The Economy of Abundance #5

The First Missing Economic Law: No One Benefits From Poverty.

Copyright 2012, John Manimas Medeiros

 

First, there are two views that are simplistic, based upon narrowness and ignorance, which must be publicly discredited. They are:

1) Poor people provide cheap labor and that is a significant benefit for business and for the economy.

2) Poor people demand charitable forms of support from the taxpayers, or "benefits" or "entitlements" and this is a negative "transfer" of income from those who are ambitious and successful because they work to those who are failures because they are lazy or incompetent or immoral, or all of these.

Number one is easily discredited. Cheap labor is or can be a minor benefit for a particular business only because cheap labor reduces the costs of production, or of services. But cheap labor always presents two substantial risks to any business. The first risk is that cheap labor is less productive labor. Those who are paid little may be underpaid in the first place, and even if they are being paid what their labor is worth, there is the risk that their productivity is low and the quality of their work is inferior. They may also present problems that interfere with the organizational efficiency of the business, by arriving late for work, absence on short notice, and behavioral problems at the workplace. The second substantial risk is that because the workers are paid little, they can purchase little. They are not customers for the products or services of the business, and they are not customers for most of the products and services of other businesses in the community. Therefore, the business that thrives on cheap labor is stealing from the community by getting its work done cheaply while not contributing to the commerce, the purchasing power, of the people, which is what drives the economy.

Number two is a little more complex, but is readily discredited because it pretends to defend the free market but actually underestimates the need for government programs -- the community, the state and the nation -- to assure that large numbers of people do not become "unemployed" and drop out of the continuous chain of commerce, the continuous chain of buying and selling. What is so blind in this viewpoint, and has become a deeply entrenched false doctrine among economists who call themselves "conservative," is the concept that any program that helps the poor is a transfer payment, or an "entitlement" program that takes money from the rich and successful and transfers it to the poor and unsuccessful. The misleading argument here is that any such programs have the effect of rewarding failure and punishing success.

The allegedly "conservative" group also persistently refers to entitlement programs derisively, implying that the word entitlement conveys the meaning that people are entitled to receive charitable aid from those who have money, even though the poor are poor through no fault of the rich. The error is deep and has two parts here: the word entitlement does not mean that the recipients of assistance are entitled by a principle of economic philosophy to receive the assistance, but it conveys the important legal meaning that no bureaucrat is making a subjective personal judgment as to whether the applicant is deserving, but instead, in the interests of fairness, if certain clearly defined eligibility factors are met, then the applicant is entitled to that particular form of assistance and cannot be denied on the basis of any subjective personal judgment. Therefore, entitlement programs are designed to be fair and treat all applicants equally before the law, and to avoid the older, historical practice where an employee of a charitable organization made a personal judgment as to whether or not an applicant was "deserving" of assistance.

The other profoundly simplistic part of this error is the blind assumption that if one family is poor, the reason they are poor is no fault whatsoever of a family that is rich. This is a ridiculous presumption that suggests we are all living in isolation, and economic processes are not affected by the decisions and votes of the rich, or by the financial practices of businesses, banks and investors. This blind viewpoint implies that we all have the same equal chance, automatically and without any hindrance, to become rich in the free market economy. This foolish viewpoint is like saying we can all run in a race and everyone can finish first. We all know that is not the way the real world works. Although we are proudly dedicated to the principle that everyone is born with equal rights and should be treated equally before the law, we do understand that due to the physical realities of the universe and the facts of biological existence, we are not equal, not equal in our abilities or in our social situations or in our opportunities. Genetics, history, chance, and luck play a role in what happens to each and every one of us. Those who truly desire justice always understand that the rich and all of us play a role in creating and maintaining our economic system. And, if some people finish the race last, if some people appear to have failed because they are poor, that is a fault of the system and not strictly a fault of the individual. The goals of any economic system certainly include the goal of rewarding ambition, enterprise, and competence, but it also needs to include social justice, inclusion, and safety regulations to prevent the injustices that will occur if we behave as though economic justice falls from the sky like rain. Economic justice is a human artifact, and it must be manufactured, built, adjusted, repaired, maintained, as though it were a machine, because it is.

