Home > Uncategorized > Wages of debt

Wages of debt

from David Ruccio

Well that didn’t go so well. . .

Still, Elon Musk’s new Cybertruck would appear to be the perfect design for America’s contemporary dystopia. Its bullet-proof stainless steel alloy panels and transparent metal glass are tailor-made to keep its elite occupants safely guarded from attack. And even though the windows obviously need considerable improvement before production begins, and “despite ‘no advertising & no paid endorsement’,” Tesla has already received almost 150 thousand orders for the truck.

Clearly, there’s a lot of surplus available—in cash and loans—to the small group at the top of the U.S. wealth pyramid to purchase such vehicles.

installment

In fact, as we can see from the chart above, auto loans comprise more than 50 percent of the installment loan debt of the top 10 percent of American households (as of 2016, the last year for which data are available). Not so for those in the bottom 50 percent, for whom loans for vehicles make up a little more than a quarter of their installment loans. For them, the largest portion—almost two-thirds—goes to finance higher education.

Consider what this means for the Americans in the bottom 50 percent. According to the latest Survey of Current Finances by the Federal Reserve, 31 percent carry student loans and their average outstanding education debt is $34 thousand. (For those in the bottom 25 percent, it’s even worse: 40 percent of families have student debt, and their average is $43 thousand.) Just student debt is considerably more than the $23,250 average annual pre-tax income of those in the bottom 50 percent.

The only Tesla pickup they’ll be buying is the one with the shattered windows.

A&L

The disparities in the United States are even starker when comparing the assets and liabilities of the bottom 50 percent and the top 1 percent in 2019. As can be seen in the chart above, families in the bottom half own only 6.1 of total assets but are liable for more than one-third of total debts, while the situation of those in the top 1 percent is almost exactly opposite: they have 29 percent of assets but only 4.7 percent of the liabilities.

wealth-A&L

It should come as no surprise, then, that the net worth (excluding real estate assets and mortgage liabilities) of the bottom 50 percent of Americans is tiny ($1.1 trillion) compared to that of the the top 1 percent (more than $30 trillion).

The question is, why is the net worth of the bottom 50 percent of American households so low? As is obvious from the chart above, they don’t own much in the way of assets and their debt is much greater than that of those in the top 1 percent.

real wages

That fundamental inequality in the distribution of wealth in the United States stems from one key factor: American workers’ wages have been stagnant for the past four decades. The average (median) real hourly wage for workers in the private sector is currently $14.99, virtually unchanged (rising only $0.62 or 4 percent) since 1979.*

So, on one hand, American workers simply don’t have the means to acquire many assets, since their wages are just enough for them and their families to get by. And when they do attempt to acquire more, for themselves or their children (in purchasing homes, paying for college, or just keeping with medical bills), they have to go into debt. Therefore, as I argued last week, without wealth of their own, workers and their children are forced to have the freedom to continue to sell their ability to work to employers in order to subsist.

On the other hand, stagnant wages mean that the value workers produce above what they receive in wages goes to their employers, who keep some and distribute the rest to those in the top 1 percent. They’re the ones who accumulate assets, while incurring relatively few liabilities.

That wealth disparity thus ends up playing two roles in the United States: it keeps assets out of the hands of workers (thus forcing them to continue to work to purchase the necessary commodities and to repay their debts) and it concentrates assets at the top of the wealth pyramid (thus permitting the top 1 percent to continue to lay claims on the resulting surplus, whether or not they work).

I have no doubt that taxing some of that wealth would support and expand the kinds of government programs that would help American workers. I’m thinking, for example, of financing universal health care, paying off student debts, providing adequate childcare, and so on. But it wouldn’t increase workers’ wages much less undo the nexus whereby, on a daily basis, most Americans are forced to have the freedom to sell their ability to work to a small group of employers.

One of those employers is, in fact, Tesla, which a California judge recently found is in violation of U.S. labor laws.

Imagine, then, an alternative scenario in which Tesla workers, who since 2016 have been battling to form a union (because of high injury rates and low wages), actually owned and ran the Fremont, California factory. The workers, and not Musk and the other members of the board of directors, would then decide what to do with the surplus. The workers themselves would become the board of directors (which might, in turn, decide to hire Musk as a day-to-day executive). The key is that the workers, as a group, would own the assets—not a tiny group of individuals at the top. The worker-owners would thus have acquired a new freedom: to work for themselves, not for someone else. That change in the way Tesla is organized would serve as an example of how to finally undo the obscene wealth inequality that for now decades now has characterized the United States.

