Mike Konczal

Roosevelt Institute Fellow

Recent Posts by Mike Konczal

  • How Government Decides Which Workers Deserve Rights

    Feb 1, 2012Mike Konczal

    It used to be that white men had steady employment and all the government protection that came with it while minorities and women were stuck with precarious jobs. Now we're all vulnerable.

    It used to be that white men had steady employment and all the government protection that came with it while minorities and women were stuck with precarious jobs. Now we're all vulnerable.

    Malcolm Harris has a New Inquiry essay on the movie Sleeping Beauty (2011) and the feminization of precarious labor. A lot has been written on precarious labor recently, including both John Schmitt's book review in Dissent and Bhaskar Sunkara's critical response. I want to elaborate on this, since looking at gender and precarious work leads to an examination of a favorite topic -- the relationship between pity-charity liberalism and unconditional, universal programs related to economic security. A perfect example is how labor in the New Deal was treated differently by gender. The wedge between the two groups illuminates the difficulty in bringing economic justice to the 21st century. Precarious, vulnerable work was once relegated solely to women, but in this day and age more and more of us will fall into that category.

    For Harris, the precarious worker is "indebted, insecure, vulnerable." If the classic notion of a worker "relies on having a bargaining place at the table with the boss," then precarious workers aren't workers (even though all they do is work or try to cobble work together).

    How is the work gendered? Harris focuses on gendered affect: "passivity and her eagerness to please, her vulnerability and blank demeanor would look incredibly strange on a young man. Her willingness to keep treading water without the promise of anything better to come, her ability to communicate nonthreateningly and stay quiet at the right times are parts of what Nina Power describes in the chapter 'The Feminization of Labor.'"

    But there's an institutional way to think about how the precarious nature of gender and work is both reflected in and amplified by governmental regulatory regimes, and how the future looks bleak in terms of bending those regimes toward just ends. Suzanne Mettler's Dividing Citizens: Gender and Federalism in New Deal Public Policy (1998) is useful for this conversation. (Mettler, a political scientist and recent author of The Submerged State, is a favorite around here -- III, -- and recently joined our think-tank neighbors at the Century Foundation as a fellow.)

    To set up the problem, Seth Ackerman has recently discussed universal programs in the context of the Tea Party's war against the state:

    ...[I]t’s indisputable that Tea Partiers make some kind of conceptual distinction between universal programs like Social Security and Medicare and other government programs. But this says less about the Tea Party than it does about universal social programs. It is easy for liberals to point to the Tea Partiers and call them bigots because they make a distinction between 'people on welfare' and 'normal people.' But in fact it’s the state that made the distinction first. When the state operates a means-tested or other conditional program, it inspects each citizen and stamps him or her as belonging to one category or the other... Political scientists have long known that something almost alchemical happens to public opinion when a universal, as opposed to a mean-tested, welfare program is established.

    Mettler argues that this distinction comes out of the dual administrative nature of the New Deal. Part of the New Deal was to be administered by newly created federal government programs, while another part was to be administered by local and state authorities. It just so happened that the federal government's role regulated the work and lives of white men, while the state and local role retained authority over women and minorites. Keeping part of the New Deal's welfare state and floor of economic security administered at the state and local level was predicated intellectually on Brandeis' notion of the states as laboratories of democracy and politically on getting Southern white supremacists to endorse the New Deal. This meant that how people realize economic freedom could be maintained and expanded through illiberal means.

    Remember that just three years after the Lochner case, with a Supreme Court hostile to all economic regulations, it made an exception to maximum hours regulations for women. Why? In 1908, the Court ruled in Muller v. Oregon, "That woman's physical structure and the performance of maternal functions place her at a disadvantage in the struggle for subsistence is obvious...as healthy mothers are essential to vigorous offspring, the physical well-being of woman becomes an object of public interest and care in order to preserve the strength and vigor of the race." These are the terms on which economic regulation could exist -- protecting essentialist visions of a women's place.

    Mettler argues that "programs geared toward men became nationally administered programs and those aimed toward women retained state-level authority." This welfare state led to citizens becoming "divided by gender between two different sovereignties that govern in very different ways." As she says:

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    What it meant to be an "American citizen" meant very different things to the retired male breadwinner, who came to expect his monthly social security check from the national government, and to the poor mother who hoped that the social worker assigned to evaluate her eligibility for a meager welfare check would find her child-rearing and housekeeping efforts worthy. The first was treated with dignity and respect, as an entitled person; the latter, with suspicion and scrutiny.

