The WAWG Blog

The post 80’s ideas of keeping the minimum wage suppressed and not rewarding workers, profit creators, for their productivity increases of the last three decades must stop. The decisions of the supply side free market and most of its leaders, profit takers, is destroying the middle class and growing the ranks of the working poor. Reversing this trend and the decisions of the profit takers is doable.

For example in 1914, Henry Ford made the right free market decision. Ford needed a steady workforce for monotonous work and knew that his workers needed adequate pay to buy his product, so he doubled their pay boosting it to $5/day, more than any minimum wage of the time. According to Hedrick Smith, author of Who Stole the American Dream, Ford wrote that this decision was not only a matter of social justice, it was smart business.

Almost 100 years later, that level of pay is worth around $114.80/day, or $14.35/hour, when adjusted for inflation. This adjusted wage, at $29,850/year, is about $6,800 above the 2012 poverty level for a family of four. The current national minimum wage is $7.25 for hourly workers and $2.13 for tipped workers.

As the charts below demonstrate, real wage growth for the profit creators has NOT kept up with their increased productivity. Instead, a portion of the salary increases for hundreds of millions of profit creators were kept by their employers, funneled up, and either turned into huge CEO salaries and bonuses, or invested with big banks. The banks then turned their share of those stolen wages into home equity loans and credit card give-a-aways – lots of loans back to the workers to distract them from their stagnant wages. (Other factors also affect income and wealth inequality and are posted about elsewhere.)

The wages of the Greatest Generation kept pace with their productivity gains.

But not so for the Boomer Generation.

The income growth of the lowest paid Greatest Generation kept pace with top earners.

But not so for the Boomer Generation.

Corporate profits (red) is just what it sounds like: Corporate profits.

Labor’s Share (blue) represents the worker’s share of the national income.

The past actions of America’s free market, i.e. corporate governance, have, among other things, kept worker wages low. This escalated in the 80’s when profit makers were no longer rewarded for their productivity increases. To replace those stolen wages, women joined the workforce, and banks made credit very easy to get so they could earn interest on those stolen wages.

Maybe after almost 100 years, we can return to the “one rule” of Henry Ford:

“There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.” Henry Ford

It’s time to reinstitute Ford’s socially responsible corporate governance. We need to double the minimum wage, as Henry Ford did, and properly reward profit creators – employees – for their productivity gains. We can do this by asking our government to encourage socially responsible corporate governance and by increasing democracy in the workplace.

Throughout this blog, postings have provided details about the strict father and nurturant parent worldviews. Charts in some of those postings show how the dominance of one or the other of these two worldviews affects our economy.

Not only did we have enough revenue to pay for investing in America’s infrastructure –

– We had enough revenue to pay down the national debt – before Reagan/Bush.

From 1945 to the late 70s, the “We” generation
– Paid their citizenship dues in proportion to their use of national resources that enabled their success,
– Used government to protect and empower citizens and consumers,
– Supported investment in national infrastructure to advance freedom and liberty for all citizens,
– Supported investment in non-profit research for going to the moon, creating the internet, exploring space,

From early 80s to the late 00s, the “Me” generation
– Stopped paying citizenship dues in proportion to their use of national resources that enabled their success,
– Used government to protect and empower corporations and the excessively wealthy,
– Minimized investment in public infrastructure to punish the primary users – the excessively wealthy have private infrastructure,
– Minimized investment in non-profit research,

Here is a side-by-side comparison of the Me and We moral values. Holding either set of values, or a mixture thereof, determines where one stands on topics like the sequester, extending the debt limit, health care, separation of church and state, civil rights, liberty, freedom, race, voter IDs, what to do about unintended pregnancies, public education, public libraries, public roads, public research, public display of religious icons, school prayers, critical thinking, global warming, privatization, public investment, corporate governance, representative governance, success determinants, systemic causation, American exceptionalism, race exceptionalism, gun safety, child safety, prayer in public schools, torture, honor, common good, common wealth, free enterprise, government, non-profit investing, spending, citizenship dues (taxes), etc.

Each worldview makes choices based on their values. Here are some examples of those choices. Which would you chose?

Me: Living life without any restraint, or
We: LIving life with consistent and minimal limitations to protect others from abuse by those who have no self-restraint

Me: Caring only about yourself and those like you, or
We: Caring about all fellow citizens, understanding that life is not fair, and that we must help others.

Me: Believing individual success comes only from strong self-discipline, or
We: Believing individual success comes from both innate talent and many factors beyond individual control.

Me: Lying to promote “Noble” goals is morally justified, or
We: Working together for the benefit of all is morally right.

Me: Promoting inequality based on an arbitrary hierarchy of human attributes, or
We: Promoting equality based on equal protection and empowerment of all citizens regardless of personal differences.

