Summary. This inarrative is stated in very simple economic language. There are no complex formulas or esoteric phrases. It lays the groundwork for creating more GDP, more jobs, more profits, more incomes, and more tax revenues in the US economy. It would create a new path for the M1 money supply (money in circulation) to flow in greater quantities to credit unions, thus making more lendable funds available to small businesses and individuals. The expectation is that it might take 10 to 20 years and $50 trillion in new GDP to reach its goal of keeping constant upward pressure on wages to achieve a Living Wage of $75.000 for most households. It would also decrease the dual inequality gaps in wealth and income, but the total effect is too uncertain to predict now. The change in money flows (M1 and M2 - M1) and the desired results would need to be monitored and adjusted by the Federal Reserve.

Today the US landscape needs economic and social upgrades. Our bridges, highways, airports, seaports, dams, levees and many other facilities are in disrepair. To the credit of an uncertain Senate, the bill that would start to fix many of those issues has already passed that body. But the larger upgrade that is needed would put new life into our jobs outlook, mainly in infrastructure and new energy sources. Beyond the number of jobs, however, we need to give new purchasing power to more than one-half our workforce. Now could be the opportunity of a lifetime to correct a long-standing social injustice need: to raise incomes to a Living Wage level as put forth by economists at the Massachusetts Institue of Technology (MIT). Under the guidance of a thoughtful and caring Congress, plus help from the Executive and Judicial branches, and with an objective of social justice as our guide, we could achieve Prosperity for All within our borders in 20 years or less. What is needed is a Living Wage for all residents.

A Living Wage differs from a Poverty Level wage. Poverty is hardly a worthy goal for the richest nation on Earth. A poverty income merely assures enough food on the table for survival. But we have the ability and the wherewithal to raise household incomes up to a level where the great majority are self-supporting with enough food, fuel, health care, housing, transportation, education, and a few miscellaneous needs to live independent lives apart from government assistance. We have enough potential wealth and income to achieve those ends. Sharing in America’s prosperity is as much a right as any other. We all help to create it. There is no justifiable reason why 90 percent of all household wealth should rest in the hands of just 10 percent of our population, especially when most of that wealth is received via inheritances, unearned and untaxed. It is a happenstance of laws passed to assure it, and no other reason.

There are no luxuries in these calculations, not even modest boosts such allowances for the cost of dining out or for taking annual vacations. The Poverty level is approximately $25,000 per year for a family of four. A Living Wage would raise average annual incomes up to $75,000, plus annual increases to cover the costs of inflation.

A Living Wage is do-able. The following short summary explains how.

First, let’s look at the costs, even though there are also many savings that would significantly lower those costs. We would need to raise the average US household income from about $48,000 per year to $75,000 per year.

We have approximately 66.3 million households that would be affected by this proposal. They have a current average annual income of $32,000. In order to raise them to an average annual income of $75,000 would require a grand total of $3.4 trillion in additional annual income. The question that remains is “How do we do it?”

We would begin by helping the markets increase GDP, profits, jobs, and income. There is a simple relationship between money and transactions that make this possible: M1 X V1 = GDP. This is just a quick measure with the variable “V1” (velocity, or number of times a dollar is spent and re-spent annually). Currently M1 = $5.0 trillion, V1 = 4.9, thus $5.0 X 4.9 = $24.5 trillion in GDP). Note: Data are expressed in pre-2020 changes in the composition of M1 and M2.

Here are more details:

Commercial Banks. There are approximately 4,375 commercial banks in the US. They make money by charging an interest rate on their loans. They currently have assets of $17.2 trillion as of July 2021 (Fed Reserve Flow of Funds Report).

Maxim: Money finds its way via the path of least resistance to its best return for the risks taken.

The problem with the above maxim is that the path of least resistance for lendable money in the US economy is from commercial banks to the largest corporations and to the ultra-wealthy. Small businesses and individuals must wait until corporate and wealthy coffers are full and new money has found its way into bonuses, stock buy-backs, and more wealth for the wealthy. Only then does a smaller amount find its way to small businesses and to individuals where 70 percent of all jobs are created. Economic growth is thus stymied every time the Federal Reserve seeks to stimulate it.

The Federal Reserve orders all new money for printing. Commercial banks borrow it and lend out 70 percent of it to large corporations and to wealthy individuals where it winds its way into bonuses, stock buy-backs, and to into wealth purchases (stocks, bonds, and real estate). Such purchases have negligible impact on job creation and employment. The other 30 percent eventually goes to small businesses and to individuals Remember this: 30 percent of all new money is lent out by banks, while 70 percent of all new money ends up in the wealth accounts of their wealthiest customers. The wealthy get first bite on new money. That is why since the low point of the Covid-19 virus, US household wealth has increased by $32.2 trillion dollars.

