Slowing and stopping Runaway Climate Change

We are in a climate trap.  A trap disguised as normal life. It seems normal because we live in the trap, as I will show.  Two problems afflict the US economy: first, runaway climate change, a challenge to humanity itself; second an income distribution favoring the rich.  We can neither build nor innovate out of climate change.  We must change a whole way of life, including our aspirations. The policy to do that offers time.

Thorsten Veblen laid out the trap in a popular book The Theory of the Leisure Class in 1899.  The public embraced it in 1977 with the Waylon Jennings hit, “Luckenbach, Texas”.  Samuel Bowles and Yongjin Park tested it econometrically in the Economic Journal titled “Was Thorston Veblen Right?” in 2003.  Philipp Frey at Autonomy in the UK generalized it internationally in “Ecological Limits of Work” in 2019. (https://autonomy.work/wp-content/uploads/2019/05/The-Ecological-Limits-of-Work-final.pdf)

Our related problems 

The two problems are related . We learn in important ways our material aspirations from the rich.  We imitate, copy, or learn from those with slightly higher incomes than ourselves.  We learn aspirations from workmates, neighbors or friends that have moved to a nicer house, a better school district, eating better food or taking better vacations.  This drives workers to seek a higher income.  Other factors play a part:  the location of our childhood, income of parents and siblings, and so on. Facebook and Google play a role, and “On-line influencers” suggest things to buy.

The “slightly higher income than ourselves” goes up, step by income step, to the extremely rich. The affluent, even, are taught by a recurring feature in the Wall Street Journal titled “Mansions.”  A Journal reader making $200,000 – $300,000 a year can’t afford a $40 million mansion but can read about and aspire to eventually buy one.  Education on spending among the affluent goes on.

Any rate of annual growth in GDP, — anything above zero — requires people collectively to purchase more than the year before. The affluent have the cash to do so.  Once they do, the rest of us can see what they have purchased and if we have cash or credit, will also buy.

Income Distribution

A severe income disparity drives (or fails to drive) the US economy.  The World Inequality Lab (WIL) tells us in its 2022 Report that the bottom 50% of people in the USA get total income of just 13.3% of all income.  At the same time the top 10% of income recipients get 45.5%.  50% of people share 13.3%. 10% share 45.5%.  “The ratio of 17 between incomes of the top 10% and the bottom 50% is significantly higher than in European countries (ranging from 6 to 10) and in China (14).”

A hurricane at sea gathers strength from warmer water for growth in wind speed. If the consumption horizons of the rest of us follow the rich, humanity itself may fall off the edge of the world.

Consumption drives global warming.  Consumption, plus the investment to produce the objects that producers expect will be profitably sold. What people want to buy grows. Our personal horizon for consumption moves away from us as the rich add to consumption.  Stopping runaway climate change requires dealing with income distribution in order to change our aspirations from more consumption to simply being.

Waylon Jennings, a Country Music star, found his big hit audience for “Luckenbach, Texas” among those resenting the pressure to consume.

“We’ve been so busy keepin’ up with the Jones’

Four car garage and we’re still building on.

Maybe it’s time we got back to the basics of love.”

Two problems dealt with by a single policy

The beginning step in a single policy is to cut the work week to four days, with no cut in pay.  In addition to addressing income distribution this will open jobs to minorities.  No cut in pay is important because workers have rent or mortgages, car, and other payments, so can’t face pay cuts. Keynes in his famous book in 1936 pointed out the resistance of workers to nominal reductions in pay. Cutting the work week will redistribute income from the rich to the rest of us, as I’ll explain.  Further cuts in working hours can and must follow.  

Some Information about working hours

Some statistics about full time work in USA:  The typical fully-employed worker works about 1,770 hours in a year, according to OECD figures from 2020.  In Germany they work about 1,371 hours (same source) and in France a little more than Germans.

If the US switched to the four day week immediately, that would provide 52 additional days off per year. Based on an eight hour day, that would cut 416 hours from the US total.  That would bring the US down to 1,354, or about what Germans worked in 2020.  The Germans work an eight hour day but enjoy long vacations.  Perhaps their lives are better because of working less.  And if the USA cuts, the example may lead the world to cutting working hours. 

How would cutting to a four day week affect income distribution?

Cutting to a four day week would add jobs and raise wages by shrinking the labor force.  Wages would rise when workers faced less competition for jobs.  Rather than driving for Uber or Door Dash to supplement incomes, wages might once again support a family.

The biggest change in incomes would be reductions for the rich.  Their holdings in property and shares of stock will drop in value as I will show later in this piece.

 A labor leader of old, Samuel Gompers remarked: 

“So long as there is one man who seeks employment  and cannot find it, the hours of work are too long.”

In the first days of the Franklin Delano Roosevelt administration in the Great Depression of the 1930s, Congress recognized the mismatch between agricultural production and demand for farm products and passed the Agricultural Adjustment Act as a correction.  The US Senate, after extensive Hearings, passed the 30 Hour Bill by a vote of 53 to 30.  The US Senate!  This was at a time when most workers worked six days a week or five and a half, either way well over 40 hours.  This would have been an enormous reduction in the labor supply and passage in the was House assured.  But the Bill was killed in a parliamentary maneuver when it couldn’t get “a Rule.”.