Me: Teaching right from wrong through excessive physical punishment starting in infancy, or
We: Teaching right from wrong by nurturing a responsibility and respect for oneself and others.

Me: Succeeding comes only from self-discipline and individual effort, or
We: Succeeding comes from individual effort that is either enhanced or reduced by factors beyond the control of the individual.

Me: Living under corporate governance which is accountable only to the CEO and a few major stockholders, or
We: Living under representative government that is accountable to voters who .

Me: Maximizing corporate freedom by eliminating citizenship dues (taxes) and governmental checks and balances, or
We: Maximizing citizen freedom by supporting a government that checks and balances abusers of power.

Me: Having corporate governance concerned only about profit at the expense of other stakeholders including customers, or
We: Having representative government concerned exclusively about protecting and empowering all citizens equally.

Me: Having corporate governance that has bought our representative government, or
We: Having representative governance accountable to voters that is independent of large corporations which are financially as large as small countries.

Me: Limiting representative government and privatizing all that is public, or
We: Limiting corporate governance to protect citizen’s well-being, prosperity and safety.

Me: Supporting the individual freedom to sell or own weapons for mass killing, or
We: The social responsibility to prevent gun violence against all of our children.

Here is how George Lakoff summarized these two moral sets of beliefs:

Progressives tend to believe that democracy is based on citizens caring for their fellow citizens through what the government provides for all citizens – public infrastructure, public safety, public education, public health, publicly-sponsored research, public forms of recreation and culture, publicly-guaranteed safety nets for those who need them, and so on. In short, progressives believe that the private depends on the public, that without those public provisions Americans cannot be free to live reasonable lives and to thrive in private business. They believe that those who make more from public provisions should pay more to maintain them.

Ultra-conservatives don’t believe this. They believe that Democracy gives them the liberty to seek their own self-interests by exercising personal responsibility, without having responsibility for anyone else or anyone else having responsibility for them. They take this as a matter of morality. They see the social responsibility to provide for the common good as an immoral imposition on their liberty.

Their moral sense requires that they do all they can to make the government fail in providing for the common good. Their idea of liberty is maximal personal responsibility, which they see as maximal privatization – and profitization – of all that we do for each other together, jointly as a unified nation.

They also believe that if people are hurt by government failure, it is their own fault for being “on the take” instead of providing for themselves. People who depend on public provisions should suffer. They should have [to] rely on themselves alone – learn personal responsibility, just as Romney said in his 47 percent speech. In the long run, they believe, the country will be better off if everyone has to depend on personal responsibility alone.

Moreover, ultra-conservatives do not see all the ways in which they, and other ultra-conservatives, rely all day every day on what other Americans have supplied for them. They actually believe that they built it all by themselves.

On page 14 of The Little Blue Book, George Lakoff said, “The repeated use of conservative or liberal moral language is often the decisive factor in whether an independent uses a liberal or conservative moral system for a given election.”

The “we” moral view held sway after WWII.  We rebuilt Europe, built the interstate highway system, sent men to the moon, and paid down the national debt. The “me” moral view has held sway since the 80’s and we suffered the Great Recession, have saved banks too big to fail or prosecute, and legalized a massive transfer of income and wealth to the ONE% from the working class.

Corporate profits (red) is just what it sounds like: Corporate profits.

Labor’s Share (blue) represents the worker’s share of the national income.

(This blog posting comes from portions of Who Stole the American Dream by Hedrick Smith.)

The history of the transition from company funded pensions to employee self-directed 401Ks and the limited success of 401Ks shows vividly that the destruction of Social Security through privatization will only benefit corporations.

In a subsection of chapter 5, The Pivotal Congress – Jimmy Carter and 1977-78 Democrats, Mr. Smith describes how the 401K was “tucked into the omnibus tax bill [as] a small-print provision.” New York representative, Barber Conable, the ranking Republican leader of the House Ways and Means committee, introduced the change. This provision allowed the corporate executives of Kodak and Xerox to hide their profit-sharing bonuses in a tax deferred account. Later in 1981, the Reagan Treasury Department, after “some ingenious prodding from corporate tax consultants,” extended 401K accounts to all workers. This extension, plus changes to the corporate bankruptcy laws that put corporations in charge of their bankruptcies, was the beginning of the end of company funded pensions. (This was also the beginning of the shift away from representative governance to corporate governance as laid out in The Powell Memo.)

In a subsection of chapter 7, The Great Burden Shift – Funding Your Own Safety Net: Crippled by Debt, Mr. Smith adds details concerning the shift from corporate funded pensions to employee funded 401Ks. In 1980, before the extension of 401Ks to all workers by Reagan’s Treasury Dept., corporate pension plans covered 84 percent of employees who would receive retirement benefits for life. By 2006, only 33 percent of employees had a company pension plan. In 2012, that is down to nine percent. Put another way, employees were paying about “11 percent of their retirement costs” in 1950. “By the mid-2000s, they were paying 51 percent.”

