President Obama Puts Spotlight on Economic Inequality

12/23/2013 10:58 am ET | Updated Feb 22, 2014

On December 04, 2013, Barack Obama gave the most important speech of his presidency. The topic was the rising level of economic inequality in America, which the President identified as "the defining challenge of our time: making sure our economy works for every working American."

Numerous transformative shifts have come together over the last few decades, he said, to create "an economy that's become profoundly unequal and families that are more insecure." The trends are "bad for our economy ... bad for our families and social cohesion ... bad for our democracy." President Obama declared:, "[T[he basic bargain at the heart of our economy has frayed. In fact, this trend toward growing inequality is not unique to America's market economy. Across the developed world, inequality has increased."

The President stated further, "But this increasing inequality is most pronounced in our country, and it challenges the very essence of who we are as a people. Understand we've never begrudged success in America. We aspire to it. We admire folks who start new businesses, create jobs, and invent the products that enrich our lives. And we expect them to be rewarded handsomely for it. In fact, we've often accepted more income inequality than many other nations for one big reason: Because we were convinced that America is a place where even if you're born with nothing, with a little hard work you can improve your own situation over time and build something better to leave your kids. As Lincoln once said, 'While we do not propose any war upon capital, we do wish to allow the humblest man an equal chance to get rich with everybody else.'"

The new reality is that only a fraction of "hard working" Americans will break through the barriers to become wealthy through ownership of wealth-creating, income-producing capital assets. No longer is "hard work" the assured path to upward mobility and building wealth.

Every op-ed editorial columnist who has addressed the subject of economic inequality has couched his or her column from the perspective of a one-factor thinker by which labor is the reason for productivity gains and should thus be rewarded with increasing wages and salaries. President Obama, also a one-factor thinker, declared that operating forces in the "system" has resulted in "an economy that's become profoundly unequal and families that are more insecure." And that poses "a fundamental threat to the American dream." But President Obama fails to define what he believes the American people believe to be "the American dream."

The President concluded with the statement, "So this is an issue that we have to tackle head on. And if, in fact, the majority of Americans agree that our number-one priority is to restore opportunity and broad-based growth for all Americans, the question is why has Washington consistently failed to act?"

President Obama, while projecting the notion of concern, has failed to advocate specific ideas for reversing inequality outside a jobs bill that relies on taxpayer extracted and incurred national debt to finance infrastructure building (without the stipulation of employee ownership of the companies awarded the contracts), make-work government job programs, and the expansion of government-dependent welfare support programs. Never has the President advocated for the real potential of a future economy without the barriers to economic growth that result in concentrated ownership of corporations and their underlying wealth-creating, income-producing capital assets.

Economists who are one-factor labor only thinkers fail to grasp the reality that full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. The reality is that corporations constantly seek means to production that will cut costs, including an emphasis on replacing stagnant labor productivity with far more productive gains achieved through the employment of human-intelligent machines, super-automation, robotics, digital computerized operations, and other non-human productive capital assets. As a result, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital's ever-increasing productivity and role as an efficient and profitable replacement for labor.

What that means is that breaking down barriers to broadening private sector productive capital ownership and fighting inequality are not mutually exclusive efforts -- they're the same effort, but with the emphasis on ownership creation that exponentially employs the non-human factor of production rather than job creation, which will follow, but continue to be a less necessary factor of economic growth.

The problem is that op-ed writers and conventional economists see production in one-factor labor input terms and claim that a larger portion of economic wealth "really belongs to the workers who are responsible for the productivity gains of recent decades." But the reality is that technological change makes tools, machines, structures and processes ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power -- and relatively constant). The technology industry is always changing, evolving and innovating. The result is that primary distribution through the free market economy, whose distributive principle is "to each according to his production," delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor.

Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment -- thus the political focus on job creation and redistribution of wealth rather than on full production and broader capital ownership accumulation. This is manifested in the belief that labor work is the only way to participate in production and earn income. Long ago, that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Capital provides not less than 90 to 95 percent of the input. Full employment as the means to distribute income is not achievable. When capital "workers" (productive capital owners) replace labor workers (non-capital owners) as the principal suppliers of products and services, labor employment alone becomes inadequate. Thus, we are left with government policies that redistribute income in one form or another. This inequality of opportunity to empower every citizen to become a productive capital owner is the real source of economic inequality.

So while the masses of the American population now presently employed continue to have unsatisfied needs and wants for products and services, and are spending their limited incomes toward fulfilling their desires, they will continue to deny themselves consumption because of the underlying gut fear that they may not have a job in a year or five years, with no alternative except for a greater reliance on taxpayer extracted and incurred national debt financed government welfare, open and concealed. What purchasing they have done is arguably traceable to credit card debt and loans based on limited home equity values, as well as a practicing spending conservation. The reality is that increasingly more Americans are experiencing flatline or declining incomes and benefits from their jobs as well as increasing pressure to work longer hours for the same pay, with poor prospects for retirement security.

Conventional economists, political leaders, and the national media are oblivious to the role of physical productive capital, which is to do ever more of the work, which produces income to those who own such capital assets. Propertyless and under-capitalized Americans sense and experience that they are less secure with prospects for good incomes that they can rely on to support themselves and their families, but they feel helpless to do anything about their plight and continue to struggle on day by day, month by month. They will eventually come to realize that they are a statistic in a nation of industrial sharecroppers who work for somebody else and have no other source of income.

The majority of Americans, dependent on labor worker wages, no longer think that jobs and labor wages will return suddenly -- if at all -- and at a livable earnings level, that the value of their homes will re­bound, or that their limited retirement funds will soon be fully restored. Americans are scared, but attribute their worsening finances to job losses, reduced hours, wage givebacks, and overall reduced earnings. They do not understand the role of productive capital driven by technological innovation and science and the requirement for them to become capital "workers" (owners), as well as labor workers, to earn a viable economic future.

President Obama sees our generation's task "as rebuilding America's economic and civic foundation to continue the expansion of opportunity for this generation and the next generation."

But until we, as a society, understand how wealth is produced, how consumers earn the money to buy products and services and the nature of capital ownership, we will not be able to set a course to obtain an affluent quality of life for middle and working class citizens, where everyone, according to President Obama "can earn enough to raise a family, build a modest savings, own a home, and secure their retirement." We need to build an economy of universally productive individuals and households, through broadened private sector productive, wealth-creating, income-producing capital ownership and real job opportunities resulting from significant economic growth with GDP in the double digits.

Our national economic policy needs to eliminate all barriers to enabling productive capital acquisition to take place through commercially insured capital credit. By doing so the result would be a quiet revolution in which economic plutocracy will transform to economic democracy.

It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.

For specific policy solutions see the Agenda of The Just Third Way Movement and support the Capital Homestead Act.