Here we are, celebrating our second anniversary. One hundred and four weeks in a row. Hooray for us!
I believe in the institution of the American democratic republic and its foundational ideals of individual liberty and personal responsibility. I aim to strengthen the American philosophy that the Almighty grants us all freedom of choice. Freedom of choice is the opportunity to struggle and overcome. President and Chief Justice William Howard Taft said, “We must dare to be great, and we must realize that greatness is the fruit of toil and sacrifice and high courage.”
I also know we have problems to overcome. And we need to address them. We can’t love our country and not our countrymen.
Our biggest challenge is Americans from all classes having food on the table and heat in the house. You can’t put food on the table without the money you get from your work to buy food. And you can’t heat your house unless you have one.
Fighting for food on the table and heat in the house means fighting against a moving bureaucratic machine with rules set to benefit the economic system and corporations. Those rules might benefit the elite, but they exclude individuals. Politicians from both parties feign like they want to address the problem. They take the advice of economists, who recommend funneling taxpayer money through the bureaucratic machine to fund “temporary” social welfare programs. The economists claim that once the system is working, we won’t need social programs anymore. Those temporary programs become permanent. The system perpetuates itself, and today, half of American families depend on social programs.
I can’t think of a worse design. Instead of setting conditions to enable Americans to succeed, we set conditions to benefit the elite and the bureaucratic machine.
Over the last two years, we’ve considered many ideas to enable Americans to succeed. Many of those pieces present ideas to address wages for all classes of American workers and problems in the housing market.
Addressing these two challenges will improve Americans’ lives more than anything else. There are no silver-bullet solutions. It’s a complex system that requires a systemic approach to address several areas.
Let’s get started with our first step: restoring institutional legitimacy.
Restore Institutional Legitimacy
The American people award money to companies through grants and contracts.
A simple overview of this process is the government collects taxes and allocates that money to federal agencies to spend—this is the federal budget. Those agencies purchase goods and services by requesting companies compete to win contracts. If a company wins a contract, the government purchases its goods or services. The companies win awards by being the lowest acceptable bidder.
In some cases, those companies are competitive to win an award because they pay wages less than the social program threshold. But the American people don’t know that.
Then, the American people give those same workers taxpayer money through social programs, even though they already gave the company the funds to pay their workers.
If we asked the American people whether a company should receive precious taxpayer money and then pay poverty wages, I’m confident the answer would be ‘no.’
We would say ‘no’ because it’s an illegitimate use of taxpayer funds.
So, the first step in enabling Americans to succeed is to restore the legitimacy of taxpayer spending. A company either needs to be on board with the American people, or the American people should leave that company behind. In other words, if a company wants to enjoy the benefit of federal contracts, it needs to commit to paying every individual in the company a wage above the poverty level.
We need to codify this standard first by Executive Order and then in law:
No agency shall award any federal dollars to any entity (including any company, subsidiary, or company that operates on property supported by federal dollars or any entity that sells a product to the people of the United States) that pays workers wages below the poverty level plus 50%, assuming the worker and three dependents, for that locality.
You can read more about the idea in Double Taxation.
The Executive Order isn’t just about wages. It would make businesses that pay good wages more competitive for awards and enable the government to award legitimate winners. It would represent a legitimate use of taxpayer dollars.
Next, we need to pull wages up by investing in the infrastructure of human capital—the knowledge, skills, and abilities of American workers.
Revitalize Talent to Pull Wages Up
Human capital is foundational infrastructure similar to bridges, roads, and dams. This infrastructure supports the national capability that underpins and enhances the nation’s overall capability.
Human capital represents a key piece of the market. It’s the training and preparation of individuals. We can’t say there’s a market failure in job training but no market failure in wages. A failure in one area leads to a failure in the other. If low wages indicate a problem in human capital, then a problem in human capital means a problem in wages.
Our lack of relevant training for the working class degrades our ability to drive world markets. Our high schools (and many university programs) don’t teach students lessons directly applicable to the job market. This lack of relevant education further undermines our economic competitiveness and social cohesion. Companies need knowledgeable and experienced professionals to help them innovate.
The need for more relevant worker training is an infrastructure deficiency. We build roads and bridges to enable citizens and businesses to move goods and provide services. Businesses have a vested interest in the infrastructure that is a skilled workforce. Government should invest in education and infrastructure to create higher-quality jobs, making work more valuable.
To increase the capability of American workers and pull wages up, we need to ensure that education and training systems are responsive to the market’s needs. When there’s a surplus of some skills and a shortage of others, wages reflect that imbalance. Addressing this requires improving our educational institutions and reducing barriers that prevent workers from acquiring new skills, without needing a college degree.
By allowing students to learn about real-world problems and develop potential solutions, we can help them develop the skills they need to innovate and succeed in the workforce.
