Daily Digest - December 22: Yellen Speaks and the Markets Answer

Dec 22, 2014Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Markets Bounce After Yellen Announcement (Melissa Harris-Perry)

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Markets Bounce After Yellen Announcement (Melissa Harris-Perry)

As guest host, Roosevelt Institute Fellow Dorian Warren leads a roundtable discussion about how Janet Yellen's statements are impacting the current economy.

Wall Street Is Dismantling Financial Reform Piece by Piece (TNR)

Friday's announced delay of the Volcker rule, which prohibits proprietary trading, shows the financial sector's ability to limit Dodd-Frank's interlocking provisions for its benefit, writes David Dayen.

  • Roosevelt Take: Dayen links to Roosevelt Institute Fellow Mike Konczal's recent piece on Next New Deal with Alexis Goldstein and Caitlin Kline to explain how another rule eliminated in the recent budget negotiations fits into this picture.

Obama Labor Board Comes Down Hard on McDonald’s (Politico)

In a significant first, the National Labor Relations Board has filed legal complaints that hold McDonald's accountable to workers at its franchises, reports Brian Mahoney.

Workers’ Rights at McDonald’s (NYT)

In an editorial, the Times asks McDonald's if it wouldn't be easier to just bargain directly with employees, instead of illegally interfering with the Fight for $15 movement.

Ocwen Head to Resign in New York Settlement (WSJ)

James Sterngold and Alan Zibel report on the settlement between Ocwen Financial Corp. and New York State's financial regulator, which includes $150 million to be paid to housing programs and borrowers.

Obama Compared to Prior Presidents On Job Creation, In Graphs (TAP)

Paul Waldman compares President Obama's job creation numbers to other presidents', and his clearest discovery is that Republicans are wrong: tax cuts won't save the economy, and Democratic policies won't kill it.

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Daily Digest - December 19: It's a Whole New Economic Policy-Making World

Dec 18, 2014Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Uncharted Interest Rate Territory (U.S. News & World Report)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Uncharted Interest Rate Territory (U.S. News & World Report)

Jason Gold points out that since interest rates have been declining for 33 years, none of today's lawmakers know quite what they're in for when the Fed begins to raise rates in 2015.

  • Roosevelt Take: Roosevelt Institute Fellow Mike Konczal says that raising interest rates is not the way to fight "financial instability."

The Greatest Tax Story Ever Told (Bloomberg Businessweek)

Zachary R. Mider shares the story of the very first corporate tax inversion, in which a company incorporates abroad to avoid paying U.S. taxes. The idea was invented by a liberal tax lawyer in 1982.

A Big Safety Net and Strong Job Market Can Coexist. Just Ask Scandinavia. (NYT)

The strong safety net programs in Scandinavian countries, which include far more direct aid, might be more effective at getting people to work than the U.S. tax subsidy model, writes Neil Irwin.

How ALEC Helped Undermine Public Unions (WaPo)

Alex Hertel-Fernandez explains that ALEC's attacks on public sector unions aren't new: ALEC-backed anti-union laws were enacted in some states a decade before the Great Recession.

Pro-Warren Protesters Take Their Fight to Wall Street (MSNBC)

Zachary Roth reports on yesterday's protest at Citigroup's New York City headquarters, where protesters denounced the Citigroup-crafted measure weakening Dodd-Frank in the spending bill.

From the E.R. to the Courtroom: How Nonprofit Hospitals Are Seizing Patients’ Wages (ProPublica)

Paul Kiel and Chris Arnold profile the Missouri hospital that sues the most patients in the state. Nonprofit hospitals are required to offer low-cost charity care, but that isn't particularly regulated.

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Ten Years: Students Moving the Country Forward

Dec 18, 2014Taylor Jo Isenberg

After ten years of engaging young people in the political process, the Roosevelt Institute | Campus Network continues to push for a system that works for all of us.

In an email to peers at Stanford University students on November 4, 2004, a student attempted to turn the tide on the malaise setting in after a disappointing election night for progressives. He captured the sentiment of the moment:

After ten years of engaging young people in the political process, the Roosevelt Institute | Campus Network continues to push for a system that works for all of us.

In an email to peers at Stanford University students on November 4, 2004, a student attempted to turn the tide on the malaise setting in after a disappointing election night for progressives. He captured the sentiment of the moment:

Elections are a great time to shape the future of our country, but democracy is not something that happens every four years. We have a lot of work to do … we need to figure out how to explain what we care about in a coherent and convincing way, we need to develop a leadership network to match the conservatives of the next generation, and we need to keep public officials accountable to the issues that brought us all in.