Credit Unions. There are more than 5,000 credit unions with 125 million shareholders. Credit unions hold $1.79 trillion, with $1.2 trillion in outstanding in loans. That means they have much smaller accounts ($14,000 per account), but a much higher lend rate to individuals and to small businesses-- where 70 percent of all jobs are created vis-a-vis commercial banks. Credit unions are limited by the Fed to receive M1 funds only for deposits that require a reserve requirement. Remember this: Commercial banks lend only 30 percent of M1 money, while credit unions lend 70 percent of theirs. (www.ncua.org)

Analysis: There are several limiting factors at work in how jobs are created, versus how wealth is created. Jobs are a function of how much money is made available, first, to individuals and small businesses; and second to how much money is made available to large corporations. When the Federal Reserve wants to engage in “quantitative easing,” (make large amounts of money available to the banking system), they make that money available to commercial banks. Commercial banks, in turn, lend in accordance with the least resistance path maxim, i.e., to wealthy individuals and to large corporations. In the aggregate these commercial banks arrive at the 70/30 apportionment rate that significantly favors large corporations and the wealthy over small businesses and individuals. The offshoot to this apportionment is that jobs and workers are the last consideration of commercial banks, hence the label “trickle down” is often used to describe why it often takes a long time to recover from a recession. The wealthy thrive; the economy must wait.

To make matters worse, the U.S. currently has $136.9 trillion dollars worth of wealth in the form of stocks, bonds, and real estate. These are the essential assets of the wealthy. Moreover, 90 percent of that wealth is held by just 10 percent of the population. And the great bulk of that wealth is held by inheritors, who received it unearned and untaxed. (45 of our 50 states have no inheritance tax). Moreover, 90 percent of all current appreciation in the form of new dividends, capital gains, interest, and rents also flow to the same top 10 percent. How could it not? Thus we have a huge inequality gap between rich and poor, with virtually no way to correct it short of a shift in how new money flows into the economy.  

The Fix. The Fed needs to lift its reserve requirements on credit union borrowing. In time as credit unions borrow more and more from the Fed, more and more of those funds can be lent out to individuals and small businesses. Quantitative easing would then have a much faster effect on business expansions, job growth, profits, and on tax revenues. The old ratio of 70 percent of (M2 – M1) flowing to the wealth accounts of the very wealthy would fall, while the amount of new funds flowing int M1 would rise. How long would it take to get more money into M1 via credit unions, thence into the economy to create more jobs, more competition, more sales, more profits, more GDP, and more tax revenues—enough to keep unemployment so low that we would need to constantly reward more and more workers with higher wages? My guess is that it would take about $50 trillion more in GDP over 10 to 20 years. That amount would generate about $7.5 trillion in new tax revenues to help pay for any shortfalls might occur in the economy. But the Fed has some 400 PhD economists on their payroll who are well-qualified to monitor the new data and make adjustments to it as needed. Another monitoring ratio would be the M1 v. (M2 – M1). A change in money flows from 70/30 to 60/40 might be enough.

As more and more businesses expand, and new ones are created with a greater volume of loans, slow but steady rising wages would reduce the need for government assistance programs such as Medicaid, Affordable Care, housing, Food Stamps and similar programs. More and more competition among business pursuits would also act as a constraint on prices.

Concluding. Who would be hurt by this proposal? In the long-run, nobody. This is a proposal designed to grow the economy and GDP, and thus to create its own solution without having to take from one group and give to another. It would also help to reduce both the wealth and income inequality gaps. Our household wealth has been growing for the past 50 years at a compound annual growth rate of 7.2 percent. In just 20 years the wealthy will have $496 trillion of wealth. That is at least $490 trillion more than they could ever figure out how to spend or give away. A restoration of the inheritance tax on inheritances over $10 million would also be justified.

Think about it. This proposal would simply unjam the lending bottleneck that occurs at commercial banks to let the economy expand as free markets were intended to function. Credit unions are set up now implement the fix. It’s simple and do-able. Read it, then send your comments to the Federal Reserve Board of Governors, to the National Association of Credit Unions, and to the Presidents Council of Economic Advisors. After that, send a copy to 10 of your closest friends and ask them to do the same thing. Humanity will honor you for it. If you are rewarded with a finder’s fee, plant a tree, give something to ASPCA, and feed a poor hungry person.