Productivity Gains going to the Top 1%

I have been giving a lot of thought to the Occupy Wall Street (OWS) movement and the more I think about it, the more I think they have a point, especially if you stare long enough at all the economic numbers dealing with unemployment, income growth, and distribution of wealth. But as my brain was absorbing the recent data showing that for the wealthiest one percent of the population average after-tax household income grew by 275% compared with just 18% for the poorest 20%, I suddenly thought of Star Trek. It’s why OWS has even more of a point than it appears on the surface, even though on the surface they have a hell of a point. OK, I know that sounds crazy but let me explain because I think it’s significant.

Gene Roddenbery, creator of Star Trek, had a very optimistic view of the future. It was one of the things that made watching the series so uplifting. The future, according to Roddenbery, will evolve to the point where money is no longer needed. In Next Generation Star Trek, man has learned how to tap unlimited amounts of energy, and more importantly, is able to turn that energy into anything anyone needs. This effectively removes all want and need. It effectively removes the requirement for money because anything one wants can be created with a push of a button. People are no longer motivated by greed and the accumulation of stuff. Rather, people can follow their dreams and do whatever makes them most happy.

OK, I can hear you asking, but what the hell does any of this have to do with OWS? Hang on, I’m almost there.

I think we have taken baby steps toward Roddenbery’s vision of the future. Although we cannot change energy into any object or food at the push of a button, we have moved in that direction. We have learned to automate a number of tasks, lessening the need for human labor. We measure that though an economic number called “Productivity” and productivity has been rising. Since 1870, electricity, air planes, flush toilets, phones, and consumer credit have pushed productivity higher. And with the introduction of computers, computer automation and the Internet, productivity is now at an all-time high. In 2010, productivity rose between 2% and 2.5%. That 2010 increase followed annual gains of 3.5% in 2009 and 1.1% in 2008. Despite some of the worst business conditions since the Great Depression, most corporations found ways to increase efficiency and do more with fewer employees. (See http://www.dailyfinance.com/2011/02/01/productivity-gains-good-news-for-...). They did that mostly through computer automation.

So slowly we are moving toward a world where things can be accomplished with less and less human effort. And this is a good thing. But one must ask, if American workers are becoming more productive, why aren’t incomes of these workers rising. Why is the work week not decreasing? The answer, I believe, is that instead of the workers incomes rising, the CEOs pay is what is increasing. The top 1% of the economic ladder is keeping these productivity windfalls to themselves.

A good example is the banks. Go into any bank and ask the manager how he or she feels about the future. All of them are scared because computers are slowly taking away their jobs. It started with Automated Teller Machines (ATMS) which, as the name states, replaces human tellers. Internet payment methods and the ability to deposit checks using your phone are all reducing the need for real bank employees. Now wouldn’t you think that would mean banks could pay higher interest rates and charge lower fees? Well, the opposite is happening with Bank of America now adding extra fees to even use a debit card. But Bank of America CEO Brian Moynihan will be paid 10 million dollars ($950,000 in base salary and $9,050,000 in stock this year. See http://www.huffingtonpost.com/2011/02/01/bank-of-america-ceo-pay_n_81678...). Can you guess where the productivity dollars are going?

This scenario also reduces tax revenues our government can use for services as money spent on ATMs only generates tax revenue in the form of a 9% sales tax for the equipment. And that tax happens only once. When the bank was paying a real human teller, each paycheck was being taxed at 35% or so. It’s a gift that keeps on giving, both to the government, and to the teller.

But how do we fix this. I believe two changes could be made that would help:

1) Pay Ceiling. Enact a lay that states that no one at a company may be paid higher than 20 times the average salary of a company’s work force. This would encourage companies to pay employees more. (see http://www.businessweek.com/managing/content/nov2008/ca2008114_493532.htm for more info.

2) Reduce work week from 40 hours to 32 hours. I believe this would force corporations to hire more people and help move productivity benefits back to the workers.

Let me know what you think.