    Mettler maps out a 2X2 grid, dividing out New Deal programs:

    The crucial point is that liberal inclusion was based on long-term, full-time work for a single employer. If you had a job along those lines --and these jobs were held by white men at that time -- then you were included in a regime of universal economic security. Short-term, part-time work for multiple employers -- work done by women and minorities -- falls through the cracks into a patchwork of state and local governance. That governance bases inclusion on hierarchical ideals invoking republican notions of where a person stood in his or her community. The notion of the "deserving poor" comes out of this relationship. Aid to Dependent Children (ADC), for instance, was predicated on single mothers being able to retain their "natural" work as housewives and child-raisers. ADC's spot inspections of single mothers for "male callers" gives you a sense of how this played out -- as Mettler notes, "officials monitored and regulated women's moral character."

    Progress was made on these New Deal programs up through the 1970s. But there's been significant rollback over the past 30 years. The call to "means-test" social insurance programs, Ending Welfare as We Know It by block-granting welfare's administrative role back to the states, the battles over block-granting Medicaid and privatizing Social Security and Medicare -- all have shifted the momentum in the opposite direction. But where does this leave us now, especially in regard to precarious labor?

    I asked Dorian Warren, Columbia political scientist, Roosevelt Institute Fellow, and union expert, about where this stands. As he puts it:

    Add up the Mettler argument with Hacker's notion of "policy drift," and most New Deal social policies (especially the FLSA and the NLRA) are outdated and obsolete. They were crafted with assumptions about work and the nature of the economy in mind: an agricultural and industrial economy, where workers had long-term attachments to one employer. That's no longer the case, and labor and employment laws haven't caught up to the new employment relationship. Long story short, we don't have the adequate legal structures to deal with this new employment environment.

    The battle to move the welfare state to the federal level, where it could be administered inclusively and universally, was an intellectual and political battle waged within the New Deal. How is this playing out in the Obama administration? I'll eventually build a full case against the "nudge" theory of the administrative state, but for now a theory of using subtle and unconscious government techniques to help people work better within "choice architectures" isn't up to the challenge of recreating a regulatory environment for a new age.

    For insight into how the current administration's approach is playing out in this model, take a look at the administration of health care reform. I asked Richard Kirsch, recent author of Fighting for Our Health and Roosevelt Institute Senior Fellow, about the federal/local administration of health care reform. He responded:

    The House bill set up a strong federal exchange and let the states do their own only if their exchanges had stronger consumer protections. However with the Senate bill -- the law we have now -- states can set up very weak exchanges. And the insurance industry has lots of clout at the state level. The best hope is that there will be a strong federal exchange for states that don’t set up their own. But that will only be true if HHS creates one.

    So we have an outdated regulatory regime, an intellectual climate geared towards local, illiberal control, and the application of economic freedoms designed to keep women yoked to essentialist and moralistic discoures. A "polarizing" workforce means that the labor market, without significant reform, will take on an exaggerated version of the split we saw in the New Deal, with the precarious work falling into a patchwork administration system of moralizing and without opportunities to organize.

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • Overall Unemployment Rate is at African Americans' Pre-recession Level

    Jan 19, 2012Mike Konczal

    Today's unemployment levels are miserable, but a reminder that African Americans were experiencing the same pain during boom times.

    Today's unemployment levels are miserable, but a reminder that African Americans were experiencing the same pain during boom times.

    There's been a lot of expectation management over the recent news that the U.S. unemployment rate has dropped from 8.7 percent to 8.5 percent. Alan Krueger noted that "[i]t is critical that we continue the economic policies that are helping us to dig our way out of the deep hole that was caused by the recession that began at the end of 2007." Many economists expect unemployment to increase if the economy picks up, because people who have drifted out of the labor force will start looking for work again, raising the unemployment rate. And as everyone recognizes, there's still a terrible amount of suffering with unemployment as high as 8.5 percent -- wasted capacity, wasted opportunities, and mass misery. Though things may be looking up, they are still quite painful.