In a follow-up email, he boiled it down to one simple statement: "I'm seeing a student-run think tank that will reinvigorate mainstream politics with a new generation's ideas."

In one of those rare occurrences that indicate that people might be on to something, others were incubating a similar concept. Two friends at Middlebury and Bates also felt compelled to respond to the political moment, and articulated their initial thoughts on a "think tank that unites college students across America under one political agenda aimed at taking back our democracy." Something similar was taking shape at Yale University.

The rest of the story is Roosevelt lore – the late nights, cross-country recruiting trips, the passionate debates about how best to position the organization to effectively elevate young people as a source for powerful ideas capable of policy change.

Yet what makes this particular story potent is that, ten years later, we celebrate not only that vision, but also today's reality. Thousands of students over the past ten years have worked tirelessly to actualize the initial vision that emerged from a bleak moment in our political history. We’ve published 600+ policy solutions that have been read over half a million times; trained thousands on how to challenge the fundamentals of our social, political, and economic systems; and catapulted young people as civic actors into key debates on the policy challenges of our day. Most importantly, the list of student and chapter successes on the ground is staggering in its breadth and depth of examples where young people have taken active ownership of their communities to bring about solutions with meaningful impact.

As a proud Roosevelter, I think we have much to celebrate. We took a few days last week to elevate our work in Washington, DC – a celebration that included a conversation with Representative Rosa DeLauro and members of Congress on how to look to best practices from Roosevelt’s model to effectively engage a new generation in policy and politics, a discussion on the Campus Network’s next ten years, and presentations at the White House featuring our student’s policy work. And of course, we hosted a party for 190+ alumni and supporters (a rockin’ one, according to keynote speaker Jared Bernstein).

Ten years is also a moment to look towards our future. It’s been a common refrain around our office and with our members that there are some unsettling parallels between the post-election reality ten years ago and the one we face today. Distrust of institutions is on the rise, policy priorities with high public support are thwarted by special interests, and our debate is seriously deprived (with a few exceptions) of a vision for what our country can build towards. We’re still in need of a shake up. The upside? Where things are happening, it’s often led or heavily supported by young people – from the ballot initiatives in the 2014 election to the sustained demand for accountability in our justice system.

It’s no secret that the political establishment is perplexed about young people. The media haphazardly jumps between two narratives, unable to decide if we’re self-absorbed, naïve and complacent in the face of our economic future, or the most civically minded quiet do-gooders since the Greatest Generation. Yet many of the major civic and political organizations are struggling with declining membership numbers. It’s not unheard of for organizations to develop “Millennial engagement strategies” to combat this problem.

We think the answer pretty simple: it’s about institutions and systems embracing the shifts instead of fearing them. From the moment they walk through the door, our members are asked to be a part of building something as equals. They’re given the tools to be the architects – and are instantly connected to a network of peers who support them. In a political system more interested in managing young people than tapping into their ingenuity and energy, Roosevelters come to us because they see the limitations of traditional pathways of engagement. As a result, the Roosevelt Institute | Campus Network has remained a network that evolves and shifts as our students lead the way.

We aren’t, of course, the only ones – there is a vibrant ecosystem of organizations and movements that are also innovating and responding to the changing ways people of all ages are expressing their priorities. We could not be more proud of our alumni who have gone on to lead, participate in, and learn from these efforts.

Our successes also beg the question – what does this mean for the next ten years? How do we continue to amplify our strengths and evolve to reflect the moment, opportunities, and risks? That’s the conversation we’re having next – a conversation we want our alumni and supporters to be a part of. In 2015, the Roosevelt Institute will introduce our Alumni Network, which will focus on how to strengthen the Roosevelt community and its potential to influence social and economic priorities. If we are to respond to the call for an economic and democratic system that works for this century, it is going to take all of us.

It is now a Campus Network tradition to close any major convening or retreat with a passage from Jean Edward Smith’s FDR. It narrates President Franklin D. Roosevelt accepting the nomination at the 1936 Democratic National Convention. It’s a famous speech, most notably for his “This generation of Americans has a rendezvous with destiny” quote. We start reading a little earlier – Smith sets the stage, with the country emerging from the worst of the Great Depression. Roosevelt walks to the platform on the arm of his son James. Smith details a powerful moment, where the President sees the poet Edwin Markham, author of Man with a Hoe, reaches out to greet him, and stumbles and falls. People rush to snap his braces back into place. He then proceeds to give the speech, which puts forward uncompromising and substantive statements on political and economic equality. It’s resolute, forceful, and clear – there are wrongs we must right, power that needs to be rebalanced, problems to be solved by the people.