To achieve this goal, we need to:
Create a network of training and education innovation hubs. With support from local communities, we need to use the nation’s community college infrastructure as an initial base.
Partner with academia to enable students with no education beyond high school to acquire training and professional certifications upon completing the programs.
Partner with businesses to create relevant and engaging educational materials.
You can read more about the idea in Reskilling America: A New Plan for the 21st Century Economy.
In addition to pulling wages up, we need to help small businesses generate revenue so they can pay higher wages.
Generate Small Business Revenue to Increase Wages
If businesses don't increase revenue, they can't raise wages.
Businesses generate revenue through the sale of goods or services. Business leaders use part of this revenue to pay wages, but wages aren’t the only expenditure. Businesses have to build and maintain infrastructure, including physical facilities and technological systems they use to operate. They have to pay taxes. They need to make their product and expend revenue to generate raw materials, manufacturing, and logistics. They have to conduct research and development to improve their offerings.
A business’s ability to maintain healthy wage levels depends on revenue being high enough to support its other costs. In lean years, wages that are too high threaten financial stability. This can lead to a business failing to invest in infrastructure to modernize and compete with new businesses. It could cause a loss of talent due to wage freezes, reductions, or layoffs. It could reduce the ability to move into new markets, slowing growth and strangling the business. Every time a business fails to achieve one of these marks, one of its competitors does. If it misses too many, it dies.
Due to the constraint that high wages threaten business growth and survival in lean years, one principle business leaders consider is their payroll-to-revenue ratio. For many businesses, a good guideline is 15-30% of revenue. In fat years, wages may only be 15% of revenue. In lean years, wages could be 30% or more.
In the long run, businesses can only afford to raise wages if they can increase their revenue. If the business needs to raise wages by 10%, it needs to grow revenue so the payroll-to-revenue ratio is healthy.
In addition to the reality of wages and revenue, small businesses face steep challenges. They are less able to generate revenue than large corporations. They operate on a smaller scale. They have less access to capital, market power, and regulatory influence. They use less infrastructure than large corporations and put less stress on that infrastructure. They have a smaller physical footprint, require fewer resources, and generate less strain on public services like roads, utilities, and waste management. Many are owner-operated and can't pay themselves poverty wages.
To enable small businesses to pay higher wages, we need to help them generate revenue. So we need to give them tax incentives to raise wages. At the same time, we have a public responsibility to make sure those dollars get to the workers. Giving small businesses a tax incentive to pay higher wages will only keep Americans off social programs if those small businesses actually pay livable wages. To receive the tax incentives, small businesses need to prove they paid their workers livable wages.
To achieve this goal, we need a tax incentive for small businesses:
We will reduce the tax burden for small businesses that pay livable wages by 10% across the board and target specific industries, such as retail and food service, with even more significant tax breaks.
You can read or listen to this idea in If Businesses Don’t Increase Revenue, They Can’t Raise Wages
And Earned Income Tax Credit and Small Business Taxes.
Whereas small businesses need more revenue to raise wages, large corporations have access to greater revenue sources. Because they have different capabilities, they should have different requirements.
Achieve Livable Wages
We need to encourage businesses to strive for profits and ensure they pay their workers a wage that lifts them above the poverty level. We also need to keep business taxes low, as low business taxes spur investment in America. We need to make sure workers benefit from America’s great business environment. We need strong corporations to strive for profits.
As with small businesses, we have a public responsibility to ensure individuals can survive without social programs. Americans can earn money from two sources: their work or the government.
Choosing to allow corporations to pay low wages means choosing to support social programs.
We need to legislate a fair corporate minimum wage that adjusts automatically over time and takes the cost of living in different areas into account:
Publicly traded corporations shall pay full-time wages representing a rate no less than the poverty level plus 50%, assuming the worker and three dependents, for that locality.
From a business competition perspective, this levels the playing field in urban and rural America. The above requirement is locality-based. A federal poverty threshold benefits businesses in more expensive urban areas by requiring companies in low-cost rural areas to pay the same wages as businesses in more costly areas. This federal approach would hurt business activity in less expensive rural America.
From a states-rights perspective, it allows states to influence the cost of living in their state through appropriate locality pay. Different areas have different costs of living. For instance, the cost of living in Manhattan, New York, is very different from that in Manhattan, Kansas.
From a legislative perspective, it is more feasible than taxing the rich but still provides income to American workers. It doesn’t require legislative updates as living costs across the nation rise.
It saves the American taxpayer by reducing the need for social programs. It is not a tax proposal and does not impose a tax burden on the American people.
You can read more about the idea in Horses and Sparrows.
So far, we’ve addressed restoring the legitimacy of the government spending taxpayer dollars, improving the infrastructure of American human capital, and two initiatives to improve Americans’ ability to put food on the table. Now they need a house to put that table in.