We must acknowledge that no one benefits from poverty:

The full examination of the problem of poverty as it relates to cheap labor is direct and simple. The solution to this problem is the first missing economic law: No One Benefits From Poverty. This will at first seem obvious to some, confusing to others. Of course no one benefits for poverty. Why do we have to make this statement as an economic law? Is it not obvious? No, it is not obvious, as briefly explained above. There are and have been economists and political factions that really believe poverty is an important source of cheap labor that is useful for driving industry. In other words, business owners and conforming economists really treat poverty as a necessary evil, or as a natural part of a complex economic system with business cycles. As was discussed in the Economy of Abundance #4, the conforming economists argue that the reason a laborer is poor is because he, or she, is not doing business wisely. He, or she, is in the business of selling their labor, and they are charging too much. The free market has created a demand situation where there is more labor than is needed, and therefore the price of labor is pushed downward. The poor person is either underemployed or unemployed through no fault of the rich, or anyone. They are in their situation of poverty because they are charging too much for their labor and cannot sell it. No sale of labor, for them, means no income. Their only recourse is to respond to the market and work for less. This argument makes some sense but it is totally misleading in terms of the real causes of poverty and the real situation of a member of the community and the community labor force. The individual citizen and worker, a member of society, is not in business, and is available, continuously, to perform whatever labor is needed in the community. And, no one benefits in any way from individuals and families being in a state of poverty, which means, or course, a state of insufficient income to meet their basic needs. We can design our solution to this problem only if we first acknowledge the first missing law: no one benefits from poverty. The argument that a laborer is not being offered the price that they want for their labor, and therefore they cannot sell it, is irrelevant to the real causes of poverty and a practical means to eliminate poverty. The real cause of poverty is wealth.

That's right. It really is that simple. The real cause of poverty, and only cause of poverty, is wealth. One could write books on this theme, but it can and should be stated in a sentence or a few. Why else, how else, could there be poverty except because of wealth? If everyone has the same level of wealth, same level of possessions, property, money, credit, then there is no relative poverty or wealth. Wealth and poverty are relative. Wealth and poverty are a measure of quantity, not quality. Even quality of life would be measured in terms of quantities, if measured scientifically. As soon as someone, anyone, acquires more of some property or commodity, any useful thing, they are deemed to have accumulated "wealth," and all others who have less are, relative to that wealth, poor. Then we have the fascinating and ethereal concept of the "middle class." One certainly could write volumes on that topic also. The most important and blatantly ignored reality of the middle class is that in order for it to exist there must be at least two other classes, a lower class and an upper class. One might well ask, therefore -- any reasonable person might ask -- how is it that having a "middle class" is deemed to be a necessary and powerful sign of democracy and economic health, when to have it one also has to have a group of people fixed in poverty and another group of people fixed in wealth at a level we would most likely call "nobility"? The concept in and of itself suggests that both extreme wealth (the rich) and extreme poverty (the poor) are required in order to have the golden mean of democracy: the middle class. This reasoning also suggests that to have no middle class, or to have some type of society that existed before the invention of the middle class, there were only the upper class (the very rich) and the lower class (the very poor). Such a society, comprised only of the very rich and the very poor, would make no sense at all, and implies a society of slaves and masters. All this suggests that the middle class is used in a pattern of circular reasoning: if you have a middle class then you have a democracy and if you have a democracy you have a middle class. Still, a middle class can exist simply because the rich need to use some people -- supervisors and managers -- in order to maintain orderly control over the largest group, the poor, to assure that they do the work without making trouble. That too, is called a "democracy."

So, let's get back to the reality that no society can create wealth without also creating poverty. That is the source of poverty. Having enterprising people invent, or discover, some new product or service or some new process or method of production, and making money for themselves, is the true and only source of poverty. The majority of people who are disposed, for whatever reason, to just perform labor for the benefit of the community, without making any great plans to accomplish something new, or to accumulate more than a plate and a slice of bread in a room with a bed and a table, are rendered poor the moment the "entrepreneur" entreprenesses. Thereafter, people argue over why some people are poor, who is to blame, and what we should do about it. However, because a few false economic concepts are treated as sacred, and because humans do not really examine economics objectively, the problem of poverty is never solved. Obviously, one of the false principles that preserved poverty, as though it were a religious icon, is the belief that someone benefits from poverty, which is usually coupled with the utterly ridiculous idea that poverty is as natural as weeds. The doctrine is: If a person is poor no one is responsible for their poverty other than themselves. The truth is that society's economic beliefs and practices sustain poverty, precisely because no one wants to accept responsibility for it, when in fact everyone is responsible for it.

To return to the core theme here, the false doctrine that poverty is natural and beneficial is soon discredited when one attempts to list the benefits of poverty, together with the losses and destructive forces that arise from poverty. The benefit -- the worker soon decides to work for lower pay -- is a fleeting, minimal benefit, and insignificant compared to the many destructive losses that follow poverty. Those losses will include but are not necessarily limited to illness, lowered productivity, fear, depression, loss of skills, loss of commerce due to loss of purchasing power and money in the economic pipeline. It is required to point out, just to make sure everyone understands, that the losses that look like and sound like a loss to the individual are in fact losses for the community and nation. Fear, depression, loss of skills, are not in some magical way losses that apply only to the individual; they are losses suffered by the labor force, by the productive power of the community and nation.