I hope that our members take two things away from the passage. First, that every individual can’t do it alone. Second, that it is possible to stand for something that upsets the current balance of power – and to see the country move forward as a result. It’s a valuable reminder today, when all seems hopeless in the face of stagnation and entrenchment.

As we look to the next ten years, that’s the question Roosevelters will continue to ask, and will eventually answer. What do we stand for, and how will we move this country forward?

Taylor Jo Isenberg is the Vice President of Networks at the Roosevelt Institute.

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Daily Digest - December 18: Can Subprime Lending Really Be Safe?

Dec 18, 2014Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

The Return of Subprime Lending (AJAM)

Matt Birkbeck says a new wave of subprime mortgages appear to be following much stricter rules and have far less usurious interest rates, but regulators are still watching closely.

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

The Return of Subprime Lending (AJAM)

Matt Birkbeck says a new wave of subprime mortgages appear to be following much stricter rules and have far less usurious interest rates, but regulators are still watching closely.

Paid Maternity Leave Is Good for Business (WSJ)

Susan Wojcicki says that the United States is behind the rest of the world in not offering paid maternity leave to all mothers, and that such a policy makes good sense socially and economically.

Federal Reserve Says It Will Be ‘Patient’ on Interest Rate Timing (NYT)

Binyamin Appelbaum reports on the latest comments from Federal Reserve Chair Janet Yellen about when the Fed will start raising interest rates. The process won't begin before April.

Fired Walmart Worker Says She Had to Choose Between a Paycheck and a Child (The Guardian)

Lauren Gambino and Jessica Glenza profile one former Walmart employee who was still asked to work with dangerous chemicals after her doctor said they would endanger her pregnancy.

What Was the Job? (Pacific Standard)

Kyle Chayka says the gig economy brought with it a massive reinterpretation of what it means to have a job, leaving behind a disenfranchised workforce without any of the benefits it once enjoyed.

New on Next New Deal

Ten Years: Students Moving the Country Forward

Roosevelt Institute Vice President of Networks Taylor Jo Isenberg reflects on the Campus Network's tenth anniversary, and how Roosevelters can continuing pushing for a better country for all of us.

Two Contradictory Arguments That Dodd-Frank is Crony Capitalism

Roosevelt Institute Fellow Mike Konczal compares two mutually exclusive conservative analyses of what crony capitalism means and how to fix it, which suggest this isn't a useful concept in policy debates.

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Two Contradictory Arguments That Dodd-Frank is Crony Capitalism

Dec 17, 2014Mike Konczal

I’m pretty convinced that the term “crony capitalism,” as deployed by the right, is useless as a political or analytical tool. I keep a close eye on how conservatives talk about financial reform, and according to the right, Dodd-Frank is crony capitalism. Oh noes! But what does that mean, and how can we stop it? Here’s a fascinating case in point: two AEI scholars with different publications argue that we need to stop Dodd-Frank from enabling crony capitalism, and then proceed to describe two opposite, mutually exclusive sets of problems and solutions.

First, a good test question: The Federal Reserve recently required that the largest firms have a greater capital surcharge than had been originally proposed. Is that cronyism?

Here’s one story, from James Pethokoukis in ”Fighting the Crony Capitalist Alliance”: “our highly concentrated and interconnected, Too Big to Fail financial system [...] gives a competitive edge to megabanks.” How is that? Regulators create incentives for big banks to take on risks “such as investing in mortgage-backed securities and complex derivatives.” Banks are the size they are, and do the activities that they do, because of the actions of regulators.

So how do we combat this problem? According to Pethokoukis, we should “substantially raise the capital requirements for Too Big To Fail banks” to limit risk. Even more, “such capital requirements might well nudge the biggest banks into shrinking themselves or breaking up.”

Here’s another story, from Tim Carney’s “Anti-Cronyism Agenda for the 114th Congress”: Dodd-Frank is cronyism because “[e]xcessive regulation is often the most effective crony capitalism.” What’s worse is that Dodd-Frank designates the biggest firms as Systemically Important Financial Institutions (SIFIs), meaning that they pose a systemic risk to the economy. Those firms are put under more regulation, but it’s obviously a cover for a permanent set of protections.

