I've been sitting on this theory of mine for years, and would like to present it in this forum as a first diary entry since I guess that the readers are amenable to its content and will hopefully provide a fresh and exciting dialogue with regard to its merits and shortcomings. Please forgive the length. I've made every effort to be concise and still get the ideas across. It is a new theory that deconstructs and reconstructs the wealth distribution models of capitalism and socialism in an attempt to glean the most salable ideas of each. This is a greatly abbridged version. Anyone interested in a copy of a pdf of the whole thing can let me know.
If you stay through to the end, you will get to calculate your own salary within the proposed system!
Introduction:
The model presented here is a substantial departure from the current model of free market capitalism, but it is founded on the same ideological principals. Namely, that purely egalitarian wealth distribution is not a pragmatic alternative to a natural hierarchical apportionment, and that if merit is not adequately rewarded, a lack of financial motivation on the part of the workforce leads to a stagnation of innovation and economic development.
But there needs to be a change. We are not looking after our own. And a nation in which half of the population is struggling to get by is not representative of a sustainable model. Its deleterious effects have been, and will continue to be, distressing to the long term economic and environmental health of the nation and of the world. Human nature being what it has proven itself to be, those in positions of power cannot be counted on to alleviate the symptoms of pandemic poverty through acts of charity and largess. A new era of humility is in order for even the most successful, educated, and hard working among us.
As was recently demonstrated by the corporate scandals that accompanied the turn of the century economic downturn, the market is not a fair arbiter of personal salary. At the same time that we are seeing record lay-offs and bankruptcy filings, we are seeing the income of management rising to record levels Have They no Shame?. Bonuses and stock options and restricted stock awards augment annual salaries of as high as $1.5 million and bring total compensation to levels ranging in the tens of millions and even getting as high as $100 million per year or more See Jeffrey C Barbakow's (Tenet Healthcare) 2002 compensation of $166m (enough to provide health insurance to 150,000 uninsured children).
I propose that salary be determined in direct relationship to the actual achievements of the wage earners. The measurements of an individual's personal achievements and commensurate social contributions are readily available to be verified. All of the necessary information is now collected as a matter of course by the government. The idea is to reward success while mitigating the collateral damage of gross income disparity.
The ideological leap that has to be made is one of the logistics of wealth distribution and the concept of profit. Today in any free market capitalist system, money is exchanged for goods and service and upon exchange, the profit is owned entirely by the recipient or provider of the service. Taxes are then paid to the government for the privilege of its protection and for the maintenance of the public domain. In the proposed system, instead of keeping what is earned and giving up a percentage, business owners would only keep as much as is required for capital reinvestment and to provide for their salary and the salaries of their employees. Salaries would be determined by the government and be based on a set of merit-based variables (see below) within an equation that would be adjusted to maintain a balance between the human population and the health of the ecosystems that sustain it.
If net compensations were limited by the application of an equation for salary, all businesses would act as socio-economic engines, the proceeds of which would be used for capital investment in the public sector. The equation for personal salary would include variables that would favor business owners and those with high academic achievements, yet still pull everyone out of poverty status. Even the lowest paid would be at least comfortable. This incredible fact would result in a virtual elimination of social programs, and would seriously attenuate the occurrence of crime.
The equation that is presented below is shown here as a very simplified example of the idea. I do not portend to have addressed all of the implications and subtle consequences of the application of the system. I would recommend that simulation models be created and tested, and that the final resulting system of equations be more thorough and exacting than the context of my more philosophical hypothesis allows for.
The certainty, if the variables are controlled properly, is that the overall balance will be positive by a factor that would allow for the funding of all social programs, provide for the education of all children, and supply the provisions required to appropriately reinvest in the urban infrastructure of cities in direct proportion to their populations. This system would effectively alleviate poverty and mitigate its criminal social consequences. At the same time health care, unemployment insurance and education could be provided free for all people. Those adversely affected of course would be those earning in excess of around $300,000/year. They would find a ceiling there, but it would be a beautiful ceiling -- a veritable Sistine Chapel of social harmony and accord.
What follows is an example of how this could work. As stated above, the values attributed to each of the variables could be the subject of a more in depth study, employing mathematical models for simulation.
The Equation for Salary:
Would consist of the following variables:
e skill level and educational accomplishment
d =number of persons dependent on the income
y =years of service with current employer
a =age (life experience)
p =sole proprietorship or vested partner status
r =sustainability of service or product
u =geographic location
It would be the job of the chairman of the Federal Reserve Bank to oversee the numbers assignable to these variables, in order to keep pace with inflation and for use as a tool for economic stimulation or depression as is done with interest rates.
