"The Other Economy"-A Response to the Responses
TYLER, GUS
A Response to the Responses BY GUS TYLER Since its publication, our special issue on "The Other Economy: America's Working Poor" (NL, May 8) has elicited an unprecedented number of responses. A...
...has always existed and probably always will" is to empty economics of all ethical content...
...and their buffeting will help polish the final product, a book...
...The only question isfor whose benefit...
...In short, the negative income tax is limited in its worth...
...Our forthcoming conference on the Other Economy will attempt to provide a first step toward the ultimate formulation of such a desirable policy...
...And what happened this last winter to the alleged shortage of natural gas...
...Out of respect for Drucker, I reread my piece to see where I said that unions and government impoverish the poor...
...The several scenarios offered as possible remedies," we continued, "are not intended to suggest the last word...
...So lowered demand has resulted in higher prices-contrary to the old law...
...It is none other than Peter Drucker, eloquent spokesman for business, who makes the point that the biggest capitalist in America is worker pension funds...
...Even those who talk about eternal inequality, though, do not quite accept this unpleasant "tradition...
...They will enrich the announced second stage of the effort to engage the public interest, a national conference on the subject (at present planned for next spring...
...No quarrel from us...
...hence, we proposed the Swedish approach as one possible scenario...
...If we failed to focus on this top priority, it was only because we assumed that a commitment to maximizing the national potential is a sine qua non for the future health of the country's economy...
...The evidence is that income distribution has not changed appreciably in this century (I would welcome any facts to the contrary...
...And it is this old-fashioned law that has been repealed by many large businesses...
...Throughout the years of fullest employment in America, there existed that Other Economy where workers were underpaid because they were in the wrong place-namely, in the competitive sector...
...But to speak about "many" big corporations and "many" small entrepreneurs as if "many" are all, or even most, is indeed "deceptive...
...Fundamentally, the oligopoly sets the price by limiting the supply for some commodity or service with a highly inelastic demand, like food, fuel, phone, electricity, or manufactured items that are a must in our modern culture...
...If nothing else, we are in a debate that goes to the question of what should be, that does not confine itself to the petrifying process of measuring and then treasuring what is...
...Peter Drucker takes a kind of devilish delight in noting that "neither government policies nor (especially) labor unions can have any impact on the distribution of income and wealth, except to impoverish the poor," as was long ago foretold by "Ludwig von Mises and Frederick Hayek...
...In the Communist countries there are gross inequities of income that often reflect the disparities between our own capital- and labor-intensive sectors...
...Many big corporations have done poorly as regards profits, and many small entrepreneurs have done well...
...conversely, a rise in supply with constant demand will send prices down, while a fall in supply with constant demand will send prices up...
...What is more, as we pointed out, about 97 per cent of the businesses in America are dependent on the "money market" for their financing...
...If a woman supporting a family of three or four works hard and skillfully in the Other Economy and ends up with $4,300 for the year in take-home pay, it is helpful to give her some NIT money...
...I played it conservatively and suggested that 5-not 1 or 2-per cent can "often mean complete say...
...But I understand how Drucker may have concluded that I did say so, because he confuses distribution of income with level of income...
...What the criss-crossing arguments in the many responses suggest (whether pro or con) is that Congressman Donald M. Frazer (D.-IU...
...Drucker concludes that my essay is a "valiant attempt" to prove that Mises and Hayek were right all along, and that the reformers (government and union) were wrong all along...
...To say income distribution has not changed in this century means that the bottom fifth receives the same percentage now as in 1900, the top 21 per cent receives the same share now as then, etc...
...Likewise, Whitney's figures are deceptive when he points out that "in 1977, Fortune's 500 industrials earned only 4.6 cents per dollar of sales, so that a change of 1 or 2 per cent in prices and taxes would have knocked out their incentive to produce...
...Leon Keyserling, in his flattering response, reminds us-as he always will -of the importance of full employment, full use of our resources, and the need to do some macro-planning for the society...
...I found no such statement...
...It really is not possible to give a poor family enough cash to enable it to go into the open market to purchase decent medical care or to bid-without rent supplements-for a dwelling in unsubsidized housing, etc...
...Regrettably, the conversion of the pyramid into a diamond, while attractive, is fictional...
...and we could argue that women do not earn less than men (which they do), because many women earn more than many men...
...Unfortunately, or maybe fortunately, we do not know what would have happened in this country if there were no unions and no "welfare state...
...Morgan Reynolds also questions my description of "monopoly" corporate conduct with his comment that "even large firms cannot repeal the law of demand-people purchase smaller amounts at higher prices, larger amounts at lower prices...
...To the extent that the Humphrey-Hawkins bill provides the governmental mechanism to plan full employment and bring about a more equitable income distribution within the various sectors of the economy, it would offer an effective means toward our ends...
...In an inadequate market the machine will come to a halt, no matter how much capital is lying around...