So what should we do? According to Carney’s agenda, Congress should “open banking up to more competition by repealing regulations that give large incumbent banks advantages over smaller ones.” Well, which regulations are those? “Congress should repeal its authority to designate large financial firms as SIFIs.”

Note that though these are from the same institution and carry the same banner of fighting “cronyism,” these agendas are the exact opposite of each other. For Pethokoukis, the important goal is identifying the largest and riskiest institutions and putting aggressive regulations on them, with capital requirements set high enough that they could fundamentally shrink those banks. For Carney, it’s important that we do not identify any firm as too large that it is risky for the economy, and thus increase their capital requirements, since doing so just encourages cronyism -- indeed, it is the logical conclusion of cronyism. Don’t regulate the largest firms with more attention or care; just don’t do anything to them.

In the Pethokoukis version, the financial sector poses a real threat to the stability of the economy, and as such special efforts should be made to prevent failure and handle failure when it does occur. His answer is, essentially, to do more. In the Carney version, there’s no real danger outside the government’s interference, or at least not a danger that is worth a policy solution. His answer is to do nothing, except repeal what regulation already exists.

And, crucially, for Pethokoukis, the recent increase in capital surcharges for SIFIs are a good idea; for Carney, they enshrine the problem by working through the SIFI framework, and are a bad idea. How can a policy agenda be built around such a “cronyism” framework?

There are other problems with “cronyism” as described here. Pethokoukis blames cronyism for the concentration in the financial sector in the last few decades. However the previous argument had been that the size and geographic restrictions that prevented this concentration before the 1990s are the real cronyism. Dodd-Frank blocks a single financial firm from having liabilities in excess of 10 percent of all liabilities, benefitting smaller firms at the expense of larger ones. Is that cronyism or the opposite? Cronyism can’t just be “things turned out in a terrible way when left to the markets.”

As Rich Yeselson notes in a fantastic essay on New Left historians in the recent issue of Democracy, the Gabriel Kolko-inspired stories about how regulations evolves (stories that influence Carney) are monomaniacally mono-causal. So just quoting CEOs’ statements to the press about Dodd-Frank constitutes analysis, as the regulations must obviously flow from elite desires through their captured lackeys in the state.

But Dodd-Frank is more complicated than that - look at the effort to stop the CFPB from starting, or the epic battles both between and within regulators, the state and consumers over derivatives. Carney’s top-down inescapable vision of how reform works leaves no room for the contingency of actual efforts to fix a broken system. In turn, this leaves us with no way to actually critique what Dodd-Frank does. Worse, it conflates fighting “cronyism” with an agenda of laissez-faire economics, liberty of contract, and hard money, sneaking in a three-legged stool of reactionary thought through our concerns about fairness.

Actual cronyism is a real problem, but I’ve seen no evidence that it adds up to a systemic criticism of our economy as a whole. Instead, we need a language of accountability, benefit and power in how markets are structured. Without this, we’ll have no working compass for reform.

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I’m pretty convinced that the term “crony capitalism,” as deployed by the right, is useless as a political or analytical tool. I keep a close eye on how conservatives talk about financial reform, and according to the right, Dodd-Frank is crony capitalism. Oh noes! But what does that mean, and how can we stop it? Here’s a fascinating case in point: two AEI scholars with different publications argue that we need to stop Dodd-Frank from enabling crony capitalism, and then proceed to describe two opposite, mutually exclusive sets of problems and solutions.

First, a good test question: The Federal Reserve recently required that the largest firms have a greater capital surcharge than had been originally proposed. Is that cronyism?

Here’s one story, from James Pethokoukis in ”Fighting the Crony Capitalist Alliance”: “our highly concentrated and interconnected, Too Big to Fail financial system [...] gives a competitive edge to megabanks.” How is that? Regulators create incentives for big banks to take on risks “such as investing in mortgage-backed securities and complex derivatives.” Banks are the size they are, and do the activities that they do, because of the actions of regulators.

So how do we combat this problem? According to Pethokoukis, we should “substantially raise the capital requirements for Too Big To Fail banks” to limit risk. Even more, “such capital requirements might well nudge the biggest banks into shrinking themselves or breaking up.”

Here’s another story, from Tim Carney’s “Anti-Cronyism Agenda for the 114th Congress”: Dodd-Frank is cronyism because “[e]xcessive regulation is often the most effective crony capitalism.” What’s worse is that Dodd-Frank designates the biggest firms as Systemically Important Financial Institutions (SIFIs), meaning that they pose a systemic risk to the economy. Those firms are put under more regulation, but it’s obviously a cover for a permanent set of protections.