The best comprehensive solution to this problem is a government supported National Labor Reserve. This new institution would inherently encompass a labor reserve at the state and local municipality levels, and possibly regional organizations. The point of an organized labor reserve is to compensate people for being available for work, really available for work, and not as a form of insurance against a risk of unemployment. Also, a labor reserve would take the place of several conflicting programs, including those that require a demonstration of some form of handicap or temporary or permanent disability. A proper labor reserve program would not categorize people as unable to work except in the most extreme cases of physical illness that prevents any type of productive labor, or cases of disabling mental illness. All others, including those with hearing or vision losses, loss of a leg or arm or limited mobility, would all be included in the labor force simply because there are productive forms of labor that they can perform. If they are available and willing to work, we -- society, the nation, the community -- cannot say "No" to them. The kinds of programs that would become superfluous or duplications, and would be phased out, includes unemployment insurance (which could be continued as a benefit paid for by employers), disability insurance coverage, multiple training programs, and possibly certain types of workers' compensation. Vocational rehabilitation programs would be joined to all other training programs and all employee training programs would operate under the umbrella of the Reserve Labor Force. All those who are available would be compensated at a rate intended to prevent permanent economic losses, such as the minimum wage plus a factor based upon previous earning levels, but only for thirty-two hours per week.

During the period when productive labor has not been identified for each worker, they will be provided the space and equipment necessary to work toward returning to full and satisfactory employment, engage in discussion and planning with others in the labor reserve, form teams to explore self-employment and other team-employment ideas, and form sports teams and engage in exercises, outdoor sports and recreation to keep themselves physically fit and mentally alert. Through the reserve labor force system, the government will continuously measure and record the factual data as to which types of labor are being diminished in both the private and public sectors, and which types of employment positions are going unfilled. What types of training do employees need? How are the needs and actions of the private sector affecting the economy? Which members of the labor reserve would make good members of the armed forces? The labor reserve program could dramatically reduce the costs and the problems of recruiting for the armed forces. Technical schools, colleges and universities could also find suitable candidates for a college education directed toward a particular unfilled employee position. There is to be no one willing to work but turned away, no one. The measurable unemployment rate will be zero per cent. The stream of commerce will only experience a ripple during hard times, rather than recessions and depressions. The reserve labor system will naturally evolve into a system to accurately measure, in advance, all of the changes in national labor, changes in trade skills and professions, work being replaced by machines and new positions created by changes in technology.

The objections expected would be the usual accusations of "socialism" and too much government. But these objections are blind and totally invalid. They are as invalid as the blind economic concept promoted by big corporations and conforming economists who claim that war accelerates technological development. This is a ridiculous and unscientific conclusion to draw from our economic history. What really happens is that government involvement and public interest in technological challenges accelerate technological development. What happens when there is a war? The government becomes very interested, mostly through the Department of Defense, but also through the Department of Health and Commerce and many other agencies of both the federal and state governments. During a war both the people and the government must address technological challenges in the shortest period of time. Success is vital to survival. Two obvious examples of such development under public pressure are the Manhattan Project -- nuclear technology -- and the JEEP military vehicle -- mechanical technology. Both played a role in the allies emerging victorious from World War II. But the reason for these great and rapid developments was not war, but public interest and government involvement on behalf of the national need. Consider that a similar rapid development in energy technology occurred before the war as the Tennessee Valley Authority and the Hoover Dam. Both of these electrical generation projects occurred through public need and government sponsorship. Both are excellent examples of rapid improvements in technology that had a profoundly positive effect on regional economies and the national economy. These two occurred strictly due to government interest during peacetime. War is not the true source of rapid technological development. In either peacetime or wartime, the true cause of technological and economic revolutions is public interest and government involvement. The government has to assure success in the shortest possible time and at the most suitable expense. That is the source of technological and economic development, not war.

Another example is how Yellow Fever was controlled due to the public need for the Panama Canal. Improvements in canal design and canal building technological, and control of tropical diseases, all accelerated because of the public need -- and international need -- for the canal project, not because of a war. Therefore, the effectiveness of a reserve labor force system would be developed and maintained because of the public need and government involvement. Certainly private industry could participate if they wish. In any case, when prospective employees are trained at public expense, private employers could be required to pay a training fee when they hire people trained at taxpayer expense; that would be application of the free-market system and would also be a great example of running the government like a business. Why should the taxpayers train employees to make a profit for private investors? We have to pay for what they sell; they can pay for employees that we train. There will be a labor reserve system some day, I am sure. What I don't know is how long it will take the people and the government to wake up and stop being used by the rich and their corporations.

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