Ehrenreich's description of the world of the Working Poor is realistic and reading her book is an excellent starting point for thinking about the problem of undeserved poverty. Her experiences bring out various aspects. One of the events described corroborates what I also observed, while working in Europe and here in America. It is the absence of resentment and the great motivation of the poorest in the working class that seems to be common here (except perhaps in the metropoles). It is amazing since it is so different from the envy and blind hate that many European workers feel towards rich owners.  On page 118,  Lori, a poor coworker when asked how she felt about the rich owners of the luxurious houses that they had to clean, said it was a motivation for her and she liked to “have this stuff someday”! In parts of Europe where, among other reasons, socialist propaganda has made many people resentful, people would say: “Take it away from the rich!”  Another observation which agrees with mine is that there are so many untrained “managers” who, instead of helping, are obstacles for their people to do their job. The book is excellent and highly recommended; I only think that the author's opinions need a little elaboration regarding several aspects.

Some reactions to the book are predictable. Juliet Schor, e.g., mentions “the shameful realities that underlie America's economy”. Are not all of these realities caused by human actions? What is so shameful in our society? That it is free so that people can be greedy and inconsiderate? As long as one sees the problem (which is also suggested somewhat by the author) by putting the blame on an impersonal system instead of on the persons who cause the trouble, one cannot understand it and cannot suggest solutions. The truth is that freedom is preferable to a tyranny - but force is needed to make people behave differently than they do now in freedom [1]. The one negative thing about our economy is that it is too good because it induces the people to get into excessive debt and live beyond their long term means.

Ehrenreich shows with her book that the free market has not achieved a justified distribution of income. This is clearly true, but the question is how to change this, and into which alternative? First of all, besides undesirable extremes, an income gradient is the major source of motivation and therefore, important for a greater national production. It is not an accident that America with its enormous income disparity is also the country that has been the most innovative, which created new jobs that could absorb over one million immigrants (legal and illegal) per year. In other words, while solely for humanitarian reasons this disparity must be judged as bad, the overall effect is that due to it in large measure, many more poor people can live far above the starvation level than in other economies. But we do have problems. The monetary value of individual labor is the subject of Occupational Pay Theories and is not a simple subject. It can barely cover the most important aspects.

When we talk of justice and fairness, how just is it to let the families of the soldiers who defend the country with their bodies, depend on food stamps to get by? And how can we compare the contribution of the discoverer of a drug that will save the life of millions, with the work of an office worker whose contribution to society is exhausted by answering the telephone? Or how is the savior of a huge company with thousands of workplaces to be compensated? The answer to such questions is that we cannot compare these contributions with a one dimensional numerical  pay scale. Then how can we aim for  “social justice”?  Unfortunately, this is not possible for very basic reasons.

The author of the book Ecclesiastes (The Preacher) wondered about the justice in the world. He found from his experience that “the race is not to the swift, nor the battle to the strong, nor bread to the wise, nor riches to the intelligent, nor favor to the men of skill; but time and chance happen to them all” (9:11). Man's fate, the author thinks, does not depend on our conduct, but is a mystery hidden in God (9:1). We see it essentially in the same way:  the problem comes about through our exposure to completely random influences or accidents - due to the chaotic nature of the system of a human society where the smallest cause can have the most profound and unrelated effects. Of course, this makes it impossible to find a valid base for "justice" in the compensation for the various contributions of the members of society who have been exposed to vastly different situations, not of their own making. We are left with the market forces to bring the requirements for workers to the necessary agreement with their availability. This is fair if seen under the aspect of reciprocity of services and the mutual provision of values in the market place even though, large variations in the market can depress any fair labor value. In any case it means, that the rich will get richer because they have better means to make money, and to protect themselves against mishaps than the poor who do not even have down payments. The rich console themselves with the idea that the poor are simply out of luck and that the money will anyway “trickle down” to them. Is this true? Or should the state rob the rich (pour corriger la fortune) ? 

Socialists claim that the notorious "trickle down" effect does not exist in the economy and therefore, it is not justified for the state to leave so much money with the rich. We all have been exposed, of course, to the frequently heard slogan by Conservatives (and also by John F. Kennedy) that a rising flood lets all boats rise, thereby making most of the people more affluent. Socialists reply that this does not work in the economy. But it does. All evidence shows that a multiplier (domino) effect exists and has been most effective in stimulating the total economic activity.  Of course, nothing will work for people who cannot, or will not, seek work, or work so poorly that they lose their job, which reminds us of the extreme social importance of conditioning people for living in a free society. In socialist countries this is being done by putting these people into labor camps. If we prefer freedom, we must avoid as much as possible the need for such measures by improving early education.

