Non-Labor Income is a necessary supplement to labor income…

Broadly speaking, capitalism creates two kinds of income.  One is derived from physical or mental labor, the other from ownership of property rights.  At this moment, the middle class gets nearly all of its income from labor.  (I’m counting Social Security and pensions as deferred wages and salaries.)

By contrast,the top 1 percent reaps the bulk of our economy’s capital gains, dividends, and other forms of property income, which are taxed at lower rates than labor income.  This arrangement works nicely for the rich but not so nicely for middle class workers whose wages are being squeezed.

The question that needs to be asked is: From where might the middle class get some non-labor income?  Oddly enough, however, almost no one is asking this question today.  The unchallenged assumption is that non-labor income is fine for the top few percent, but everyone else should toil to make ends meet.

As markets are constituted today, non-labor income doesn’t flow to nearly enough people. Some important pipes are missing.

The most obvious absence is a set of pipes that collect property income from multiple sources and spit it out to everyone.  Such a system wouldn’t be hard to build; it’s essentially a mutual fund with some 300 million shareholders, each with a nontransferable share.  It’s safe to say that the software and hardware to run such a fund already exist. The barriers to building it are political, not technical.

To be clear: I’m not saying that non-labor income should be the primary source of income for most people; I’m saying that it should be a supplement.  The rich would still get most of their income from property, and everyone else would still get the bulk of their income from working.  But everyone should also get some non-labor income as a birthright.  Otherwise, we can kiss our large middle class goodbye.

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