It might also eliminate the need for those bulletproof windows.

 

*I’ll save you the arithmetic: that amounts to a pre-tax annual income of $29.980. That’s the monetary value of the customary standard of living of workers in the United States— which, as we can see, has remained virtually unchanged for the past 40 years.

  1. Ikonoclast
    November 26, 2019 at 10:00 pm

    We can talk and blog all we like, and we do, about the manifest inequity of all this. Nothing will change (with respect to capitalist BAU and exploitation) unless the people change it. This means the mass of the people need to cease being quiescent and become activists. This in turn won’t happen until living conditions become intolerable for the majority. We are not there yet but we are heading that way. Active rebellion will likely produce a violent reactionary crackdown. Depending on who wins we will then have either socialism or barbarism.

    I would like to believe that we could have a peaceful revolution or transition. My hard-headed assessment of realpolitik, and the massive commitment of the right to extreme violence to preserve their privileges, has me very concerned about the future.

  2. Helen Sakho
    November 28, 2019 at 5:23 pm

    The poor have become poorer. They always were and remain at the mercy of the rich. Sadly, and do please consider this seriously dear colleagues, this picture is not confined to the US. It is global. As for a peaceful transition to democracy and social justice and accountability and elimination of polarisation on all levels, and …it is too many ands and, sadly, no buts.

  3. Craig
    November 28, 2019 at 6:54 pm

    As delusional as economic theory is it’s not the real problem. Unite and integrate the goals and intentions of all the heterodox economists by recognizing the giant and illegitimate parasite of the private for profit money system and the equally giant and blinding neurosis of its paradigm of Debt Only….and then integrating Monetary Gifting rationally and insight-fully at the point of retail sale.

    Wisdom is the integration of focus, direct observation, true objectivity and the integration of the particles of truth in apparent opposites.

    In other words: “It’s the monetary paradigm, stupid.”

  4. ghholtham
    December 2, 2019 at 4:25 pm

    If the poor in the 1930s, the high point of Fordist mass-production and the urban proletariat, did not rise up to overthrow capitalism, why will they do so in future? They are now atomised in the gig economy and generally not as poor as they were then. The poor in the US may well have become poorer recently, certainly they are relatively poorer, but the opposite is true of the poor in China and many other third-world countries. Absolute poverty in the world has fallen a lot over the past fifty years. The fact that the system is grossly unfair does not mean, unfortunately, that it is bound to alter and historical efforts to make it worse so we can make it better have a bad track record. In Europe, progressive reform may well be possible but something more radical may be necessary to change American plutocracy.

    And anyone who thinks the essential problem is “the monetary paradigm” should be careful throwing around the word stupid.

    • Craig
      December 2, 2019 at 5:24 pm

      When all of the leading thinkers and reformers such as Modern MONETARY Theory, Keen’s showing that Minsky was right about FINANCIAL instability, Hudson’s observations of the parasitical nature of present FINANCE and the efficacy of the gifting of DEBT jubilee’s in history, Ellen Brown’s attempts at FINANCIAL structural reform with state/public BANKING and Graeber’s history of DEBT…all revolve around and point at the MONETARY and FINANCIAL paradigm of DEBT ONLY…then the Martians are probably laughing if not rolling on the floor when we intellectualize endlessly while missing the salient and most relevant point.

  5. ghholtham
    December 2, 2019 at 6:44 pm

    Craig, you are lumping a large number of disparate things together. I knew Minsky was right before most people had heard of him. I had lunch with him once back in the early 90s – lot of fun.. It’s true that excess resources from a social point of view are used up in excessively large financial sectors. None of that establishes that the essential problem is that monetary creation is associated with credit creation.