However, an additional effect has come into action that does, indeed, present a problem for the trickle down  - it is the new degree of automation. Because much of unskilled labor is being replaced by machinery, unskilled workers fill, we hope only temporarily, the ranks of surplus labor. Therefore, they have been left behind in the wage scale. It makes the problem acute for a working minority who do have special needs, people with little skill who work hard, but cannot earn enough money to rise much above the poverty line. Many of them have to hold more than one job and still, they can only exist marginally. For those, as the author shows, help does not come from the market economy, and guidance and assistance for them to advance to better paying work has to be found. But it has to be found without impoverishing the rest by removing the freedom.

These working poor need help, indeed! The government in the past raised the minimum wage by law, a systemic measure that causes collateral side effects and should be considered only with special provisions for temporaries and for people entering the labor force because otherwise, it makes it harder get these groups into employment. It is naive to believe that with a legislative measure such as the minimum wage law, the economic problem could be solved. This invariably generates side effects that are as bad as the original problem. It is equally naive but very popular to blame the free enterprise system or the greed of the entrepreneurs for the problem. But it is not the capitalism!  In a petition to the former Communist Government of East Germany, the petitioners asked that the wage scales be adjusted so that one full employment could suffice to allow a family to exist, implying that this will reduce the need to seek additional part-time employment (A.F. Radeloff (1999), Die Friedliche Revolution in Dessau. Manuela Kinzel Verlag, Dessau. See p. 108). In the Communist government's answer which is in the book, it is explained that economic limits preclude a simple change! Of course, they were completely correct: a solution must be found, not by making laws but by taking measures to increase productivity - for which high motivation is essential.

Many proposals exist: putting the unskilled into work camps or industrial armies which was recommended in the Communist Manifesto to deal with the Surplus Labor. The totalitarian socialist regimes did it with the known horrible consequences. We cannot get around the fact that these systemic measures will not address the key point: raising the wages by law is not going to increase the total production in the system, which is needed in order to put wares behind the money that is to be earned by the poor people (the same effect is achieved by a more modest life style and most by eliminating waste - but this is a question of personal morality and the unions could help with educating their members who waste or could prevent waste). We must seek solutions that, by providing incentives, use the natural market forces to mobilize the motivation and leadership among all people.

We return to the primary problem: the wage/earning scale is distorted because of a lack of jobs for unskilled labor. To have people out of work allows the other people to consume a relative excess, the equivalent of which the working poor would need to have a better life. It is the same problem that motivated Karl Marx and Friedrich Engels to write the Communist Manifesto, a document which, however, had disastrous consequences during the last one hundred and fifty years.

Of course, we must be unhappy about obvious distortions of the wage scale. Fortunately, however, the problem is much less acute today than it was during Marx' time - not thanks to him, but thanks to the much larger and still growing production due to automation and economic freedom. In the meantime, a serious problem still exists and we will be wise not to ignore it. It is our duty to prevent suffering and real inequity. Beyond duty and morality, it is in the best interest of a well running economic system to repair internal stresses by helping people to become sufficiently affluent consumers. In the meantime, each person must himself be willing to help - reward good service generously, be considerate to your help, and other actions of personal consideration. Socialists like to scoff at these ideas - they prefer the state to be humane - and for unclear reasons, are not so impressed by individual morality which they seem to think is insufficient compared with what the state can do; which is mirrored by frequent comments on the other side that “The Lord will provide”. Both are escapes from personal responsibility. Every single step that improves morale, is socially important beyond its personal effect.

Anyway, it is necessary to have incentives for the affluent to create more low skill jobs for which enormous opportunities exist. This could easily absorb all surplus labor and, by raising its value, increase the wages. A variety of schemes have been discussed in the public. The goal has to be achieved by improving the motivation to invest and to increase general economic activity. One cannot expect an increase in investments and work places if the available funds are taxed away in a progressive tax system (which includes all taxes) that punishes people for their economic success. We have to get beyond this. A modified food stamp program for poor but working people as a subsidy has also been mentioned as useful. Any subsidies should be done indirectly for a limited time (three years) to get the chronically unemployed into a regular paying job. This could be done with a tax credit for employers who will then be motivated to worry about this problem. Within this period, the individuals must qualify for a higher wage. The basic idea of subsidizing low wages for a limited time, and lowering the minimum wage to allow additional job openings has been discussed in Rewarding Work by Edmund Phelps (Columbia). The tax credit in the form of the Earned Income Tax Credit (EITC), is presently the most effective direct way to raise the income for the working poor: it induces many to go back to work so that they can qualify for this credit. It is a less systemic measure that is much better focused on the problem than a higher minimum wage. I am delighted to mention that recently (2007), even some Austrian socialists are now looking at this American system with favor and interest.