    One interesting thing to note is that the number in between 8.7 percent and 8.5 percent, a threshold the country just crossed, was the average unemployment rate for African Americans going into the recession. The rate from 2006-2007 for African American men and women over 16 was 8.6 percent. Let's chart that out (click through for larger image):

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    Total African American unemployment is currently at 15.8 percent and has been hovering around 16 percent for three years now. All the other major employment health indicators are down as well. For instance, the employment-to-population ratio is down to 51 percent from 60 percent in 2001. Nearly half of all African Americans aren't working.

    The economy is terrible for all Americans right now and we desperately need action to both expand the economy and repeal attempts to contract it. But it is worth remembering that the unemployment misery all Americans are experiencing right now is equal to what it was like during the best two years of the 21st century for African Americans.

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • Josh Kosman on the Loopholes That Fuel Private Equity Buyouts

    Jan 12, 2012Mike Konczal

    kosman_paperback_launchAs a result of a series of attacks and counter-attacks on Republican presidential candidate Mitt Romney's work with Bain, there's been a lot of discussion about private equity, buyouts of firms, and their ultimate relation to the economy.

    kosman_paperback_launchAs a result of a series of attacks and counter-attacks on Republican presidential candidate Mitt Romney's work with Bain, there's been a lot of discussion about private equity, buyouts of firms, and their ultimate relation to the economy. So far the discussion has been a back-and-forth on layoffs and "creative destruction," with very little on how laws and regulations structure the way private equity and buyouts happen in this country.

    I interviewed Josh Kosman, author of The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy, on this topic. Bob Kuttner reviewed his book in May 2010, and Kosman was on Up with Chris Hayes last weekend. The interview has been edited for length.

    Mike Konczal: What are private equity funds, and what do they do?

    Josh Kosman: Private equity firms are mostly former Wall Street bankers who raise money to buy companies on credit. They used to be called leveraged buyout (LBO) firms, and when the first leveraged buyout boom went bust in the 1980s they regrouped and called themselves private equity.

    The big difference between them and venture capitalist or hedge funds is that the companies that they buy borrow money to finance the acquisitions.

    Private equity firms own more than 3,000 U.S. companies and employ roughly one out of every 10 Americans in the private workforce. This is just America, so it doesn't include companies or employees overseas. Some companies include HCA, the largest hospital chain, to Clear Channel, the largest radio station operator, to Dunkin' Donuts. They are in every industry.

    MK: People coming to the defense of private equity from both the left-neoliberal and conservative spaces directly invoke or allude to "the market" as a natural, already existing thing. But a key progressive retort to this laissez-faire view of economics argues that all markets are deeply embedded in and constructed through legal, tax, and other regulatory government codes. Your research has found that, far from being natural, private equity exists largely due to issues with the tax code. Can you explain?

    JK: The whole industry started in the mid-to-late 1970s. The original leveraged buyout firms saw that there were no laws against companies taking out loans to finance their own sales, like a mortgage. So when a private equity firms buys a company and puts 20 percent down, and the company puts down 80 percent, the company is responsible for repaying that.

    Now the tax angle is that the company can take the interest it pays on its loans off of taxes. That reduces the tax rate of companies after they are acquired in LBOs by about half. Banks, also realizing this tax effect, were willing to finance these deals. At the time, you could also depreciate the assets of the company you were buying -- that's not true today.

    They saw that you could buy a company through a leveraged buyout and radically reduce its tax rate. The company then could use those savings to pay off the increase in its debt loads. For every dollar that the company paid off in debt, your equity value rises by that same dollar, as long as the value of the company remains the same.

    MK: So the business model is based on a capital structure and tax arbitrage?

    JK: Yes. It's a transfer of wealth as well. It's taking the wealth of the company and transferring it to the private equity firm, as long as it can pay down its debt.  It think it is real - the very early firms targeted industries in predictable industries with reliable cash flows in which they by and large could handle this debt. As more went into this industry, it became very hard to speak to the original model. Now firms are taken over in very volatile industries. And they are taking on debts where they have to pay 15 times their cash flow over seven years -- they are way over-levered.

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    MK: The most common argument for why Bain Capital and other private equity firms benefit the economy is that they are pursuing profits. They aren't in the business of directly "creating jobs" or "benefitting society," but those effects occur indirectly through the firms making as much money as they can.

    But even here, "profits" -- how they exist, where they come from, and how they are timed -- have a crucial legal and regulatory function. A recent paper from the University of Chicago looking at private equity found that "a reasonable estimate of the value of lower taxes due to increased leverage for the 1980s might be 10 to 20 percent of firm value," which is value that comes from taxpayers to private equity as a result of the tax code. Can you talk more about this?