I put forward the following example in which the equation relating them all is as follows:
S [yearly salary] = 10,000 x (edyapru)
e = Skill level and educational accomplishment
Ranges from:
0.90 = Non-Graduate
1.10 = High School Graduate
1.15 = Vocational or Associate Degree
1.20 = Vocational Licensure
1.60 = Bachelor's Degree
1.65 = Professional Licensure
1.70 = Master's Degree
1.75 = Professional Licensure
1.80 = Doctorate Degree
1.85 = Professional Licensure
d = Number of persons dependent on the income
Ranges from:
0 persons = 0.50
1 persons = 1.00
2 persons = 1.15 (1.075 if joint status)
3 persons = 1.20 (1.1 if joint status)
4 persons = 1.25 (1.125 if joint status)
y = Years of service with current employer
Ranges from:
<2 years = 1.00
2-5 years = 1.15
6-10 years = 1.20
11-20 years = 1.30
21-50 years = 1.40
a = Age (life experience)
Ranges from:
14-15 years = 1.00
16-22 years = 1.05
23-25 years = 1.10
26-29 years = 1.30
30-49 years = 1.35
50-65 years = 1.40
p = Sole proprietorship or vested partner status
Ranges from:
Sole Proprietor = 1.80
Vested Partner = 1.50
Employee = 1.00
r = Sustainability of service or product
Ranges from:
Nonsustainable Rating = 1.00
Fully Sustainable Rating = 1.20
Farm Worker = 1.50
(and all the range in between)
u = Geographical Location
(based on the relative value of the dollar)
Rural = 1.00
Dense Urban (NCY) = 2.2
(and all the range in between)
Examples:
Take the best-case scenario:
S = 10,000 (1.85 x 1.25 x 1.4 x 1.3 x 1.8 x 1.25 x 2.2)
S = $208,333.12
This would be the salary earned by a 50-year-old doctor in New York City with 4 dependents who has been in the position for 20 years and is now the president of a company that deals in recyclable goods. This is slightly more than the $195,000 luxurious salary profiled in Appedix A. It is equivalent to $104.167/hour based on a 2000-hour work year. Double income households of two high achievers could make upwards of $400,000 a year.
At the low end of the spectrum, the following is the salary of a 15 year old who lives at home in Rural America and works a non-sustainable job:
S = 10,000 (0.9 x 0.5 x 1.0 x 1.0 x 1.0 x 1.0 x 1.0)
S = $4,500
At age 16, the salary jumps to $4,725. Keep in mind that this is still for someone who is living at home. If this person should move out at age 18 with no high school diploma, the salary would be $9,000 (poverty threshold). Based on the 2000-hour work year, this is $4.50/hr. Upon graduation from high school, it would jump to $11,000 ($5.50/hr), or $12,650 ($6.325/hr) if still working for the same employer for 2 years. If the job were with a completely non-polluting company, these salaries would have all been multiplied by 120%. The guidelines of sustainability would be stringent. Remember that education is free to all at any level and if these numbers are low it is only to provide an incentive to stay in school.
Keep in mind also that the above example is based on rural living. The lowest 15-year-old Manhattan resident's salary would be:
S = 10,000 (0.9 x 0.5 x 1.0 x 1.0 x 1.0 x 1.0 x 2.2)
S = $9,900
The case for the single 22-year-old college graduate with a Bachelor`s degree living in a mid-size city:
S = 10,000 (1.6 x 1.0 x 1.0 x 1.05 x 1.0 x 1.0 x 1.6)
S = $26,880
The following year (age 23) it would jump to $28,160
The case for the single 27 year old college graduate with a Master's degree living in a mid-size city and working a job in a relatively sustainable field:
S = 10,000 (1.7 x 1.0 x 1.0 x 1.3 x 1.0 x 1.1 x 1.6)
S = $35,360
That same person at age 30, having stayed at the same job for 2 years:
S = 10,000 (1.7 x 1.0 x 1.15 x 1.35 x 1.0 x 1.0 x 1.6)
S = $42,228
That same person at age 30, having stayed at the same job for 2 years and with 2 children:
S = 10,000 (1.7 x 1.15 x 1.15 x 1.35 x 1.0 x 1.0 x 1.6)
S = $48,562
I invite you to calculate your own salary and compare it to what you now earn. The majority will see a rise in income, while the very rich will see a severe decrease. Many in the middle class will see a very slight adjustment.
Implications:
There would be no income tax assessed on the salaries calculated above, since all money is funnelled through the government to begin with. The total after tax income that was distributed in 2001 amounted to $7.74 trillion. Under the system, I've figured out that the number would be reduced to $6.25 trillion (numbers in the unabbridged version).
The difference of $1.49 trillion is what is presently distributed among the highest wage earners and, I would argue, is the unnecessary product of greed. Roughly a fifth of the nation's annual wealth is hoarded away every year by those who could live in luxury without it.
Assuming that corporate taxes would remain unchanged and add another $900 billion, we end up with a yearly federal revenue of about $2.4 trillion as compared with $1.8 trillion under the current system (based on 2001 numbers).
The assets of cities and states would still be collected in the same manner that they are today. The personal incomes that result from the equation would be taxed by the states and cities at their prerogative. What this means is that the $2.4 trillion is to be allocated entirely to social and environmental investments. In a culture in which no one is poor, this amount would ideally go mostly towards endeavors of sustainability, infrastructural beautification, and research, although it would also go towards national defense, which if based on 2004 estimates, would reduce the amount by $400 billion down to $2.0 trillion.
See "http://www.gpoaccess.gov/usbudget/fy01/pdf/budget.pdf">2001 Budget.
Please Comment.
Thanks!
PDF of Unabridged Version