Proposal for a Fair & Dynamic Market-based Economy
The following is consistent with the principles of capitalism. The economy must match the values of the community in which it resides. Those community values are defined in the Constitution both of the Federal Government and the State Government. The economy must also benefit the community as a whole; the existence of a stable market requires the existence of a stable government and a stable community. This proposal maintains focus on a market economy, rooted in the notion of a fair market.
If the cost of living in a given community is $30,000, the AVERAGE wage in that community would be $1,500,000. Want a raise?
There is a fallacy known widely as a free market; free markets do not and cannot exist; they are theoretical. Absent regulation, a market will tend to favor the powerful and diminish the weak; over time, this will destabilize both the community and the economy. If free markets were to exist, they would naturally approximate what I have outlined below. The degree to which an economy veers from what I have outlined below is the degree it differs from a theoretical free market. Contrary to popular belief, the approximation of a free market requires rather than abhors regulation. Put another way, Libertarianism is the opposite of a free market.
The primary goal in the following economic model is to produce a bell-curve distribution of wealth and income. If a free market were to exist, it would naturally produce this bell-curve distribution.
- Minimum wage = 1x Cost of Living of local community
- Maximum wage = 100x minimum wage*
- Maximum # employees on minimum wage ≤ 5% #employees
- Maximum # employees on maximum wage ≤ 5% #employees
- Average wage in company = 50X minimum wage
- Average wage of lowest 50% of employees = 25x minimum wage
- Average wage of highest 50% of employees = 75x minimum wage
- Employees must share in ownership of products they help to develop, proportional to their wages minus bonus to primary inventor* of product
- Parity in all other benefits to all employees (vacation, etc.)
- Corporations must serve shareholders, employees, community standards
- Corporate boards must have equal representation from shareholders, employees and local community
- Employment in company must match demographics of local community
- Distribution of demographics within company must approximate a bell curve
- Corporate values must be consistent with Constitutional values
- Universal Healthcare
- Universal Education
- Universal Childcare
- Compensation to primary caregiver in each family, to match potential earnings were they to be working
- Compensation to each family for each child equal to 1x minimum wage minus 50% cost of housing
- Compensation to disabled citizens to equal 50X minimum wage (average wage) minus earned income and savings
- Compensation to elderly and retired citizens to equal 50x minimum wage (average wage) minus earned income & savings
- Tax rates set as bell curve relative to wages & needed revenue
- Taxation on low-end wage earners cannot drop their real income below minimum wage
- Federal and State taxes must be progressive, not regressive (Constitutional Amendment)
- Corporate/Business taxation must be rooted in local community where the primary business is conducted
- Wages to government employees and officers must have parity with wages in the private sector
- Land Use and Zoning, except for some industrial zoning and some overall designations of urban and wilderness zones, will be eliminated
Distribution of Wages Within a Sample Company
Assuming a Cost of Living of $30,000, this chart shows pre-tax wages for each quintile of pay grade within the company. Actual pay grades would be more granular than just 5 different grades:
Distribution of Total Wages, Company Wide
This chart shows the total distribution of all wages combined, broken into quintiles. Actual distribution would be more granular. But this represents the basic bell curve of distribution. The slight skew on the upward side represents the natural value of longer-term employees to the company. This chart assumes a $30,000 Cost of Living and 100 total employees.
*To Be Determined
- Whether a company can raise the minimum wage of its employees above the community cost of living, thereby increasing the maximum wage.
- Ownership, bonus and incentive for primary inventors of products and/or services
A maximum wage is absolutely required for a fair and functioning market-based economy. Absent a maximum wage, wealth and power will tend to accumulate and produce the same deleterious affects on an economy as does a monopoly of products in a marketplace. The current state of the U.S. economy, wherein CEO’s regularly receive compensation 600x or more the cost of living exists not due to a free market, but rather due two primary factors: 1) an anomaly of the emergence of global markets absent a mechanism for global economic oversight and 2) the natural perversion of the fallacy of free markets and the ability of the powerful to shape markets and regulations to their benefit. The notion that anyone has “earned” the types of salaries we now see at the upper ends of our economy are based in exploitation, not in a valid market theory.
Disabled or Other Abled Community Members
A stable economy must recognize that certain of its members are simply unable to properly participate in the market economy. These include children, caretakers, the disabled, and the elderly. For a market to remain stable and fair, these citizens of the community must be accounted for.
The Role of Government in Regulating the Economy
It is simply a fallacy that any stable, fair market can exist absent regulation. Therefore, government has a central role in the economy. The primary aim of government should be to create a stable community and to monitor and adjust the equitable distribution of wealth and income within that community. To the degree that such distributions deviate from a bell-curve indicates the degree to which an economy is deviating from a fair (and theoretical free) market.
Government employees should be paid commensurate to their equivalent value in the private sector. The value of government is equal to the value of the private sector in maintaining a stable and therefore productive economy.
Government services, such as universal healthcare, police and armies, education, etc., are meant to provide those services which are poorly distributed in a market-economy, and which are necessary to create the conditions for a stable and productive community and economy.
Adjustment for Small Business
Clearly some of the ideas degrade when applied to small businesses. Proposals to account for those differences would have to be made.
Cost of Living Assumptions
For the purposes of this article, I have set the cost of living at $30,000/year. My guess is that were such a system to be implemented, the cost of living would rise significantly, creating less of a gap between basic cost of living and the 25th percentile average income. Currently that difference jumps from $30,000/year to $750,000/year. I think that difference would be lessened, and minimum wage would rise significantly higher than $30,000/year. Of course, such a system would dramatically change the differences in standards of living that we now experience.
- Watch a video of an Interview of Nick Hanauer on The Young Turks. In this video, Nick explains the ways in which our economy has been turned upside down from traditional market economics. Much of my thoughts here are inline with his thoughts there.
- To see a previous post outlining the current distribution of wealth in the United States, please visit my article: Makers, Takers and the Future of American Economics