The critical point in all needed actions is that the greatest importance must be to get the chronically unemployed into a paying regular job where they have the opportunity of direct human guidance, help and contact, can learn what is needed and be assisted with it (the often mentioned social integration), so that they can grow into more demanding and more lucrative jobs. The government can help, of course, but not directly. The reason why subsidized training has not had larger effects in the past was the bureaucratic management. If any subsidy can be made available, it should be injected where it will create a personal interest in its effective use - at the employer who can be responsible for supervising progress and who can give it local management. In the systems view, to spend money without eventually increasing the total national productive effort is simply a waste of money and effort (of course, with exception of cases of real need and inability).

The old  way to bring large numbers of young people into occupations through a large organization was the military draft to create a large reserve. Although not useful for the purpose discussed here, the military have demonstrated in the past that their system, as long as it had not been degraded, with its emphasis on leadership, discipline, clear purpose, and morale, in addition to being obviously useful for the defense posture of the country, can be socially beneficial, as long as they can uphold their principles of honor and personal merit. However, it would not be a good idea to use the military system for solving the Rifkin problem of how to absorb all of the unemployed in the future, because it would not increase the total national production.

The Worth of a Person. It would be most beneficial to change the public perception of the value and the esteem (but not directly the income, because of its connection with initiative and motivation) of a person on how well the work is being performed. The quality of performing our duties together with honesty is the basis of true worth and dignity, regardless of the position. In other words, we need to restore pride in craft, whatever the craft. We need to educate the people to have respect for the person who does a fine job, whatever the job.

The executives are an example by respecting all of their associates and they must do this in the most obvious way. Workers are not expendable inventory! Such views are a prime cause for low work quality and social friction. But why are higher incomes justified for "elite" employees and effective managers? The answer is in the need for motivation and ideally, the higher incomes are the result of prior discipline and investments in education. More or less unavoidably, some investments are valued higher by society than others. As long as freedom is our ideal, the only way to change this valuation is through better general education and a general elevation of the standard of living. 

Of course, nobody should starve in a rich country and, notwithstanding wild claims by fanatics, nobody starves in America. It is fair to provide an existence minimum for everybody, in the simplest, non bureaucratic way. This minimum must allow for food and decent but simple shelter without luxury - no tv, no cars but transportation vouchers. Support should be set to a level that makes begging unnecessary but preserves the motivation to get more by accepting work. By making this available to every adult, the government can do away with most of the large bureaucracies that provide now for welfare. And of course, everybody is encouraged to enlarge his income by accepting work which should not affect his minimum support. Milton Friedman proposed a minimum support for everyone some thirty years ago, but people ask who would pay for all this? A higher national income and the funds which are now being spent for a mountain of useless paperwork! The systems view lets us see that what really matters is the effective allocation of manpower, the total national useful production, and how it can be increased by leadership, by bringing people into employment, in addition to the use of automation to remove the drudgery of any work that can be performed by machines.

The social - economic problem is as follows. Automation increases productivity - vastly. We can achieve more and better with fewer workers. This increases fabulously the total production, compared with an economy that remains at the level of, say, a century ago. Based on this productivity, the average standard of living is very high and can be enjoyed by the vast majority of the people. It also allows desirable social changes.

An important change will be the possibility to return to one earner families with children. This vacates many workplaces. In addition, there is a huge amount of work that must be initiated by the various government bodies to make life in society more satisfying and to absorb the surplus labor of the low skilled. The problem is how to fund these jobs without suffering the negative effects of increased taxation of the successful entrepreneur. Ideally, this should get done outside the government, i.e., by allowing the needed funds to be kept by the potential employers by lowering taxes, in contrast to tax increases and having the people work for the government under often poor management. Lower prices of products due to competition has been accomplished to an astonishing degree. Due to the technological stimulus and not through political action, we can expect a further automatic increase in tax revenue with the possibility to lower the relative government overhead and to reduce the tax rate. But, with the habit of governments to spend all the money that becomes available, the public must exert oversight to prevent this and to insist that lowering taxes are usually the best medicine for the social system. Ideologues locked into past thinking still say that taxes are good for the people - and surprisingly many accept this! But there is an optimum value of the total government tax load [2].  It appears to me that the bad effects are not in earning much money, but in a profligate spending of unearned resources for super luxurious living. This is what destroys the individual and offends our sense of fairness. A well designed consumption and property tax instead of taxing interest and other income, would therefore be more appropriate.

