What kind of policies and changes do we need to increase wage growth and encourage savings? In the end, wage stagnation or a lack in wage growth has been one of the most significant forces preventing Americans from saving more money.But as this article identifies, there are real forces contributing to this trend.
In order to grow wages, and increase savings, a number of steps have to be implemented, and many run counter to what the Democrats and Republican propose.
Increase Our Political Voice
The decline in new business directly impacts the lack of wage growth we have seen in this country. Reductions in new business creation have been the result of policies designed and implemented by members of both political parties to increase the advantages of large corporations. As Ross Perot used to say, "We have the best government that money can buy." And with armies of lobbyists, large corporations have been able to squeeze out competition from small and mid-sized businesses, and prevent a large number of new companies from ever entering the marketplace to compete.
Therefore, one of the first steps to actually realizing new policies to improve wage growth, wealth generation, and savings for lower and middle-income American families is to end the two-party monopoly of power.
Regardless of the difficulty, the issue at stake is pretty simple: If we want policies that encourage growth in new businesses, we need to enact significant lobbying reform and policies that support competition to large corporations, which the Democrats and Republicans have been unwilling to do. After many years of self-protecting election laws, regulatory formats, and gerrymandering districts to protect their own political interests, the Democrats and Republicans have become a legal monopoly on political power. While a commercial monopoly can mean horrible prices and poor customer service, our political monopoly means that our government has effectively stopped working for the people, and works only for a narrow group of special interests. As a result, we often get horrible candidates, negative campaigns, and policy-making that is akin to "kicking the can down the road."
Just imagine if every time when you had to choose between a supermarket, a cell phone, a restaurant, or any other product or service, you said, "I don't like either of them. I guess I'll choose this one, because it is not as bad as the other." Not exactly a way to live, right? And yet, most Americans say that every time they go to vote.
So, one of the steps needed to change the economic conditions in this country is to end support for the two-party system. That may mean you need to take a chance and run for office. Or support an independent candidate. Whatever the action, political change needs to take place to improve our economic position.
Wealth Generation for Lower and Middle Income Americans
One of the troubling pieces of data that has emerged from recent stories about new wealth being created is that it is largely in the stock market. While there is nothing wrong with stock market growth or generating wealth from it, the numbers are often manipulated by Democratic and Republicans politicians as evidence of a robust economy.
In truth, most Americans generate wealth from job-related income. Wages are increasing, as shown above, however they are not growing fast enough, and across a wide-enough spectrum of citizens, to start to make-up for bad policies of the past. There simply is not enough new wealth to cover expenses and allocate for saving. And what wealth is being created in the stock market, as noted above, is for a small percentage of Americans, and subject to the highly volatile swings of the market, which can lose trillions of dollars in value over a couple of weeks just as easily as it can earn trillions of dollars in value.
We need other ways for lower and middle income Americans to generate wealth, while simultaneously reduce expenses and encourage savings.
Healthcare As A Wealth Generator
One approach is to look at how traditional benefits, like healthcare, can be converted into wealth generators.
What if we created a system that treated healthcare more like a mix between a Health Savings Account and a 401K? In that kind of system: lower and middle-income Americans would all get HSAs to use for all medical and healthcare related expenses. The HSAs would have a mix of income sources: A small percent would be set side for high-growth in the stock market. Another small amount would be set aside for conservative investment and savings. A third amount would be direct individual contributions (which could be placed into high-growth or conservative investments, or into the general fund, or dispersed between all three). A fourth containing employer contributions that would be tax deductible, and dispersed equally across all channels), and a fifth source being from third-parties that would be allowed to use those contributions as a deduction from their current taxes up to a specific dollar amount - much like donating to a non-profit.
Account holders would have a federally guaranteed minimum savings amount, to avoid having their fund reach a zero balance. Only a percentage of invested money would be accessible at any one time in order to maintain a positive investment balance, and HSA owners would have restrictions on what the money could be spent on - eg - limited to healthcare and medical costs.
The goal with this type of program is to create a wealth generator for lower and middle-income Americans, and provide an incentive to wealthier Americans to donate money either into pools of HSA owners or directly to HSA account owners who qualify. This also bypasses inefficient federal government management and fund dispersal, as well as the danger of Congress which may want to spend money ear-marked for this program on something else.
Another benefit of this type of program is that it could be managed by local governments and / or private businesses with limited federal oversight, and immediately begin to generate additional income that covers one of the largest expenses facing Americans today: healthcare.In conclusion, this one idea allows American workers to gain back lost ground in wealth, re-start greater personal ownership of their healthcare and healthcare expenses, and encourage savings by providing significant short-term and long-term benefits to saving healthcare dollars.