    JK: That sounds about right. If you took away this deduction, you'd still have takeovers, but you'd have a lot less leverage and the buyer would be forced to really improve the company in order to make profits. I think that would be a great thing.

    If you look at the dividends stuff that private equity firms do, and Bain is one of the worst offenders, if you increase the short-term earnings of a company you then use those new earnings to borrow more money. That money goes right back to the private equity firm in dividends, making it quite a quick profit. More importantly, most companies can't handle that debt load twice. Just as they are in a position to reduce debt, they are getting hit with maximum leverage again. It's very hard for companies to take that hit twice.

    If you look at Ted Forstmann, an original private equity person who just passed away, he would rail against dividends in this manner -- borrowing money to pay out dividends. He was more interested in taking companies public and selling shares and paying down debts and collecting proceeds that way. I can respect that a lot more. The initial private equity model was that you would make money by reselling your company or taking it public, not by levering it a second time.

    Private equity and buyouts started as a way to take advantage of tax gimmicks, not as a way of saying "we're going to turn around companies." And now it's out of control. I look at the 10 largest deals done in the 1990s, during ideal economic times, and in six cases it was clear that the company was worse off than if they never been acquired. Moody's just put out a report in December that looked at the 40 largest buyouts of this era and showed that their revenue was growing at 4 percent since their buyout, while comparable companies were growing at 14 percent.

    In January -- so just in the past 12 days -- Hostess, the largest bakery in the country, just went bankrupt. Coach, the largest bus company, just went bankrupt. And Quizno's is about to go bankrupt. All of these were owned by private equity.

    MK: This battle is part of a larger discussion of, in Henry Manne's phrase, "the market for corporate control." The tax code is set to overlever firms, which require increases in earnings to go toward debt payments instead of research and development, expansion, and other things that build the firm. What could we change to generate different outcomes?

    JK: That's exactly right. Right after this goes on for a few years, you've starved your firm of human and operating capital. Five years later, when the private equity leaves, the company will collapse -- you can't starve a company for that long. This is what the history of private equity shows.

    What I'd like to see Mitt Romney do is to show an example of a buyout that went well. The only success stories he's talking about on any level are venture capital investments -- Staples and Sports Authority. Personally I like venture capital, I think it provides a lot of value, but that's not what he did mostly, and that's not what these takeovers are about.

    The big fix I'd encourage is an end to interest-tax deducibility for leveraged buyouts. The tax system encourages companies to borrow as much as they can. For certain industries, like telecom, these deductions might make a lot of sense. But it was never intended for financing leveraged buyouts. If you put a cap on this you would find buyouts and private equity firms that were much more focused on building companies.

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  • Jobs Numbers: The Good, the Bad, the Meh

    Jan 6, 2012Mike Konczal

    Some good news lurks in today's jobs numbers, but we're still a long way away from a real recovery.

    Some good news lurks in today's jobs numbers, but we're still a long way away from a real recovery.

    The new jobs numbers are out. Overall, 212,000 private sector jobs were created while 12,000 government jobs were lost, for a net total of 200,000 job gains. That loss, 12,000, is less than the average 23,000 government jobs that were lost per month in 2011, so it boosts the headline number. Yet 12,000 is still a lot to lose, especially when so many of those numbers come from education -- at least 9,000 local-level education jobs were cut.

    Where's the good news? There were solid increases in weekly hours (+0.5%) and payroll (+0.7%), meaning employed people are getting more money in their pockets. With more money, they can spend more, which will employ other people and create a virtuous loop of spending and employment. This will help boost demand broadly and start to add some energy to a depressed economy. If sustained, it could help take the current jobs reports -- which are good but not enough to end the unemployment crisis we currently have -- and turn them into jobs numbers capable of bringing about a serious recovery.

    But there's also an apparent queue for who will get jobs first. Right now we are seeing most job gains go to men and to those with higher education. Men have been gaining jobs over women across industries and occupations throughout 2011 -- and in the household survey women lost jobs last month. The employment-to-population ratio went down to 53 percent for women last month, bringing it to the lowest levels since 1988. The Roosevelt Institute will be doing additional research on this topic in 2012.