Increase the Supply of Homes
John Locke’s great philosophy became the foundation of the US Constitution. He identified people agree to be governed to preserve their property; that is the chief role of the institution. Everyone owns property, even if that property is owning yourself.
To preserve property, we need to create conditions enabling citizens to secure property. Securing basic needs allows individuals to pursue prosperity and stability. You can’t put food on the table without a home to put the table in.
The economic principle of supply and demand strongly influences the housing market. In simple economic terms, as the supply of an item rises relative to the demand for that item, prices in the market will decrease. But the housing market has become untenable. Housing per capita has decreased since 1970, and the supply of first-time homebuyer houses is especially low.
The government needs to set conditions to reverse this trend, but it can’t do so by building government housing. If the government were the lead agent to provide housing for Americans, would everyone get a trailer to live in? That would be ridiculous. The government must work through the market. Building homes must be profitable. If it’s not, builders will find other work.
We need to work through the market to increase the supply of homes for low- and middle-income families.
Working through the market to increase supply means improving the profitability of builders who build small homes.
The Small Business Innovation Research (SBIR) program is the best government mechanism to incentivize small businesses. SBIR programs are federal grant programs that encourage small businesses to bring desired products to market. SBIR is competitive and provides the incentive to profit from innovation through commercialization.
There is already an SBIR grant program that, with minor changes, could be used to build small, affordable homes in rural America. The US Department of Agriculture (USDA) sponsors an SBIR grant program for Rural and Community Development.
Rural and Community Development aims to improve the quality of life in rural America by creating and commercializing technologies that address critical economic and social development issues or challenges. The applications need not be centered on agriculture but may be focused on any area that has the potential to significantly benefit rural Americans.
The Executive Branch must direct USDA to expand its scope and earmark some of this SBIR money specifically for small, affordable homes in rural America.
In urban areas, America could convert empty lots and warehouses, no-longer-used parking lots, and dilapidated housing into small, affordable housing. The US Department of Housing and Urban Development can lead the way. Unfortunately, the US Department of Housing and Urban Development does not sponsor an SBIR program.
We need legislative action to establish an SBIR program under the US Department of Housing and Urban Development that earmarks funds for small, affordable housing in urban areas.
We must implement rules to ensure these homes are sold to owner-occupiers, particularly first-time homebuyers, to prevent them from being snapped up by investors.
You can read or listen to this idea in Small, Affordable Homes.
And in Has Capitalism Failed the Housing Market?.
Increasing the supply of affordable housing will help with housing in the long term, but young Americans still living at home don’t need help with housing eventually. They need help now.
Set Young Americans on the Path to Financial Success
Young Americans don’t just need more housing. To strengthen financial security for young Americans, we need to start by addressing home ownership.
Young Americans need to be able to secure their financial future early in adulthood. This means our young generations need to be able to qualify to purchase their first home at a low interest rate.
We need a first-time-homebuyer incentive of a 3% interest rate, and we need to combine this low interest rate with a US Department of Housing and Urban Development loan, which requires a 3.5% down payment.
After their one-time use, if a family wants to purchase a more expensive home, that’s their decision. If they want to own the asset, they own the risk and higher interest rate that comes with the asset. This plan further needs to disqualify any private equity money or investment firms from receiving these terms. We need to specify single-family homes, single-unit duplexes, apartments, etc.
The initiative’s point isn’t for someone to purchase a commercial building and rent out all but one apartment. That’s an investment.
The initiative aims to improve the financial stability of young Americans. To achieve that goal, all young Americans must be able to take advantage of it.
This proposal benefits young Americans who attend college and those who take up trades. It benefits young Americans who grew up in trailers and suburbs, as well as young Americans in rural and urban America.
You can read more about the idea in Financial Security for Young Americans.
In sum, we need a systemic approach to addressing our biggest challenge: Americans having food on the table and heat in the house. You can’t put food on the table without the money you get from your work to buy food. And you can’t heat your house unless you have a house.
There are no silver-bullet solutions. It’s a complex system. Over the past two years, we’ve considered many ideas. Some were eliminated after more thought, and some weren’t possible. Six big ideas have survived.
We need to restore institutional legitimacy when spending taxpayer dollars.
We need to invest in the infrastructure of human capital to pull wages up.
We need to help small businesses generate revenue so they can pay higher wages.
We need to ensure workers benefit from America’s great business environment and achieve livable wages.
We need to work through the market and increase the supply of homes for low- and middle-income families.
We need to strengthen financial security for young Americans, starting with addressing home ownership.
Addressing our challenges with these ideas will make life better for Americans.
May God bless the United States of America.
Postscript.
Fall in the mountains is a beautiful time. I’m going elk hunting. I’ll see you in a couple of weeks. Maybe three.
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