On November 18th, I’ll be going to a lecture presented by Dr. Robert Reich, the former Secretary of Labor for the Bill Clinton administration. Dr. Reich is also the author of twelve books, including his recently published book, Aftershock, The Next Economy and America’s Future. In preparation for the lecture, I read his new book, which was a surprisingly easy and enjoyable read, that is, for someone who enjoys reading economics.
In the book, Dr. Reich makes the case that the widening gap between the top one percent of American earners and the rest of us has been the driving force in the current economic crisis. He presents a chart that demonstrates that the percent of American wealth held by the top one percent of Americans peaked in 1928 and 2007, prior to the “Great Depression” and the “Great Recession.”
In a brilliant NY Times article of November 2006, written by Ben Stein, a card carrying conservative Republican, prior to the 2007 crash of the Dow Jones, the same case is made that we don’t tax the rich enough. Ben Stein cites a conversation with Warren Buffett in which Buffet declares, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
To strengthen Dr. Reich’s case that a historically severe disparity exists between the income of Americans, he presents this graph, which clearly demonstrates the wealth of Americans is becoming more and more disparate between the top tier and both the middle and lower class.
Today I found this supporting graph that demonstrates that minimum wage rate stagnation has contributed to the inability of the minimum wage earner to work him or herself out of poverty. According to this graph, minimum wage never was enough to move beyond the poverty level, but nowadays, the minimum wage brings the mimimum wage worker nowhere close to the breakout point.
In a nutshell, Dr. Reich, Ben Stein and Warren Buffett are all telling us one thing. The rich hoard their money simply because they have far more than they know how to spend. (I’m not talking about wealthy pest control owners, I’m talking about the super-rich). The other 99% of us are much more likely to circulate our money, simply because we need to. We need groceries, transportation, education, housing. Without that money being more evenly distributed to the 99% of us, we have been forced to turn to credit! Since we didn’t have money circulating, the federal government then was forced to turn to credit, by printing money and getting foreign governments to finance that debt. All these wise men are saying that credit is NOT the cause of the crisis we are in. Credit is the RESULT of income not being in the hands of people who spend it!
I was surprised that I could agree so readily with Dr. Reich, yet disagree so much with his solutions. One of his recommendations is to index minimum wage to the cost of living. Those who are familiar with super-inflation that has destroyed many national economies have found that the solution is abolishing wages that are indexed to inflation, which causes a winding spiral of hyper-inflation. Dr. Reich does not mention how those with minimum wage would react in a deflationary environment which should cause an indexed minimum wage to fall.
Also, Dr. Reich suggests that we should penalize profitable employers that layoff workers by making them responsible for up to 90 percent of their wages. I think there will be a lot of workers lining up to get fired!
Nevertheless, if Dr. Reich, Ben Stein and Warren Buffett are correct, what can and what should we do?
1) We pest control operators and pest control workers need to realize that we are in the same boat. We sink or swim together.
2) On a small scale, pest control owner/operators need to protect the profit margin, for our fair livelihood and return on investment, and to provide a cushion against business risk and economic pains that are beyond our control to alter.
3) Pest control workers must have a better appreciation for the risks that owners take on their behalf. We need to communicate better to keep our workers in sync with our economic condition. In the absence of communication, it is quite natural for workers to make assumptions that owners are doing far better than is the reality.
4) The benefits of work needs to be distributed in a manner that fairly recognizes labor and the risks that labor take every day in the production of income for the company. That means providing a living wage and benefits that protect our workers from unforeseen illness and hardship, to the best of our ability. If we are barely better than minimum wage providers, what are we telling our workers, that poverty is ok?
5) We owners and workers must be attuned to the future and the importance of education in preparing for the future. Dr. Reich speaks about the need to change the welfare system to a reemployment system. Agreed! But I prefer that we continuously seek training within our companies such that our skill levels increase and change with the needs of the company.
6) We should encourage Democratics, Republicans, independents, to seek further changes to the credit systems in which business, families, individuals function, to make more credit available at reasonable rates of return, without hidden clauses, escalation fees, early termination penalties, options that can jump rates to extortionary levels. Some change has come, but more is necessary if we are to work our country out of the spiral of credit induced poverty.
7) Reich, Stein and Buffett all agree that the super-wealthy 1% need to be taxed more, closer to levels that once were in effect. But it is hard to get all to agree exactly what that policy should be.
I suggest a guiding principle for tax policy should be to grow business and social responsibility at the same time. Being pro-business and socially responsible is not mutually exclusive, rather it is mutually inclusive.
We must all work harder, smarter and most of all TOGETHER, toward common goals that support the welfare of the individual, the family and the company that sustains them.