Our old model no longer works

IN THE DECADES after World War II, America’s middle class thrived.  It was supported by huge investments in education and infrastructure, by labor unions powerful enough to win workers a fair share of our economic pie, and by the fact that we were selling vast quantities of manufactured goods to the rest of the world.

Most Americans assumed this golden age would last forever, but it didn’t.  Our high-wage economy has been decimated by globalization, automation and the decline of labor unions. At the same time, a growing share of our output has been captured by financial institutions and corporate executives.

What, then, are we to do?  If we want to maintain a large middle class in the future, we must face the fact that jobs alone won’t do it.  We need to supplement labor income with something else.  But what?

Broadly speaking, our economy 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 (counting Social Security and pensions as deferred labor income), while the wealthy get most of our economy’s capital gains, dividends, and other forms of property income.

The obvious question that needs to be asked is, could the middle class get more non-labor income than it currently does?  Yet almost no one is asking this question today.  The unchal­lenged assumption is that non-labor income is fine for the wealthy few, but everyone else should rely just on labor to make ends meet.

 

Dividends for all

PAYING EQUAL DIVIDENDS to all from wealth we own together is a practical, market-based way to assure the survival of a large middle class.  It can be easily implemented by electronically wiring dividends to every legal resident with a Social Security account.  Such dividends would supplement, not replace, labor income, and could rise over time to about $5,000 a year per person, including children.

 

Such would, over time, by high enough to supplea reliable flow of non-labor income can sustain a large middle class for as long as we have a prosperous economy. What’s more, it

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A SIMPLE IDEA 3

can keep our economy prospering by continuously refresh- ing consumer demand.

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 incomefrom 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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