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    What's on the horizon? Something needs to trigger these 200,000 jobs a month reports into the 250,000 to 400,000 range.  At the current rate, we won't see full employment until 2024. Something needs to kick in. One way this could happen is if household formation takes off in 2012. There's a shadow household inventory of adults living with parents and adults living with other adults who, in better times, would have moved out. Household formations would take stress off the terrible housing market, but is it likely to take off itself without a boost? I'll be following this argument throughout the year.

    The other big way to put more gas in the economy's engine is through expanded fiscal and monetary policy. There's no sign from inflation or government borrowing rates that we've hit a danger zone in stimulating the economy, and there's plenty of slack in the short-term to put idle resources to work.

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • Cordray's Recess Appointment Helps Implement a Law That Already Passed

    Jan 4, 2012Mike Konczal

    President Obama rightfully sidestepped a GOP that insists on dismantling a law that addresses some of the fundamental breakdowns of the crisis.

    President Obama rightfully sidestepped a GOP that insists on dismantling a law that addresses some of the fundamental breakdowns of the crisis.

    One way to think about how the Dodd-Frank Wall Street Reform and Consumer Protection Act goes about policing finance is that it levels the playing field of rules and regulations between bank and non-bank financial firms. In the lead up to the crisis, financial firms acted like "shadow banks" without having to follow the rules regular banks did. The legal and regulatory infrastructure that evolved since the Great Depression for regular banks was never extended to these new shadow banks.

    This was especially true for consumer financial products, particularly home mortgages. There's a solid regulatory network for home mortgages in place when it comes to regular banks. However, when it came to subprime mortgages made through non-bank lenders, those rules didn't apply. Many financial regulators urged Federal Reserve Chairman Alan Greenspan to have the Fed start regulating subprime and leveling the regulatory playing field. So did the GAO and a HUD-Treasury task force. Greenspan wouldn’t. Hence Dodd-Frank's emphasis on reducing regulatory arbitrage by creating a special Bureau to consolidate consumer financial protection in one place.

    But the Consumer Financial Protection Bureau (CFPB) needs a director in order to start working on reducing the uneven playing field. As a recent report noted, "[w]ithout a Director, the CFPB cannot fully supervise non‐bank financial institutions such as independent payday lenders, non‐bank mortgage lenders, non‐bank mortgage servicers, debt collectors, credit reporting agencies and private student lenders." Enter our dysfunctional Senate.

    In early May of 2011, 44 Republican Senators signed onto a letter that requested three specific changes before they confirmed any nominee, "regardless of party affiliation," to head the CFPB. The changes included replacing "the single Director with a board to oversee the Bureau" and subjecting "the Bureau to the Congressional appropriations process."

    Dodd-Frank, signed into law in July 2010, created a Consumer Financial Protection Bureau that had a single director and was consciously funded in a very specific way. In order for the CFPB to fully work, it needs an appointed director -- certain powers don't kick in otherwise. So in effect a minority of Republican Senators say that they won't allow an act of law to be fully implemented unless certain, crucial, parts of the law are overturned.

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    People are correctly referring to this as a new nullification crisis (see also here). Brookings Scholar Thomas Mann notes that insisting "that a legitimately passed law be changed before allowing it to function with a director [is] a modern-day form of nullification. Same with the director of the Center for Medicare and Medicaid Services. There is nothing normal or routine about this. The Senate policing of non-cabinet appointments is sometimes more aggressive but the current practice goes well beyond that, more like pre-Civil War days than 20th century practice." This has also gone on with the NLRB and, in a way, went on with the debt ceiling battle. Eventually the administration needed to challenge this.

    So it's great to see it recess appoint Richard Cordray as director. ThinkProgress outlines the initial legal analysis as to why Obama has the power to do this. Cordray will make a great director for the CFPB and the Bureau will continue to do the excellent work that it has already done.

    It's a shame that more confirmations weren't pushed through with this window. A large number of financial regulator positions need to be filled, and even more judicial spots sit empty. In terms of building a longer-term, ascendent liberalism, it is essential to appoint people such as judges and nurture them to become strong leaders in the future.

    It is uncertain whether this will shut down the confirmation process in the Senate, which may escalate tensions. If so, it will be a good time to reexamine how confirmations happen in the Senate more broadly. This is a part of government that was never meant to work the way it does now, and it is having serious consequences for the country.

    Mike Konczal is a Fellow at the Roosevelt Institute.

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