Entrepreneur / New Business Investment Program
Another approach is to use the concept of a "basic income" that is being experimented with other countries, and adapt it to a new business investment program that increases the number of competitive corporations in America. No business or personal income taxes will be collected for entrepreneurs for the first 3 years of their business operations, or anyone they employ - up to 15 people. This number doubles to 6 years and 30 people for new manufacturers who qualify. Instead of a "basic income" that can be spent however a person wants, a new business investment income would be used to allow new businesses to invest in technology such as software, equipment, facilities, postage, and more. A business will have to provide receipts / records for all purchases and have those verified, but the benefit is that the government starts to invest in innovation and new business growth.
One of the challenges associated with the new tax law, and why it was largely unpopular with small businesses when it was announced, is its elimination of deductions that sole proprietors and other small business owners relied on to reduce their burden. The problem is that the eliminated deductions are permanent, whereas the tax cuts are not. In fact, Democrats were quick to call for repealing the tax cuts (but, you will notice, not restoration of the deductions). This program, however, would shield new businesses from any changes to the tax code by simply removing them and their employees from it. The time given to these new companies would allow them to grow and become financially well-enough established that they can compete in the market against more entrenched companies.
People often talk about "education reform," but what is really needed is an education revolution. In a technological society, learning becomes a life-long activity that is fueled by one's desire, not at the compulsion of one's government. The current system of education that we have in the U.S. is outdated, and ill-equipped to handle the knowledge and skill development Americans need to contribute to society, and generate higher levels of wealth.
For starters, it is based on the 19th and early 20th century industrial factory. Over one hundred years of evolution, and our school system is still preoccupied with the total number of days that are spent in classrooms, and measuring performance on standardized tests that require memorization and not the application of knowledge learned.
Second, even our policy-makers think of education in the old factory model, and children like pieces of equipment that can changed during the assembly process. Instead of fostering individuality and creativity, and allow students to pursue their interests, everyone is expect to go in and come out with the same knowledge. Education reformers believe boys and girls can be socially engineered. And movements have been underway to eliminate art and music programs, so that schools can concentrate more on STEM-related courses. What people want to learn is irrelevant, because the policy-makers have decided what is important.
This is not how a Third Wave society functions.
When people - mostly politicians - talk about "education reform," they usually talk about making cosmetic tweaks to a system that is not designed for a technological society. The problem is that as an ecosystem, our modern public schools are so well-balanced between a group of powerful forces, it is almost impossible to make the most simple changes to class schedules, let alone redesign a curriculum or learning path in the ways that are necessary.
This is why I say we need an "education revolution." A "revolution" signifies a "fundamental change" has taken place, and a new system has been adopted.
What kind of system? For starters, a public education system. But a public education system that runs in parallel to the current model, and functions in completely different way.
The future of education rests in the ability of students who want to specialize in specific areas to do so. Personalized learning, or the idea that one can learn what they want, when they want, and where they want, is already transforming homeschooling, online education providers, and bringing about huge growth in supplemental education providers and tutors. Mentoring and apprenticeship programs also are on the rise. As is the notion that getting out of the classroom to interact with people of different age groups creates children who mature faster, become more responsible adults, and learn better socialization skills.
Would such a system require a large investment? Absolutely! But one thing we know from years of data is that expanding education opportunities, and enhancing creativity and knowledge, are the best ways to: reducing crime, new business development, and eliminating income / wage / wealth inequality.
Policies To Encourage Savings and Alleviate Financial Pressure
Lastly, one of the other key steps we need to take is implement more policies that encourage savings, as well as those that elevate financial pressure on those in the most need. What was interesting about the Great Recession is that politicians made a strategic investment in American banks - especially larger banks - under the idea that they were too big and important to fail. A sad message to send to American consumers facing bankruptcies and foreclosure, but never the less, that was their decision.
The belief among members of Congress and within the Bush administration at the time was that once the banks received a taxpayer funded loan, they would keep lending to American businesses - especially small and mid-sized businesses, so they could continue their operations, meet payrolls, etc. The need to rescue the American consumer, who in total accounts for 70% of all economic activity or more, was pushed aside - and the banks became the number one target for aid.
We all know now that despite the cash, banks, including those that did not face any serious threats to their business operations, did not lend to small and mid-sized businesses - and instead sat on the taxpayer money. They later returned it as part of the agreement.
Now is the chance for our political establishment to try and fix past failures by actually putting the consumers ahead of big corporations and big banks, and enact policies that will help encourage more personal savings, as well as alleviate financial pressure that has only been exacerbated by the Great Recession.
One possible recommendation is that the government can help alleviate student loan debt for older Americans who are still in their prime working years. However, instead of a taxpayer funded bailout, the government could create a national lottery to help fund student loan forgiveness.
Another recommendation is to make changes to the 401K retirement system, and mandate that any account created needs to maintain a certain balance.
Lastly, using financial matching incentives for lower and middle-income Americans who maintain a growing savings account.
At the end of the day, the threat to our economy from Americans lacking savings, and lacking adequate wage growth, is too serious to avoid discussion of every possible idea.