In order to increase the total useful national economic activity, unnecessary rules must be eliminated. This will also reduce the amount of money that is being spent to prevent people from working. Of course, any surplus production is almost as bad as a lack of it because it depresses price and wages. The market forces are not always sufficient to prevent it, which starts a new economic cycle. For this reason, every nation needs a sound economic policy and overall direction. Lastly, gross inequities in the wage scales must be addressed by the public. Unskilled laborers make less than ten dollars an hour, and some lawyers and executives make a thousand times as much. This is unjustified and unethical unless there is a corresponding real commensurate service as it was the case at IBM with its successful CEO, L. Gerstner, the savior of the huge company with many billions of dollars and tens of thousands of jobs at stake. However, it is short-sighted to get the State power into a direct regulation of executive pay. That is the responsibility of the owners, or the executive board respectively. The selection of the persons on these boards, of course, requires strict oversight to prevent gross abuses as they began to happen in the late 90s. In addition, the heads of government can help to educate the people and exert influence and guidance.

The real problem, again, is the training and motivation of the people who need to seek new opportunities. For this, we need leaders with far reaching vision. A great example was given by President Kennedy in the early 1960s with his challenge of the manned moon flight in one decade. This act of superior leadership energized the nation and produced an enormous economic effect. It was meritorious in the way it focussed the nation on a goal, way beyond the publicized idea of beating the Soviet Union in the space effort.

It is curious to note that the idea of eliminating work through the use of machines has been first envisioned and was discussed in its social effects by Aristotle, long before the Luddites made their appearance in 1811.  In his Politics (1253b) he envisions that such machines would eventually make the use of slaves for work unnecessary. In line 1254a, he makes the further distinction that slaves (in the present situation that would mean the unskilled workers who are quasi serfs under their installment payments) would still be necessary as assistants and within the households. This is, of course, one solution to Rifkin’s problem (in his “End of Work”) - proposed twenty-three centuries ago!



[1] We have two means to affect social change rapidly (in addition to the slow changes due to technological changes and inventions). Either by coercion, possibly by a super bureaucracy backed by the police, or by a superior education and training. Coercion and force are incompatible with the idea of a free society. It is amazing that humanity has always taken the direct way of force and never the second as it was already recognized and recommended by Plato. I have been once a Drill Sergeant for a few months and gained an invaluable experience. I agree very much with the general tenet of the Military, that a couple of weeks of hard drill can do wonders with totally undisciplined young men. It teaches them to focus their energy and even prepares them to run into gun fire on command, to gain enemy held ground, to fight fires and explosions on the burning ship. Of course, there is gripping fear, but the drill and the effect of the other men who run with you make you do it, nevertheless. Now, if a drill  “conditioning” can do that, something equivalent can certainly change habits that will make life easier in freedom. A part of this is accomplished by a good education during childhood, an education which forms good habits and creates the right frame of mind for adult life in freedom. Essentially, the process consists in constant questioning by the child and good thoughtful answers by the parent, and most importantly also in the example of the parents!  Unfortunately, most families cannot achieve this and the result is that most people of the younger generations that I have met were not really sure what is right and what is wrong. I have even read of clergymen who apparently did not have a good answer when the case was not covered directly by the Ten Commandments. The reason for these problems is that most people have never received good explanations and a habit of doing the right things has not been ingrained in repeated training sessions. One has to accelerate the natural process of maturing so that people can act as informed at age 20 as some of them can act with the experience of age at 60.  Of course, we cannot, and should not, create automatons who will act with certainty. But if only a majority of the totally uneducated can be brought into a good social behavior that is based on understanding and insight, the world will have been substantially improved.

[2]  An important economic datum in every nation is the total government tax load (all federal and local taxes including consumption, sales, value taxes) on the national product. It is necessary to have a limit set and agreed upon. It has been variously reported that, as this load exceeds about one third of the GNP, it produces a growing choking effect on the economy. Unconfirmed sources estimate the current load as about 40% for the U.S.A. (ignoring the growing deficit) and up to 60% for parts of Europe. But even without much study it is plain to see that there must be an optimum value between extremes of no tax load, without a government and with intolerable social chaos - and everything taxed away with the people now as poor as the proverbial church mice, with all important decisions, or no decisions, being made by a super bureaucracy. A larger government sector could indeed lead to great advantages, but only under the difficult, almost utopian, requirement that this greater government program is lead by persons who perform in a visionary, superior way. Unfortunately, we are not close to this ideal and people who believe that taxes are beneficial, period - are plainly ignorant of the situation that under present conditions in the real world, most of an increasing tax load will not be beneficial, but will end up as more waste.

Copyright © 2007,  Gernot M. R. Winkler       Last Correction  04/15/2009