The claim that globalization is killing jobs is designed to distract us from the big elephant in the room — automation. Yes, there were some great production-line jobs back in the 1950s and 1960s where workers stood shoulder to shoulder in automobile assembly plants. But times have changed. Most of the manufacturing jobs coming back to America will go to robots. Unless Republicans pass legislation to allow robots to vote, they are not going to get much from these trade wars. The real purpose for blaming foreigners is to distract attention from the enormous amounts of money saved through automation and where that money has gone.
Economists call the mistaken idea that there is somehow a limited number of jobs in this world and we need to fight over them the Lump of Labor fallacy. In reality proper monetary and fiscal policy can increase the demand for goods and services to increase jobs and reduce unemployment. The real issue is the quality of the jobs especially in terms of the current levels of compensation for most working class jobs. There is no fixed number of jobs to be fought over.
The government can adjust the money flow to increase or decrease the number of jobs any time it wants to, but major employers who provide the most campaign donations would prefer a moderate degree of unemployment to maintain the “reserve army of the unemployed” to keep downward pressure on wages.
More money going to people who will spend it will increase demand and jobs. For example, the Federal Reserve can buy existing U.S. Treasury securities in the financial markets with money created out of “thin air.” By injecting money into the financial markets in this manner, the Federal Reserve can lower interest rates and facilitate auto loans and mortgages to help create more jobs in auto production and housing construction. With those jobs and more money, those workers will increase the demand for goods and services to increase the overall number of jobs in the economy. Of course, the Fed must avoid creating too much money, which could cause inflation if taken too far. The Fed’s mission is to establish and maintain full employment and stable prices.
Supply-side economics assumes that there is a shortage of investment money and that any additional money will go to creating more jobs. After all, financial markets were created to make money available to entrepreneurs to create new businesses and new products and to pay hard working people to produce more and better goods and services.
What supply-side economists fail to understand is that the financial markets on Wall Street have become increasingly separated from the real economy on Main Street. For several decades the New York financial markets have been growing at a much faster rate than the real economy. This has made investing in the financial markets much more profitable than investing in the real economy.
Large corporations have been buying back their own stock to drive up their stock price instead of investing their money in improving their productivity or creating new products and services. Even nonfinancial firms without stock in the stock market have found that it is more profitable to invest in the stock market than invest in their own companies. In fact, a money flow reversal has developed in recent decades that is moving money out of the real economy and into the financial markets. This is suppressing productivity and economic growth.
The money flow reversal has reversed Say’s Law from “Supply creates its own demand.” to “Demand creates its own supply.” The world today has an enormous capacity to create goods and services. Under ordinary conditions, automation and globalization together generate an almost unlimited supply. The problem is that demand is relatively weak with many consumers up to their eyeballs in debt and the federal government using deficit spending to pump up demand to keep the economy out of a recession.
Under our current economic system, hard work pays off. But not for the worker doing that hard work. The worker’s hard work pays off for the shareholder. As automation has taken over in production, industries have become more concentrated and less competitive and profits have grown enormously with much less money (in real terms) going to both labor and real capital investment.
At first I thought that automation was increasing the share of real capital investment. I was astonished to learn that both labor and real capital were losing out to financial capital. Simcha Barkai (2020) calculated the capital costs for the US non-financial corporate sector over the period 1984 to 2014 and found that while labor’s share has dropped by 11 percent, the share of real capital has declined 22 percent. Neither labor nor real capital were rewarded, as most of the money flowed to pure profits. See Simcha Barkai’s article “Declining Labor and Capital Shares” in Journal of Finance, 2020, vol. 75, issue 5, pp. 2421-2463. https://doi.org/10.1111/jofi.12909
The cutoff for being in the top 10 percent wealthiest people in the United States is about two million dollars. The most recent data from the Federal Reserve shows that 93 percent of stock market wealth is now owned by the top 10 percent wealthiest Americans (up from 84 percent several years earlier).
When interest rates rise, wealthy people say “Great, I will earn more on my money.” while most Americans say “Oh, no. I will have to pay more on my debts.” The law of compound interest over time can produce enormous wealth. Once a person has a few million dollars, they tend to judge their success (and self-worth) on how much money they have and not their need for money to pay the rent and buy groceries. This is why President Trump see tariffs as important for keeping money and is not concerned about acquiring a new pair of sneakers or a less-expensive mobile phone. One billion dollars is a thousand million dollars. For exceptionally wealthy people it really doesn’t matter to them whether a pair of sneakers cost $10 or $1,000. It is all chump change.
To President Trump tariffs are just another way of acquiring more money. Revenue from tariffs can be transferred to wealthy people through tax cuts. Carefully targeted tariffs can also sometimes be useful politically as both President Biden and President Trump have demonstrated. By blocking competition from abroad, tariffs drive up prices and benefit workers in industries where the tariffed products are outputs but cause layoffs in industries where those products serve as inputs. For example, using tariffs to block steel and aluminum imports will increase domestic production but decrease overall supply and drive steel and aluminum prices up. But those higher prices will cause prices in industries that use steel and aluminum as inputs to go up as well. Demand will fall for automobiles as their prices rise due to the higher steel and aluminum prices and auto workers will face cutbacks and layoffs.
Politicians step in when workers see that they will benefit or that they will be hurt and speak up. Steel and aluminum workers clearly benefited and are well-represented by the United Steel Workers Union. But automobile workers complained so President Trump exempted steel and aluminum parts going into automobile production. Other workers in industries that use steel and aluminum as inputs didn’t complain or didn’t complain loudly enough to get attention so they lost jobs from the imposition of those steel and aluminum tariffs. Many other products such as refrigerators, stoves, microwaves, washers and dryers will also go up in price, which will suppress demand for those products. Both President Trump and President Biden benefited politically from steel and aluminum tariffs, but the country as a whole lost out with higher prices and fewer jobs in other industries. In other words, tariffs just raise prices on consumers and create a game of musical chairs in jobs where some workers benefit and others lose out.
