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Income equality thru localism – Fresh economics from Russ Beaton

Income equality thru localism   – Fresh economics from Russ Beaton

Russ Beaton remembered the time he heard a member of the Salem Chamber of Commerce say, “Sustainability is a communist attack on capitalism.”

He shook his head and gave a low chuckle. “I am not a communist or socialist, but tonight I want to call into question the ethic of high economic growth.”

The forum was titled, “A Sustainable Economy for the Willamette Valley: Pipe Dream or Realistic Proposal?” It was held May 7 by retired Willamette University economics professor Russ Beaton and sponsored by Occupy Salem. He is currently working on a book and Web site with his brother David Beaton, a retired systems analyst for NASA and the Oregon state government. He recently published “Economics and Ecology: United for a Sustainable World.”

Typical economics seeks to maximize growth, the expansion of business output, to stay healthy. Beaton asked the audience, “If growth is the answer, what is the question?”

He believes high economic growth is made necessary because of income inequality.

“It is the worst economic problem we have. If you take care of income inequality then every other economic problem, whether it’s health care or the environment, will be easier to solve.”

Wealth is now concentrated at the top of the economic food chain and Beaton blames the evolution of capitalism.

“Capitalism is the enemy of equality; it redistributes wealth up. It works well with small businesses, but it went out of control with the growth of corporations. The 99% versus the 1% is a symbol for a return to greater economic equality.”

Beaton asserts that tax cuts hurt the economy because they perpetuate income inequality.

“This is a statistical statement, not an ideological one. My teeth grit when I hear a political party say tax cuts will lead to lower unemployment. Tax cuts give money to people with a higher propensity to save instead of people who will spend it.

It leads to lower consumer spending, higher ‘unproductive’ savings and the need for more growth just to stay even.”

With tax rates at their lowest since the 1950’s and high unemployment, it seems Beaton has a point.

Multimillionaire Nick Hanaeur, in a recent controversial TED talk which can be viewed on YouTube, rocked the economic world by arguing the idea that lower taxes cause job creation is “dead wrong” and if it were true, “we’d be drowning in jobs.”

The wealthy are not “job creators” and they are not even good consumers.

“Somebody like me makes hundreds or thousands of times as much as the median American, but I don’t buy hundreds or thousands of times as much stuff,” Hanauer said. “My family owns three cars, not 3,000.”

If people didn’t have enough money to buy his products then Hanauer’s businesses would have failed.

“An ordinary consumer is more of a job creator than a capitalist like me,” Hanauer said. “When the biggest tax exemptions and the lowest tax rates benefit the richest, all in the name of job creation, all that happens is the rich get richer.”

More income equality would mean we could get by with lower economic growth. With energy resources dwindling and the specter of peak oil looming, Beaton believes a localized economy that focuses more on basic needs would be lower energy intensive and ultimately more recession-proof.

“We are in denial about the messages we are receiving about the environment and the sustainability of capitalism. Sustainability requires more economic equality,” Beaton said. “The need is localism.”

The current model for local economies is to join the competition with other municipalities to lure large, often multi-national companies with the sweet smell of exemptions and financial gifts, usually at the expense of local taxpayers.

“When we beg a big corporation to come to our area, we’re saying ‘we’re helpless, we couldn’t do that ourselves. We need you to save us,’” Beaton said. He believes trade will diminish in the future anyway due to depletion of energy resources.

New, more localized economic models will have to be designed.

“It’s an export-based industry. We send products out that you produce here to bring money back here that then goes to buy products not produced here. They could also shut down and leave. Here in Salem we’ve had some experience with that.

Anyone remember SUMCO?”

At this point in his talk, Beaton had everyone in the audience of about thirty people to get out a piece of paper. He asked everyone to consider what they would be willing to invest in a local business if it guaranteed a regular return of 8% forever. Everyone wrote a figure and the pieces of paper were collected. While the numbers were tallied, Beaton explained his proposal.

“We don’t need the Nikes of the world to supply us with shoes. Let’s start a local business that produces and sells shoes only to the Salem area. We won’t worry about expanding beyond Salem and we won’t be competing with Eugene because they will be producing their own shoes.”
The audience seemed skeptical at first, but then Beaton continued.
“We are the market – we will buy the shoes we produce. We are the investors, the employees and the market. We won’t have to worry about advertising. The local economy will grow at a steady rate and you will get 8% return on your investment,” Beaton said.

Any profits beyond the 8% return would go back into the business as higher wages for the employees. Beaton said other businesses could produce and sell items such as clothing, while money would be transferred and saved in local credit unions and community banks.

“The process could be repeated in any town in the U.S.. There would be no competition, it wouldn’t be in our self-interest because it would incur greater costs and the need for rapid growth. We’re producing a product to support the people who work there.”

Beaton recognizes that you can’t do this with every product nor could a local economy supply all its needs. He says we will need to focus more on wants versus needs and gradually wean ourselves from the global economy in a slow piecemeal process.

Fundraising web sites built on a similar investment model, such as Kickstarter, are popping up and are growing in popularity.

So how much money was raised that evening for our new local shoe business?
More than $2 million. And that was from a tiny fraction of would-be Salem investors.

Is Russ Beaton an academic crackpot or a practical visionary thinking outside the box?

Well … does anyone want to start a business?

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