The political left has been excited about labor organizing and cheered for strikes at various companies around the USA, like Amazon, Starbucks, Ford and General Motors.  A strike is withholding labor.  Cutting hours nationally is similarly withholding labor and can be organized for just as strikes are.

For some employers labor costs per unit will rise but productivity gains will result in more output if they can sell it.  Prices set by producers will likely rise as prices are marked-up over costs.  Sales will slow with higher prices.  The economy as a whole will slow as some items, especially high-priced items sell less.

The stock market will reflect slower growth and the wealth of the rich will diminish. GHG emissions will decline.  There will be a welcome redistribution of income from the rich to the newly employed. 

We are nearing a century since the Wages and Hours Act of 1938, setting a forty-hour week was passed when rumblings of “the Roosevelt recession” moved the Administration to action.  Despite automation, computers, robotics and the ominously looming Artificial Intelligence (AI), the 40 hours standard remains.  It must be changed, and more than once.

Find “Gordon Equations” for background.

We can turn to the late Myron Gordon for the valuation of assets.  His seminal work on share valuation is The Investment, Financing and Valuation of the Corporation. Gordon’s model is very widely used in valuation studies and is shown here in its sparest formulation.  Gordon gives the value of a share of stock or an asset like an apartment building on the basis of expected future cash flow or PV  =   D /  (k – g) where PV is Present Value, with D the present cash flow, k is the cost of capital and g is the growth rate of cash flow in the future (and, here, the economy as a whole).    

I’ll add some reasonable numbers to demonstrate that the rate of growth of an asset is important in its value.  But you already know how “growth stocks” lead the nightly business reports on TV.

Start with PV = $5.00/ (.08 – .05).  Think of it as a share of stock when the owner borrows capital at the cost of 8%, or .08, and where dividends are expected to grow 5% annually, or .05.

The PV = $5.00/ (.08 -.05) with the market value (or Present Value) of the asset $166.67.

If the expected growth drops to 3% then, plugging that into the equation we would find a value of $100.00.

Finally, let’s try “no growth” in the future cash flow:  then $5.00/( .08) returns the result of $62.50.

These results explain why climate policy to slow growth is so bitterly contested.  It has never been about “the science.”  The rich hold many of the shares in the stock market and own other assets and will lose wealth when the economy slows.

Climate policy fights were not about science but they are about the value of assets owned by the rich. The numerical examples show why people who own assets prefer to see rapid economic growth.

Workers also like to see growth, thinking of more paid hours and promotions to foreman, manager, vice president or even better, stock options. Many workers identify with corporate success as their own, providing job security and more paid hours every week.

Pensions with defined benefits have been eliminated for many and turned into 401Ks.  These workers, like the rich, may also find their balances reduced. 

During Covid, managers, officers and others who were able to work remotely proved reluctant to return to the daily commute and proscribed hours.  Arranging your own day away from the corporation gave freedom — even if you actually worked full job hours. In a way this was a partial escape from the “Enclosure Movement” this is said to be the birth of capitalism when commoners were forced off the land and into waged work in factories in the UK.  At the same time “essential workers” —supermarket cashiers, bus drivers and others were forced to face the public.

The US economy, like others world wide, is awash with people seeking work, which keeps wages down.  China has an unemployment rate of 16% for workers age 15 – 24, with jobless college graduates in large numbers in the mix.  Similarly for India, Bangladesh, Indonesia and Malaysia.  In Italy and Spain around a quarter of young people can’t find work.  And AI will be coming hard for higher level jobs world-wide and in the US: lawyers, accountants, managers and executives.

A new graduate today, perhaps twenty or so years old and seeking a job, is facing another equation: 

Life =  5  X 8 X 50 X 50 — Five 8 hour days a week, fifty weeks a year and working for 50 years.  A grim future life is described in this equation but many would rather be someone other than a consumer.

                                What will workers do with their time?

We don’t know.

It will take years for a new society to unfold, much as Feudalism gradually became Capitalism and yet has not completely disappeared.

This paper is focused on climate change.  There will be other benefits from cutting, and sharply cutting, working hours in reducing inequality.   The Spirit Level and “The Spirit Level at Fifteen” :  https://equalitytrust.org.uk/evidence-base/the-spirit-level-at-15/  showed how income levels in a more equal society were beneficial in multiple ways.

David Barkin wrote about developing a new ethos of sufficiency here:   https://www.frontiersin.org/journals/sustainability/articles/10.3389/frsus.2022.944252/full

And in the English translation of The Imperial Mode of Living Ulrich Brand and Markus Wissen explore the solidarity mode of living as an alternative.

A brief history of cutting hours   

Workers and churches have been fighting — successfully — for shorter hours at least since the Presidency of Martin Van Buren in the US in 1840.  Van Buren by Executive Order adopted the ten hour day on Federal projects.  After the Civil War the Abolitionists switched their activism to the shorter working day, seeking the 10 hour day.  The Haymarket Bombing in 1886 was at a rally for the eight-hour day.  As mentioned, the US Senate in 1933 tried to cut standard hours to 30 per week.  Labor, which had historically pushed for shorter hours lost the thread in Post-WW II era and eventually dropped the fight, until the UAW made the demand again in 2023.

Conclusion

Now is the time for environmentalists to push for the four day week on the way to even shorter hours everywhere.  Alternatively we could choose extinction.