...Just reread the section in my essay on what percentage of the population would now be living in poverty if there were no Social Security, unemployment insurance, food stamps, Medicare, etc...
...If socialist remuneration is defined in the classic way as "from each according to his ability and to each according to his needs," obviously such an ideal and idyllic system is the ethical answer...
...Bayard Rustin points the way by reaching-as always-for the political jugular: the need for a political awakening among the many diverse elements that are victims of the Other Economy...
...The poor need social programs so that the society may do collectively for them what they cannot do individually for themselves, even with a few extra NIT dollars...
...But it does not reward her in the same way she would be rewarded if she performed work of no greater skill in the higher paying monopoly, capital-intensive sector of the society...
...I read this almost simultaneously with the news that Henry Ford had fired Lee A. Iaccoca as President of the Ford Motor Company...
...The New York Times (July 26, 1971) reported on the sweeping power of Dwayne Andreas, chairman and chief executive officer of Archer Daniels Midland Company, who runs his extensive empire with only 7.5 per cent of the common stock in the company...
...The NIT would pay a family a certain sum of money to bring it up to a minimum standard of living...
...I would warn against the deceptive appeal of one-word solutions, like "socialism," or even three-word solutions, like "negative income tax...
...Simply to accept what is, no matter how lopsided, is to allow the strong to oppress the weak on the grounds that the strong have always oppressed the weak...
...But assuming we grant the unlikelihood of total equality of income, we are still left with the question of how great the gaps should be -and why...
...Agribusiness in America limits supply artificially-by marketing orders that restrict output, by withholding crops from the market on an informal organized basis, by getting Federal decrees to limit active acreage...
...Indeed, we do not mean to imply that the socialist solution should be completely dismissed, especially if the democratization of the means of production and exchange is accompanied by a democratization of income distribution...
...and if used to replace other social programs, it is downrightsbad...
...In the original study we sought to identify a malady without pretending that we had the cure...
...It says that a rise in demand with constant supply will send prices up, while a fall in demand with constant supply will send prices down...
...The primary objective of "The Other Economy" was to initiate a public discussion on "America's Working Poor," most of whom inhabit the competitive, small-scale sectors of the business world...
...If this were true, there would be reason to believe that the ancient methods of distributing income can be changed for the better...
...By peddling a product as superior"the taste sublime for an extra dime"-the pitchman can even boost sales by boosting prices...
...Neither would we exclude all consideration of a negative income tax (NIT), even though our initial judgment is that it fails to provide equitable reward...
...First, if investment is too big, the system will get top-heavy with overcapitalization-producing more than the society can consume and topple, as it did in 1929...
...Only 2-3 per cent are in a position to seek self-financing by monopoly pricing and by tax exemption...
...Workers must get paid enough to be consumers who can buy what the heavily capitalized machine produces...
...In common parlance, this is the "trickle down" theory that proposes higher prices and easier taxes so that profits will accumulate in the hands of investors who will then provide jobs by their beneficent investment...
...In Sweden, there has been a conscious attempt to introduce a measure of equity in pre-tax income within the working class and in post-tax income among all classes...
...I never heard of the "law of demand," but I do recollect the "law of supply and demand...
...Still, if the total national income grows faster than the population, the total level of living rises: the bottom fifth can live better and so can the top 21 per cent...
...He argues: "I am not yet convinced the title of [the] special issue is informative rather than deceptive...
...For an update on the pyramidal control of corporate power I recommend "Disclosure of Corporate Ownership," Senate Subcommittee on Intergovernmental Relations, Committee on Government Operations, December 27, 1973...
...Even Reynolds' "law of demand" is regularly violated by corporations that are big enough to brainwash the public through a barrage of advertising...
...And, as we hoped, other proposals have come forth...
...He might have added that when workers get higher wages they also put more money in banks, in insurance policies, in mutual funds, in buying stocks and bonds-all sources of capital formation...
...Without social defenses, inequalities would be even greater in income distribution...
...So the argument for allowing the concentration of wealth to continue is a case of special pleading for the elite of the elite-at the expense of just about everybody else...
...By rearousing an interest in the ethical mission of economics-the child of moral philosophy-the dismal science may yet recapture the social soul it enjoyed with Aristotle, Adam Smith, David Ricardo, Karl Marx, and John Maynard Keynes, and that it lost with those amoral econometricians who weigh the worth of the economy by its efficiency in making more money for the monied...
...The NIT, moreover, is simply not the most dignified or ethically defensible form of income distribution...
...If its success is to be measured by the achievement of this stated purpose, then it has succeeded beyond all expectations...
...In doing so, Rustin reminds us in timely fashion that "through our own programmatic sloppiness and intellectual exhaustion we have virtually abandoned the field to slick antitax hucksters----The fact that so many in the Other Economy eagerly buy these new economic fallacies is, in large measure, our own fault...