    Moreover it is not so easy to construct and calibrate a state-driven alternative. If you subsidise producers of consumption goods on condition they lower or do not raise prices, you raise the real wage. To do that successfully you need to know how much labour productivity will be rising and how much of the extra income wage-earners will save and how much spend. Such steering is hard to do. Get it wrong and you get a large deficit on trade account.
    And are you going to abolish private banking? What if the workers want to earn interest on their savings and businesses want to borrow to invest? What system of financial intermediation will you allow? A state monopoly bank that lent out workers’ deposits would still generate additional deposits as its loans were spent. If it refused to meet credit demand would you stop businesses borrowing abroad? Looks as if you would need exchange controls too.
    It seems to worry you that banks make loans expecting a profit. But the absence of a cost of capital was one of the reasons for inefficiency and waste in the Soviet system. Investment has an opportunity cost in foregone consumption spending and that should carry a price. A state bank would not normally make interest free loans.

    The tendency to speculative excess.in capitalist finance can be counteracted by appropriate regulation as long as the state is not captured by financial interests. More of investment can be managed in the public sector, as Minsky argued. Distributional issues can be tackled in various ways including tax and transfer. In attempting to solve a range of problems with a single magical solution, ignoring all the practical difficulties, I don’t think you serve the cause of reform.

    • Craig
      December 2, 2019 at 10:06 pm

      Where to begin?

      “It’s true that excess resources from a social point of view are used up in excessively large financial sectors. None of that establishes that the essential problem is that monetary creation is associated with credit creation.”

      Yes it does. Do you believe in competition? Then why are you not in favor of paradigmatic competition? Oh, you’re for regulatory and (perhaps) structural financial reform…apparently because you cannot or will not look at the much wider, deeper and transformationally beneficial effects of an entire pattern change.

      “Moreover it is not so easy to construct and calibrate a state-driven alternative.”

      Not really, so long as one is conscientious about doing thorough market analysis and consciously and ethically adhering to aspects of the concept behind the new paradigm, namely the natural philosophical concept of grace.

      “If you subsidise producers of consumption goods on condition they lower or do not raise prices, you raise the real wage.”

      I’m not doing that. I’m assisting retailers and consumers AT retail sale which would benefit EVERY business model, except private banking/finance of course.

      “To do that successfully you need to know how much labour productivity will be rising and how much of the extra income wage-earners will save and how much spend.”

      Most if not all of that is rendered irrelevant because of the fact that a directly distributive money system that has terminally dealt with the old paradigm problems of inflation, unemployment and wide spread individual monetary scarcity. You can still account all of that, but the new paradigm ENDS the paradox of thrift and greatly homogenizes the fallacy of composition.

      “And are you going to abolish private banking?”

      I’m going to abolish private money creation by private banks. As I’ve said before intermediation of priorly created and saved money and profits that have been priorly garnered from the actually productive process would be allowed as investment is a legitimate financial business model. However, the non-profit national bank will not loan funds to anyone or any enterprise that could or would be immediately aggregated and used for speculative purposes by private investment firms. Relatively smallish individual loans for speculative investment, depending upon its stated purpose may actually be funded, but not for any ethically rancid things like hardcore pornography or wildly de-stabilizing nonsense like derivatives or synthetic derivatives etc.

      “A state monopoly bank that lent out workers’ deposits would still generate additional deposits as its loans were spent.

      Would not be allowed as per above.

      “Looks as if you would need exchange controls too.”

      Why would a start up or even a failed business that can correct its business plan want to borrow at interest from abroad when it could do so at 0% here? And if a smallish amount percentage-wise were allowed it probably wouldn’t be a problem anyway. Dare say it would be severely scrutinized.

      “But the absence of a cost of capital was one of the reasons for inefficiency and waste in the Soviet system.”

      I don’t think that was the actual reason. It was mostly corruption, idiot ideology and lack of awareness of how to implement the better new paradigm.

      “Investment has an opportunity cost in foregone consumption spending and that should carry a price. A state bank would not normally make interest free loans.”

      Old paradigm thinking.

      “The tendency to speculative excess.in capitalist finance can be counteracted by appropriate regulation as long as the state is not captured by financial interests. More of investment can be managed in the public sector, as Minsky argued. Distributional issues can be tackled in various ways including tax and transfer. In attempting to solve a range of problems with a single magical solution, ignoring all the practical difficulties, I don’t think you serve the cause of reform.”

      Impermanent and generally shallow reformist ideology and old paradigm thinking that hasn’t yet cognited on the concept behind the new paradigm and the significance of a high percentage discount/rebate monetary policy at retail sale.

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.