So what should we do? According to Carney’s agenda, Congress should “open banking up to more competition by repealing regulations that give large incumbent banks advantages over smaller ones.” Well, which regulations are those? “Congress should repeal its authority to designate large financial firms as SIFIs.”

Note that though these are from the same institution and carry the same banner of fighting “cronyism,” these agendas are the exact opposite of each other. For Pethokoukis, the important goal is identifying the largest and riskiest institutions and putting aggressive regulations on them, with capital requirements set high enough that they could fundamentally shrink those banks. For Carney, it’s important that we do not identify any firm as too large that it is risky for the economy, and thus increase their capital requirements, since doing so just encourages cronyism -- indeed, it is the logical conclusion of cronyism. Don’t regulate the largest firms with more attention or care; just don’t do anything to them.

In the Pethokoukis version, the financial sector poses a real threat to the stability of the economy, and as such special efforts should be made to prevent failure and handle failure when it does occur. His answer is, essentially, to do more. In the Carney version, there’s no real danger outside the government’s interference, or at least not a danger that is worth a policy solution. His answer is to do nothing, except repeal what regulation already exists.

And, crucially, for Pethokoukis, the recent increase in capital surcharges for SIFIs are a good idea; for Carney, they enshrine the problem by working through the SIFI framework, and are a bad idea. How can a policy agenda be built around such a “cronyism” framework?

There are other problems with “cronyism” as described here. Pethokoukis blames cronyism for the concentration in the financial sector in the last few decades. However the previous argument had been that the size and geographic restrictions that prevented this concentration before the 1990s are the real cronyism. Dodd-Frank blocks a single financial firm from having liabilities in excess of 10 percent of all liabilities, benefitting smaller firms at the expense of larger ones. Is that cronyism or the opposite? Cronyism can’t just be “things turned out in a terrible way when left to the markets.”

As Rich Yeselson notes in a fantastic essay on New Left historians in the recent issue of Democracy, the Gabriel Kolko-inspired stories about how regulations evolves (stories that influence Carney) are monomaniacally mono-causal. So just quoting CEOs’ statements to the press about Dodd-Frank constitutes analysis, as the regulations must obviously flow from elite desires through their captured lackeys in the state.

But Dodd-Frank is more complicated than that - look at the effort to stop the CFPB from starting, or the epic battles both between and within regulators, the state and consumers over derivatives. Carney’s top-down inescapable vision of how reform works leaves no room for the contingency of actual efforts to fix a broken system. In turn, this leaves us with no way to actually critique what Dodd-Frank does. Worse, it conflates fighting “cronyism” with an agenda of laissez-faire economics, liberty of contract, and hard money, sneaking in a three-legged stool of reactionary thought through our concerns about fairness.

Actual cronyism is a real problem, but I’ve seen no evidence that it adds up to a systemic criticism of our economy as a whole. Instead, we need a language of accountability, benefit and power in how markets are structured. Without this, we’ll have no working compass for reform.

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New Score: Socialize Uber

Dec 17, 2014Mike Konczal

I have a new Score column at The Nation: Socialize Uber. It's about Uber and other sharing economy companies as worker cooperatives. Normally I eyeroll when people talk about cooperatives as an economic solution, but I think there's compelling stuff here. Given that the workers already own all the capital in the form of their cars, why aren’t they collecting all the profits? I'm particularly interested in the comparisons to the Populist movement in this new economy, as back then workers also were amazed by new technologies but also wanted fairness on the terms they could access them.

We've also revamped how the Score looks, particularly the online part of it, so I hope you check it out. There's some commentary already from Will Wilkinson and Brian Dominick. It's definitely a moment where people are thinking about this, as columns from Nathan Schneider and Trebor Scholz also came out at the same time making similar arguments about worker cooperatives.

Sure Pricing

Uber is also in the news because they turned on surge pricing during a terrorist hostage situation in Sydney, Australia. This has gotten people talking about surge pricing. I don't mind surge pricing, but the moralizing way journalists talk about it is really off-putting. Matt Bruenig has a good response to an example of this by Olivia Nuzzi ("How does the world owe you a private car, priced as you deem acceptable, that didn't exist five years ago? [...] you might consider meandering over to a country with a different economic system").