...The error here is to measure profits in terms of pennies per sales dollar, rather than in terms of return on investment...
...Although the special issue of The New Leader may not have been the "bugle call" to socialism that Mark Brown expected, it does not seem excessive to hope it will prove a reveille that awakened us to the necessity for coming to grips with a problem too long neglected...
...To return to Professor Whitney, he raises all kinds of questions about our characterization of the capital intensive, monopolistic corporation in "The Other Economy...
...A million-dollar investment may generate sales of $10 million in any year, turning a 4 per cent return on sales into a handsome 40 per cent return on investment...
...The exceptions do not make the rule...
...and that having progressed so far, we can continue to make progress...
...After noting the enduring character of rich and poor, Simon N. Whitney goes on to say that "the situation is better than in the past: instead of a pyramid with a few big incomes at the top and most people at the bottom, we have a diamond with a few large earners, most in the middle, and a few small ones...
...is quite right when he says that just about everybody in the society favors income redistribution...
...The responses have been many, useful and thought-provoking...
...The utilities have contended that they need a higher rate to cover their fixed capital costs, and it has been granted...
...This is the rationale for many proposals to go easy on capital gains, to create new loopholes for corporations, to provide tax incentives to the wealthy-In other words, to ease the tax burden on those best able to bear it...
...We are at the beginning of the search for an answer," we wrote...
...In our times, both unions and government have played a positive role in increasing the national income so that all brackets may live better, even though each bracket continues to get the same fixed percentage of the total produced...
...This deserves further examination...
...As unions have raised wages, they have stimulated buying power and provided an ever expanding market for an expanding economy that can offer more to everyone...
...Second, there are many sources of capital outside the capitalist...
...He notes that "inflation" redistributes income and that the various proposals on energy would redistribute income...
...In challenging the kind of controls that banks and other large holders have over corporations, Whitney says that he "cannot accept that 'control of only 5 per cent of the stock can often mean complete say in the running of a company.' In most big corporations the managers pretty much run the company...
...This collection of governmental and nongovernmental devices has enabled it to manipulate the supply in the supply-demand equation to inflate prices...
...Unions and government have been baking a bigger (GNP) Grand National Pie to make a bigger piece available to everyone...
...Oil companies withheld oil for many painful months a few years ago (alleging a universal shortage), until gas prices doubled and tripled (then the supply became plentiful overnight...
...A recurring theme in several of the responses is the need for the rich to get richer so that they will have the necessary funds to take care of the poor...
...And, without unions, the percentage would be greater about one out of three by my guess...
...Should the NIT be used to provide cash in lieu of various payments in kind-like Medicare, school lunches, Medicaid, food stamps, day care centers, rent supplements, low-income housing, and other "services" that we referred to as the "social wage"-the poor would almost certainly be far worse off than they are under the present set up...
...But I am ready to concede that this is not typical...
...To justify such inequity with the philosophic observation that "inequality of personal incomes...
...Perhaps I failed to emphasize the difference sufficiently...
...No doubt, other proposals will be forthcoming...
...But it should be observed that full employment does not necessarily mean equitable remuneration...
...The government has done the same by using fiscal and monetary policies to expand buying power...
...But, despite the existence today of dozens of nations that call themselves Socialist, not one distributes goods and services in accordance with that definition...
...The role of Humphrey-Hawkins in coping with this central problem should be a pivotal point of our conference...
...Currently very popular with the rich and their nouveau riche mandarins, as might be expected, the theory is faulty at two points...
...Since I object to using select examples as proof for a general theory, though, I should like to recall the conclusion of the House Banking and Currency Committe in 1968 that "even 1 or 2 per cent of stock in a publicly held corporation can gain tremendous influence over a company's policies and operations...
...If we were to accept this form of reasoning, we could argue that the black unemployment rate is not twice that of the white rate (which it is), because many blacks hold jobs while many whites do not...
...Evidence...
...Although we expect that both my proposals and the new ones will get a going over at the conference, I would submit an early caveat...
...But it is a fair presumption that the bottom tenth would be far worse off today than they are, because without the protection of unions and government these weakest in the country would be reduced to a bare minimal existence -as in India, let's say...
...A number of the respondents note that the statement of the problem is compelling, the analysis is enlightening, but the solutions are inadequate...
...Judging from the responses, many have been aroused, with some hailing the essay as "vigorous and imaginative analysis" and others referring to it as "low-grade bullshit...
...A representative selection of these has appeared in the three previous issues (NL, July 3, 17 and 31...
...What is lacking in our society, he observes, is "any policy on distribution...
...Public utilities, for instance, have been getting rate increases because the demand for their product fell after consumers were advised to conserve fuel...
...While that is humane, it is not necessarily equitable...
...Below, we present Gus Tyler's reply...
Vol. 61 • August 1978 • No. 17
