All Americans can agree that today’s rising income inequality, loss of personal freedom to government power, and fiscal negligence at all levels of government are not sustainable IF we wish to improve the human condition, and enjoy a free democratic society and dynamic job-creating economy. Americans recognize we have arrived at a seminal fork in our nation’s road forward. All-time low approval ratings for the President, Congress and the Supreme Court among all Americans attest to the people’s displeasure with the functioning of the entire government. The aggregate message is crystal clear. The people disapprove federal power as executed today and want more control of their lives. They want to exercise free choice, own the fruits of their labor, and live free without government.
President Obama will highlight income inequality and lack of economic mobility tonight in his State of the Union address. We all agree on the importance of these issues. The nation can pursue one of two roads forward: the road to an Entitlement Society of increasing entitlement and government dependence or the road of our manifest destiny to an Ownership Society based on empowerment, choice, and ownership. The current road demands expanded entitlement programs financed with higher taxation and more government intervention in free markets. As world history has proven time and again, this approach will reduce productivity, employment, risk investment, taxable wealth, and tax revenues, all critical to sustain an economy and a government. The President announced he will use executive order to increase the minimum wage for government contractors and other priorities. Building an Entitlement Society requires dictatorial use of power because clear majorities of Americans don’t support the vision.
We have arrived at this fork because progressive politics, born in the New Deal from the national calamity of the Great Depression and labor exploitation evident from the Industrial Revolution, has used democratic power to achieve well-deserved equal rights but also exact economic remedies via demographically unsustainable entitlement programs to solve the inequities of high performing free market capitalism. Free market capitalism has generated the highest taxable GDP/capita, the highest average household income/capita, the highest income taxes paid/GDP and the highest income taxes paid by the top 20% in our nation’s history. However, we also have a widening income gap between the rich and poor, the highest national debt/household, the highest government dependence with no end in sight, and the highest government spending/GDP. This is a very natural result of progressive politics overlaid on a high performing capitalist system. Capital and labor have competed for centuries in classic Darwinian struggle. Capital always wins because it owns the asset and is more nimble. In game theory, capital is indifferent to cooperate or compete with labor. Labor is rewarded more to cooperate with capital than compete. The road forward requires government to create the right fiscal incentives for labor-capital cooperation.
With all of this government deficit spending (especially in the last five years) financed with borrowing and $1 trillion/year of Federal Reserve money printing, why hasn’t the progressive agenda solved income inequality since the New Deal? Two reasons: 1. Workers earning $52,000 in 2013 median household income are required to pay 15.3% of their income ($8,000) in Social Security and Medicare taxes to a government that spends that money today and does not allow the worker to build any equity in their labor over a long career. 2. Workers’ employers spend another 25% ($13,000) of would be employee income for family health insurance premiums so workers lose compensation to insurance companies. In summary, the average worker is denied personal ownership of 40% of their annual compensation to pay for unfunded federal entitlement programs and first dollar health insurance coverage. How can hard-working Americans generate wealth from their labor when 40% goes to Washington or insurance companies? As I noted in a recent post ‘State of Our Government Dependence’, a worker able to invest their annual inflation adjusted Social Security and Medicare tax payments ($8,000 today) into a low cost stock mutual fund would have $1.045 million in 30 years or $544,000 in present value terms today. If they could add $5,000/year from saved health insurance compensation, they would have $1.8 million or $877,000 in today’s terms.
The path to an Ownership Society demands a government by, of, and for the people, which exists to empower all Americans with exercise of free choice and ownership in their labor; uphold the Constitution; and defend the land from enemies, foreign and domestic. It demands government policy incentivize human cooperation when Harvard Dr. Martin Nowak’s 5 rules of cooperation apply (kin selection, direct reciprocity, indirect reciprocity, spatial selection, and group selection). Policy needs to encourage, even mandate, individual savings and investment and freedom of choice in school, health care, retirement planning, relationships, and all parts of life.
Here are two road maps based on President Obama’s proposed agenda tonight.
The President and his Administration’s policies since 2008 have accelerated the speed to this clear fork in the road for our nation. An Ownership Society directly and meaningfully benefits all Americans, above all the traditional constituents of the Democratic Party who have the most to gain with exercise of their choice and new ownership in their hard work. It’s high time all Americans join Team USA as asset owners so we can reduce income inequality, strengthen our personal and national freedom, and solve the fiscal crisis by broadening taxable wealth creation and limiting government in doing so.