To expand on Matt, there's two reasons why people might want to avoid surge pricing that virtually never get discussed.

One is that people care about fairness. As Arin Dube wrote about the minimum wage, "the economists Colin F. Camerer and Ernst Fehr have documented in numerous experimental studies that the preference for fairness in transactions is strong: individuals are often willing to sacrifice their own payoffs to punish those who are seen as acting unfairly, and such punishments activate reward-related neural circuits." This is why you see high support for the minimum wage among people who otherwise support right-wing economic ideas, as we just saw in the 2014 elections.

People care about fairness; it's in their utility function if you prefer. It's a funny economic argument where markets are meant to serve what people want, and producers are meant to meet those needs at the lowest possible cost, but if people want fairness built into the cost model then it's all sneering all the time. It's almost as if the moment is about conditioning people to serve market needs, rather than markets to serve people needs. If people demanded a cola beveridge that, say, was less sweet, would we get Daily Beast articles about "how dare you, the world doesn't owe you a less sweet cola, move to North Korea if you want to see your market demands turn into products." And there's a long history of using moral persuasion to try and limit price-gouging - check out Little House on the Prairie.

But the first issue becomes more relevant with a second concern, however, and that's the increasingly negative view of Uber's tactics. People don't have perfect information, and it's reasonable that they might want to pool the risk that they'll be targeted for price discrimination. The obvious comparison here was that early moment Amazon turned out to be charging higher prices based on your browsing history, which it promptly shut down after public outcry. (Why don't you meander over to a different country if you don't want Amazon data-mining your browser to rip you off?)

Why were people offended? Because in that case the price discimination just transfered the surplus from the customers to the producers - there wasn't any allocative effect. And the same worry can carry over to surge pricing.

Without perfect information, customers don't really know if they are getting price surged based on supply-and-demand fundamentals or on their own individual characteristics. Imagine if the algorithm increased the liklihood of price surging based on people's past willingness to select price surging. Or because a neighborhood is more like to accept price surging. I assume we'd be mad, right? That wouldn't have an allocative effect - it would just be ripping off those people because the code can tell they'd be willing to pay more.

Are they doing this now, or will they do this in the future? Normally trust is what would help mitigate both these worries, but with stories about "God mode" and their take-no-prisoners approach to everything, trust is in increasingly low supply.

Follow or contact the Rortybomb blog:
 
  

 

I have a new Score column at The Nation: Socialize Uber. It's about Uber and other sharing economy companies as worker cooperatives. Normally I eyeroll when people talk about cooperatives as an economic solution, but I think there's compelling stuff here. Given that the workers already own all the capital in the form of their cars, why aren’t they collecting all the profits? I'm particularly interested in the comparisons to the Populist movement in this new economy, as back then workers also were amazed by new technologies but also wanted fairness on the terms they could access them.

We've also revamped how the Score looks, particularly the online part of it, so I hope you check it out. There's some commentary already from Will Wilkinson and Brian Dominick. It's definitely a moment where people are thinking about this, as columns from Nathan Schneider and Trebor Scholz also came out at the same time making similar arguments about worker cooperatives.

Sure Pricing

Uber is also in the news because they turned on surge pricing during a terrorist hostage situation in Sydney, Australia. This has gotten people talking about surge pricing. I don't mind surge pricing, but the moralizing way journalists talk about it is really off-putting. Matt Bruenig has a good response to an example of this by Olivia Nuzzi ("How does the world owe you a private car, priced as you deem acceptable, that didn't exist five years ago? [...] you might consider meandering over to a country with a different economic system").

To expand on Matt, there's two reasons why people might want to avoid surge pricing that virtually never get discussed.

One is that people care about fairness. As Arin Dube wrote about the minimum wage, "the economists Colin F. Camerer and Ernst Fehr have documented in numerous experimental studies that the preference for fairness in transactions is strong: individuals are often willing to sacrifice their own payoffs to punish those who are seen as acting unfairly, and such punishments activate reward-related neural circuits." This is why you see high support for the minimum wage among people who otherwise support right-wing economic ideas, as we just saw in the 2014 elections.

People care about fairness; it's in their utility function if you prefer. It's a funny economic argument where markets are meant to serve what people want, and producers are meant to meet those needs at the lowest possible cost, but if people want fairness built into the cost model then it's all sneering all the time. It's almost as if the moment is about conditioning people to serve market needs, rather than markets to serve people needs. If people demanded a cola beveridge that, say, was less sweet, would we get Daily Beast articles about "how dare you, the world doesn't owe you a less sweet cola, move to North Korea if you want to see your market demands turn into products." And there's a long history of using moral persuasion to try and limit price-gouging - check out Little House on the Prairie.