Corporations have gained from this transition while employee retirement has dwindled from a near certainty to a small possibility. For those companies that dropped their pension plan totally, they added 6 to 7 percent to their profits. For those who replaced pensions with 401Ks, their profits went up about 4 percent if they matched employee contributions.

Since we have been living with this pro-corporate transition since 1981, what else can we learn about how average workers have suffered and what does this tell us about the losses we should expect from the privatization of Social Security?

To start, 401K participants and assets have mushroomed from 7 million and $92 billion in 1984 to 44 million and $2.2 trillion in 2004. Now there are over 65 million citizens participating with over three trillion dollars in assets, However, this averages out to about $50,000 per participant.

The average account for someone in their 60s would cover less than 10 percent of living expenses.

For some understanding of what’s been happening with all the 401K self-directed retirement plans, Hedrick Smith interviewed Brooks Hamilton, a Dallas pension consultant. Mr. Hamilton had reviewed the 401K plans for 15 corporations and their thousands of participating employees. What he found was a part of the growing wealth gap between the really wealthy and everyone else – “a systemic flaw.” Mr. Smith summarized what he learned this way:

The best educated, best paid employees and executives were getting investment returns that were six or seven times greater than the returns of average workers. The gap was compounded year after year. The top brackets were not only able to put away much more money each year, but they got far better returns than rank and file workers …. They didn’t borrow from their 401(k)’s or make [the] mistake of pulling out their retirement fund in one lump sum, triggering a tax penalty. They left the money in and let it grow. They knew how to get the best results and how to avoid costly mistakes.”

Here is a portion of Mr. Smith’s interview with Mr. Hamilton:

HAMILTON: I label this [the] yield disparity. I thought, “We have a yield disparity that is a financial cancer in this, in our great beautiful 401(k) movement.” And I had never seen it before, but it was every where I looked.

SMITH: What do you mean a financial cancer?

HAMILTON: It would destroy the opportunity for ordinary workers to retire in dignity. They can’t get there from here.

Mr. Smith continues, “The 401(k) track record is not good.” As of January 1, 2011, after the Great Recession, “the typical account balance is just $17,686.” For those workers in their sixties, the typical account is worth $84,469. This is just not enough for retirement.

If your annual living expenses were $50,000 and you did not have any Social Security income, then you would need a retirement fund worth $1,250,000 to pay these annual expenses during retirement. That’s almost fifteen times higher than the typical account for someone in their sixties. With Social Security income, the retirement fund could be cut in half. The $84,469 mentioned by Smith would only be enough to cover $3,380, or about seven percent, of those annual expenses in retirement. (This is all based on being able to withdraw only 4 percent of your 401K fund for expenses during each year of retirement.)

Mr. Smith also talked to Jack VanDerhei of the Employee Benefits Research Institute and quoted him as saying, “I would say unless you’re fortunate to be in the upper-income quartiles that you’re probably going to be in for a very rough ride.”

In another interview on the health of the 401Ks Mr. Smith talked with Alicia Munnell of the Center for Retirement Research at Boston College. Ms. Munnell told him:

They [retirees] are not going to be penniless because they have Social Security [for now]. But it’s a very serious situation. Middle-class people are going to be very hard-pressed. People will feel destitute, absolutely forced to cut expenditures, maybe forced to sell their homes, forced to dramatically change their lifestyle. Making ends meet is going to be a consuming task. It will be the focus of their lives. And that is not what it [retirement] was supposed to be. After a lifetime of work, that is a terrible state for older Americans to end up in.

Mr Smith goes on to write:

The hard truth, according to several experts, is that building the nest egg you need takes much more ambitious savings than virtually any 401(k) plan envisions for employees below executive level. …

So, here we are. Company paid pension plans, which were managed by professional investors, are basically gone for almost all average workers. For those with 401Ks, only the wealthier are getting good returns. The rest are either left with too little in their 401Ks to cover retirement expenses even with Social Security, don’t even have access to a 401K, or can’t afford to contribute to one. Retirement is no longer realistic for more and more Americans as corporate governance negatively affects our future.

The only reliable constant now left for retirement is Social Security (SS). But there are the right-wing, self-disciplined, rugged-individualist, authoritarians who want to change that. They believe, even though they have ruined our public education system, that everyone is smart enough to manage their retirement and that privatization of SS is a good idea.

However, as shown above only corporations and the wealthy will gain. Everyone else will lose, again, with the privatization of SS – more trickle-up economics and corporate servitude.