But what about the enormous savings fromautomation? Before the mid-1970s as output per worker increased, the compensation per worker increased along with it. In econ-speak, workers were paid “the value of their marginal products.” But starting around 1976, while output per worker continued to increase, the real compensation of workers leveled off and failed to increase in real (inflation adjusted) terms. The emphasis on maximizing shareholder value via higher corporate profits took hold. With CEO and CFO stock options, the goal became to raise the company’s stock market share price as high as possible.
In 1952 unions were powerful when John Kenneth Galbraith wrote his book “American Capitalism: The Concept of Countervailing Power.” Companies controlled block of jobs. Without unions, workers would have to compete with one another, while company jobs stood together in a single block called a localized monopsony. The imaginary world of individual jobs competing with one another against individual workers in competition with one another for each of those jobs is pure fantasy.
Twenty-eight states have “Right-to-Work” laws or equivalent restrictions to use the “free-rider” problem to prevent the formation of unions. Nonunion “scabs” not only avoid paying union dues but usually get overtime pay for working during a strike. If production continues during a strike, while grocery bills and rent payments continue to pile up, the strike may end without much improvement in pay or working conditions.
In 1955 unions controlled about 35 percent of America’s workforce. According to the U.S. Bureau of Labor Statistics, in 2024 only about 10 percent of all workers were unionized while only about 6 percent of private-sector workers were unionized. Without the countervailing power of unions, wages are set well below what would otherwise be the free market equilibrium wage. After the mid-1970s workers were no longer paid the value of their marginal products. Virtually all of the savings from automation were going to profits. Credit cards were created in 1946 but did not become widely used until the 1980s after workers could no longer buy back the value of the goods and services that they were creating.
But driving up private debt to enormous levels to maintain adequate demand for goods and services was not enough to avoid an economic slowdown. Republicans and Democrats say they hate federal deficit spending. But Republicans passed unpaid for tax cuts and Democrats passed unpaid for expenditures using federal deficit spending to keep the economy out of a recession to avoid losing votes at election time. They could not avoid the consequences of the distorted money flow that minimized worker pay in order to reward passive investors (who when using mutual funds may not even bother finding out what companies they are invested in).
The excess profits from automation were no longer being used to pay workers the value of their marginal products but instead were plowed back into companies’ stock market share prices. A company does not get any additional money when it stock share price increases unless it issues new shares. Only existing stock holders benefit, which often include the company CEO and CFO, especially if they have stock options.
Before 1982 the Securities and Exchange Commission (SEC) ruled that stock share buybacks were a form of insider trading and were illegal. But in 1980 Ronald Reagan was elected president to carry out his war on government where he said “Government is not the solution to our problems. Government is the problem.” He promised to get rid of many of the regulations that were put in place after the stock market crash of 1929 and subsequent Great Depression where half of the banks in America went bankrupt and 25 percent of American workers were thrown into unemployment. In 1982 wealthy stock holders pressured politicians to make the SEC drop the restriction on stock share buybacks.
What can be done to “Make America Great Again” by permanently fixing our broken, screwed up economy and the distorted money flow that has created the huge divide between the wealthy, well-educated elite and the rest of Americans who are up to their eyeballs in debt, including the two-thirds of Americans who do not have a college degree and typically feel cheated and left behind?
To stop the distorted money flow that is over-rewarding the wealthiest 10 percent of Americans who own 93 percent of stock valuations (which is currently leaving most other Americans and the federal government with excessive debt) and to stop the resulting reverse money flow that is suppressing productivity and economic growth in our economy, we need to take the following five steps:
(1) Direct the Securities and Exchange Commission (SEC) to require that any stock shares bought back be immediately distributed to rank and file employees. This will redistribute the shares instead of reducing the shares, which will have less effect on the stock price than taking the shares out of the stock market entirely.
(2) Allow the Federal Reserve to speed up or slow down the economy directly instead of relying on purchasing or selling securities in the New York financial markets by having the Federal Reserve create a “FedAccount” for everyone with a Social Security number where all IRS refunds and direct stimulus money can be deposited as needed whenever an economic slowdown threatens to throw the economy into a recession.
(3) Get Congress to reissue The Postal Savings Act of 1910 and put the Federal Reserve in charge of running and paying for the post office (USPS) so that taxpayers will no longer have to pay for the USPS. Whenever inflation becomes a problem, the Federal Reserve could offer a high interest rate (e.g., 10 percent) on up to a maximum amount (e.g., $10,000) on each “FedAccount” which could be accessed both online (either directly or through private apps like Venmo, PayPal, Apple Pay, Google Pay and others) and at all of our over 30,000 post offices throughout the United States.
(4) Follow Germany example by getting Congress to require that 40 percent of the members of corporate boards be elected directly by rank-and-file employees. By replacing the CEOs golf buddies with company employees from product development, production, marketing, sales and distribution, the board would not only have direct inside information about what was going on in the company (instead of relying on the CEO’s reports to the board about what a great job the CEO was doing) but would also have a stronger incentive to reward the creative entrepreneurs and hardworking employees in the company.
(5) Promote employee stock ownership plans that turn a company into a team of owners who work together to create new and better products and services. Encourage the use of pensions and stock ownership to reduce employee turnover and build long term employee commitment. In a company that is employee owned, payments in the form of stock dividends would be taxed at a lower rate than ordinary worker pay.
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