But the first issue becomes more relevant with a second concern, however, and that's the increasingly negative view of Uber's tactics. People don't have perfect information, and it's reasonable that they might want to pool the risk that they'll be targeted for price discrimination. The obvious comparison here was that early moment Amazon turned out to be charging higher prices based on your browsing history, which it promptly shut down after public outcry. (Why don't you meander over to a different country if you don't want Amazon data-mining your browser to rip you off?)

Why were people offended? Because in that case the price discimination just transfered the surplus from the customers to the producers - there wasn't any allocative effect. And the same worry can carry over to surge pricing.

Without perfect information, customers don't really know if they are getting price surged based on supply-and-demand fundamentals or on their own individual characteristics. Imagine if the algorithm increased the liklihood of price surging based on people's past willingness to select price surging. Or because a neighborhood is more like to accept price surging. I assume we'd be mad, right? That wouldn't have an allocative effect - it would just be ripping off those people because the code can tell they'd be willing to pay more.

Are they doing this now, or will they do this in the future? Normally trust is what would help mitigate both these worries, but with stories about "God mode" and their take-no-prisoners approach to everything, trust is in increasingly low supply.

Follow or contact the Rortybomb blog:
 
  

 

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Daily Digest - December 17: Who Takes the Biggest Share of the Sharing Economy?

Dec 17, 2014Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

The Bloomberg Advantage: Konczal on Uber (Bloomberg)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

The Bloomberg Advantage: Konczal on Uber (Bloomberg)

Roosevelt Institute Fellow Mike Konczal says that since most of the capital in Uber is in the cars, it's hard to justify the software developers getting such a large chunk of profits.

Senate Democrats Tell the SEC to Get Moving on CEO Pay Rule (HuffPo)

The public comment period for the CEO pay ratio rule expired a year ago, and some Senate Democrats are tired of waiting for it to be implemented, reports Zach Carter.

  • Roosevelt Take: Roosevelt Institute Fellow Susan Holmberg explains the CEO pay debate in this recent primer.

Unions Sue to Stop Chicago Pension Overhaul (Chicago Sun-Times)

Fran Spielman explains why a dozen retirees and their four unions are suing the city: they say the changes are against the state constitution, which guarantees government pensions.

Some Investors Still Heart Big Banks, No Matter What Elizabeth Warren Says (The Guardian)

Suzanne McGee considers why some investors are putting their money with the big banks, despite the continued question of whether regulators will try to break them up.

Are the Democrats Allowing Social Security to Twist in the Wind? (LA Times)

Failing to vote on a Social Security commissioner is just another examples of Democrats' failure to provide this essential program with strong enough support, writes Michael Hiltzik.

The Great Budget Sellout of 2014: Do We Even Have a Second Party? (TAP)

Robert Kuttner characterizes the new spending bill as proof that our two major parties are fundamentally the same: willing to gut Dodd-Frank, defund the EPA, and cut Pell grants.

The U.S. Middle Class Has Faced a Huge “Inequality Tax” in Recent Decades (EPI)

Josh Bivens shows how U.S. middle-class income could have grown if it had matched the average growth rate over that time, as occurred following World War II.

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Daily Digest - December 16: Inequality Hurts our Children Most

Dec 16, 2014Rachel Goldfarb

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Inequality and the American Child (Project Syndicate)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Inequality and the American Child (Project Syndicate)

Roosevelt Institute Chief Economist Joseph Stiglitz says the impact of economic inequality in the U.S. is even stronger on its children, who could be protected through the right policy changes.

Taxpayers Could be Liable Again for Bank Blunders (CBS News)

Erik Sherman speaks to Roosevelt Institute Fellow Mike Konczal about the modification to Dodd-Frank built into the spending bill. Mike says the changes come straight from the banks.

Progressives Just Lost a Fight on the Budget. So Why Are They So Happy? (TAP)

Paul Waldman suggests that GOP control of Congress is liberating to the more progressive Democrats, because they no longer have to compromise to pass Democratic legislation.

The Year in Inequality: Racial Disparity Can No Longer Be Ignored (AJAM)

Ned Resnikoff says solving American economic inequality will prove impossible without acknowledging the racial disparities brought on largely by inheritance and homeownership.

