook, national credit refers to “the total ability of a nation to produce goods and services through increasing efficient use of science and technology.”

As he puts it on page 57 of We Hold These Truths:

    "The idea of credit when viewed from a macroeconomic perspective refers to the ability of an economy to produce goods and services of value to the members of that community. It refers to the potential value of that economy to support life."

And from page 32:

    "Viewed from a philosophical level, the nation's credit, including that portion from which the National Dividend would be drawn, is the monetization of an intangible; i.e., the totality of the nation's real wealth as expressed by its laws, history, physical plant, land, resources, and the education, skills, and character of its people. Without all of these, the government could print dollars--or the banks could lend them--from here to eternity, and they would be totally useless."

On what basis will the size of the National Dividend be determined?

In short, on the basis of the objectively assessed “gap” between (a) the total market value of the goods and services that are produced in the aggregate and (b) what society, as a whole, is able to purchase.

From pages 18-19:


"In 2006, our Gross Domestic Product was about $12.98 trillion, with the enormous trade deficit of $726 billion figured in. Our total national income was $10.23 trillion, including wages, salaries, interest, dividends, personal business earnings, and capital gains. Of this amount, at least 10 percent, or $1.02 trillion, was reinvested either at home or abroad, including retirement savings, leaving total available purchasing power of $9.21 trillion.

"The $12.98 trillion GDP minus $9.21 trillion of purchasing power equals $3.77 trillion. That's what the figures indicate was the shortfall that would have been required to consume the entire GDP.

"Simply put, we do not earn enough to buy what we produce. What does this mean, and who, or what, is to blame?

"Despite the high CEO compensation, the huge Wall Street salaries and bonuses, and the wealth and income disparities between high and low earners, we should not blame the “capitalists,” i.e., the business owners, for the entire problem. Business profit taken as dividends is only about seven percent of GDP.

"Besides, many of the 'capitalists' are us! Forty-five million Americans have some measure of stock ownership, including a multitude of tax-deferred retirement plans and mutual funds. This is one of the strengths of our economy--the 'ownership society'--for  which we deserve a pat on the back. Also, the dividends we earn are mostly spent, so most of it finds its way back into the economy.

"Let's look at the situation from a slightly different standpoint, starting with the $12.98 trillion GDP. It's said that the U.S. economy is the most powerful and productive in the history of the world. This is true, even with our trade deficit and our decline in manufacturing due to relocating so much of our factory production abroad. So we should be dancing in the streets. There should be festivals, celebrations! Obviously that's not happening. Why not?

"It's not happening because of how we define the $3.77 trillion gap between GDP and earnings. Since we produce the value of our entire GDP with such lower labor costs, the $3.77 trillion differential really should be viewed as the total societal dividend, right?

"Wrong! It's not defined as a dividend; rather it's defined as a shortfall. This is because it still appears in prices. And with the stagnation of wages and salaries, combined with the current slowdown in appreciation of housing values, resulting in lower capital gains, the shortfall is growing.

"Obviously, those goods and services still have to be paid for--the entire $12.98 trillion. The way they are paid for is through income and through debt. Purchasing power covers three-fourths of it. The rest is covered by borrowing. Yes, you, the consumer must go out and borrow to cover the $3.77 trillion gap between GDP and purchasing power. This is how much our debt increased in 2006--the amount of new debt less what we paid off. This new debt was 29 percent of GDP last year.

"Note that this analysis deals with gross numbers, so does not dwell on the major social problem that income disparities are growing within the U.S., with a higher proportion of income each year going to the wealthiest segments of society. Conversely, the debt burden which fills the gap between GDP and income falls disproportionately on the lower income brackets.

"But the point is undeniable. Our ability to produce our incredible GDP with relatively little labor means that, under the existing system, we have to borrow money from financial institutions and pay with interest to enjoy what really should be the leisure dividend mentioned at the start of this report....

"Finally, these numbers shouldn't surprise anyone. Every responsible analyst has made the point that ours is a consumer-based economy and that consumer borrowing keeps it afloat. It's why economists and politicians keep such a close eye on the "consumer confidence" polls. It's why President George W. Bush, after the 9/11 tragedy, told us to 'go shopping.'"


What is the cause of this production/consumption gap Mr. Cook speaks of?

As hinted to above, it is the unavoidable fact that a significant portion of the business costs that show up in the prices of the goods and services we buy is not paid out in individual earnings (particularly wages and returns on capital goods).

From pages 26-27:


"In 1920, Scottish industrial engineer Major C.H. Douglas published a book entitled Economic Democracy, where he wrote that several major factors associated with modern mechanized production result in a gap between the value of manufactured goods and the purchasing power distributed through wages, salaries, and dividends. That is, he addressed the exact problem the U.S. and other developed economies were facing both then and now.

"After more than a decade of continuously writing on the subject, Douglas, in a 1932 publication, The Old and New Economics, listed several systemic causes 'of a deficiency of purchasing power as compared with collective prices of goods for sale.' These included business profits not distributed as dividends (retained earnings); individual savings, i.e., 'mere abstention from buying'; 'investment of savings in new works, which create a new cost without fresh purchasing power'; accounting factors, where costs previously incurred are carried over into current prices; and 'deflation', i.e., 'sale of securities by banks and recall of loans.'

"Other elements not mentioned by Douglas include insurance, which is costly in the U.S., maintenance of unused plant capacity, which is extensive due to the decline of U.S. manufacturing output, employer retirement contributions, and the cumulative sum of retained earnings and other cost factors when businesses buy from each other.

"These factors all show up in the prices of goods and services but are not paid as earnings to individuals. A simple way to understand what happens is that prices that a business charges must not only pay for labor costs but must also cover all non-labor costs, as well as equip the firm to perform in the future.

"Also, while the financial and accounting systems force consumers to pay for the costs of capital depreciation, they do not give them credit for appreciation of the value of the business that will appear through future capital gains. This applies particularly to technology-intensive companies where high R&D costs much be recovered in prices but do not show up proportionately in employees' immediate take-home pay.

"Taken together, the impact of all these factors is devastating to consumers and the economy at-large, because we cannot possibly earn enough to compensate for what the tax and accounting systems label as costs."


Thus, at a macroeconomic level, the National Dividend will merely delink the “extension” of socially-created credit from institutionalized indebtedness to private banks. So instead of borrowing our own credit from private bankers as we do now, we (through our elected representatives in government) will simply issue it to ourselves. It will be comparable to the amount of credit being “extended” to us already via fractional reserve lending, except that, unlike now, we won't owe it all back -- plus compound interest -- to private banks.

For a more detailed explanation, see:
« Last Edit: March 12, 2011, 09:45:51 am by Geolibertarian » Report Spam   Logged

"For the first years of [Ludwig von] Mises’s life in the United States...he was almost totally dependent on annual research grants from the Rockefeller Foundation.” -- Richard M. Ebeling

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