Jared Bernstein
Center on Budget and Policy Priorities, #1200
1275 First St. NE
Washington DC 20002

re: Time to Adopt the MIT Living Wage Calculator

Dear Dr. Bernstein:

First, congratulations on your appointment to the President’s Council of Economic Advisors. You were my first choice to be the leader of his group.

Here is why I am writing: The US needs to adopt the MIT Living Wage calculator as a matter of policy if wages are ever to rise up to a livable level for most Americans. Developer, Dr. Amy Glasmeier, says that our national average wage should be $60,000 to $90,000 annually for a family of four, depending on location. Anyone who lives and works here knows this income range is about right--minimally. The details by state and county are in her well-documented website: livingwagemit.edu.

This objective is do-able. Adopting a Living Wage also would begin to move our thinking away from the antiquated Poverty Level (a measure of squalor). We would then have a glorious new goal worthy of any enlightened society. It would take about $5 trillion and 10 or so years to achieve, but what a goal! The CBO could confirm the new money requirements. We would not be taking anything from the rich. It would all come from new money and future growth, therefore nobody—not even inheritors—has a logical monetary claim on a physical future that is not guaranteed to anyone.

Achieving this goal would also significantly close the two inequality gaps (wealth and income); and it would greatly reduce most of the elements of poverty: hunger, drug usage, suicides, mental health issues, obesity levels, illiteracy, crime rates, teen pregnancies, lowered life expectancies, incarceration rates, and social immobility. All these relationships are well-documented by Pickett and Wilkinson in their book, the Spirit Level.

This is your moment and your issue, Jared. Your immense presentation skills, honesty, and knowledge come across with astonishing clarity on TV, along with your keen analytical mind for economic and social issues.

The Challenge. We need to direct less new money into M2 – M1 (saving), and more new money into M1 (spending). We currently have $13.4 trillion in M2-M1, and $5.7 trillion in M1. That means we are driving the economy with just 30 percent of our money supply, while we are driving more wealth for the wealthy (via stocks, bonds, and real estate values) with 70 percent of our money stock. Why? Because corporate bankers decide how much goes into each channel. They load up the lion’s share of M2-M1 first (to themselves and to corporate CEOs), while much less trickles down to small businesses and individuals. The M1 flow is much too small to grow the economy. The Fed provides, but corporate bankers decide. That is the bottleneck and the central obstacle that first needs to be reduced, and then eliminated.

The Opportunity: We need to redirect more of M1 to our 5, 091 credit unions, and reduce new money flows to the 4,430 commercial banks. It’s that simple. We have 400 or so Ph.D economists working for the Fed. You and I both know they have more than enough brain power to alter those dollar flows without creating inflation. Legislation is needed for the Fed to increase money limits to credit unions. That would unclog the bottleneck in the banks. All the rest would solve itself. It could be implemented very slowly at first, so it doesn’t frighten the die-hard ideologues on the far right. They don’t know it, but increased GDP means more prosperity for everyone—including them!

Objections: Dollar flows into the stock markets would slow at first, but new GDP growth would produce growing domestic wages, plus new money inflows from overseas would offset slower money inflow to stock markets. We know also that wages rise mainly when the economy is at full employment and there are not enough workers to meet demand. We also know that the top 10 percent now hold 90 percent of all our wealth via inheritances. This total doubles in value every 10 years (at 7.2 percent CAGR) from rents, dividends, and capital gains. It is a mathematical fact that 90 percent of all wealth is unearned via inheritances that also attract 90 percent of all new wealth via rents, dividends, and capital gains—also unearned. Actually, those relationships are not guesses. They are provable via 3rd grade arithmetic and 4th grade logic.

A Mental Visual: Consider 5,000 credit unions with $5 trillion more in lendable assets serving 105 million members, with average wage increases of $15,000 to $45,000 each member (for food, fuel, housing, education, health care, and transportation needs); versus 4,000 commercial banks with $5 trillion that is directed into CEO bonuses, executive stock options, and stock buybacks—with little change in the prosperity level for average Americans.

There are a number of well-intended organizations who are beginning to work on a few of these issues. So far wages, and Gini coefficients for wealth and income have not shown any indication at all that they are being effective. Suffice to say, this is not a time for small ideas. We need to “think bold, or go home.” I am sending a copy of this letter to Robert Reich and to Paul Krugman, later to the new president of the national credit union association. I’m sure they will have a few bold ideas as well. As for me, I am retired, beholden to nobody, and therefore a fountainhead of ideas!

Good luck and much success to you.

Edward Phillips, PhD