Economic Recovery Spreads to the Middle Class (NYT)

Nelson D. Schwartz says the U.S. economy is showing its very first signs of the wage gains that will be needed for the economic recovery to reach the middle class.

Even With a GOP Congress, Obama Could Still Defend American Workers. Here’s How. (In These Times)

David Moberg puts together a list of ten items that the president could accomplish using the Department of Labor, in particular by strongly enforcing the Fair Labor Standards Act.

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Daily Digest - December 15: An Uber That Really Is Sharing

Dec 15, 2014Rachel Goldfarb

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Socialize Uber (The Nation)

Roosevelt Institute Fellow Mike Konczal and Bryce Covert present a way to transform Uber into a company that would truly be part of a "sharing economy": make it a worker cooperative.

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Socialize Uber (The Nation)

Roosevelt Institute Fellow Mike Konczal and Bryce Covert present a way to transform Uber into a company that would truly be part of a "sharing economy": make it a worker cooperative.

My Talk to the Roosevelt Institute Campus Network (On The Economy)

Jared Bernstein gave the keynote at the Campus Network's 10th anniversary party. He's published his talk, which was on the need to combine head and heart in economic policy-making.

Wall Street’s Revenge (NYT)

Paul Krugman says that Wall Street has so heavily funded the Republican party in order to get back on Democrats for Dodd-Frank financial reform, and this spending bill is only the first step.

  • Roosevelt Take: Roosevelt Institute Senior Fellow Richard Kirsch and Fellow Mike Konczal each wrote about the rollback of Dodd-Frank in the cromnibus last week.

Pension Bill Seen as Model for Further Cuts (WSJ)

John D. McKinnon says some on the left worry that the pension-cutting measure in the spending bill could create precedent for even more pension cuts, possibly even to Social Security.

Obama's Left-Side Headache (Bloomberg Politics)

Margaret Talev and Michael C. Binder suggest that one of the biggest challenges the president will face from the incoming Congress will be from progressives like Senator Warren.

The Devalued American Worker (WaPo)

Jim Tankersley explains how the past three recessions, by breaking previous patterns of post-recession job growth, have cut middle-skill jobs and lowered wages for many.

Thanks to Labor Board Ruling, You Can Now Use Company Email to Organize a Union (In These Times)

Overriding a 2007 decision, the National Labor Relations Board has decided that email functions more like the water cooler than as high-cost company equipment, reports Moshe Z. Marvit.

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Daily Digest - December 12: What Progressives Lost in the Cromnibus Showdown

Dec 12, 2014Tim Price

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Why D.C. Is Up in Arms About Derivatives... Again (Marketplace)

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Why D.C. Is Up in Arms About Derivatives... Again (Marketplace)

Roosevelt Institute Fellow Mike Konczal tells Stan Alcorn that the financial regulation repealed in the budget deal had already been scaled back to include only the riskiest types of derivatives trading.

What's Next for the Minimum Wage Movement? (MSNBC)

Roosevelt Institute Fellow Dorian Warren moderates a discussion about the grassroots political power that's pushing the minimum wage fight forward despite gridlock at the federal level.

Why Elizabeth Warren Is Going to War With Obama Over Antonio Weiss (Vox)

Senator Warren sees the President's pick for Undersecretary of Treasury for Domestic Finance as more evidence that the administration is too friendly to Wall Street, writes Matt Yglesias.

Misreading the Lessons From Financial Crises (NYT)

Alan Greenspan's response to the 1987 stock market crash trained both regulators and investors to expect the Fed to prop up markets instead of addressing the underlying problems, writes Floyd Norris.

Banking Lobbyists Block Transparency Bill, Advocates Say (IBT)

A bill to reform the Freedom of Information Act is stalled in the House, reports Matthew Cunningham-Cook, as Wall Street seeks to maintain a veil of secrecy about its deals with public agencies.

New on Next New Deal

The Budget Fight Was the First Skirmish in the War for the Soul of the Democratic Party

Democrats had the leverage to block a deal that opens the door to more Wall Street bailouts, writes Roosevelt Institute Senior Fellow Richard Kirsch, but instead they gave in to Republican blackmail.

The Bipartisan Policy Center Gets It Wrong: The Lincoln Amendment Is Critical to Financial Reform

Roosevelt Institute Fellow Mike Konczal joins with The Other 98's Alexis Goldstein and Better Markets' Caitlin Kline to debunk the claim that the regulation repealed by the budget deal is redundant.

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