Mike Konczal

Roosevelt Institute Fellow

Recent Posts by Mike Konczal

  • Frank Luntz and the Battle Over Economic Freedom

    Dec 5, 2011Mike Konczal

    Occupy Wall Street has some conservatives running scared, leaving a window of opportunity to change the dialogue on what freedom really means.

    Occupy Wall Street has some conservatives running scared, leaving a window of opportunity to change the dialogue on what freedom really means.

    Last week, Republican strategist and wordsmith Frank Luntz shared his concerns about the Occupy movement with a group of Republican governors in Florida. "I'm so scared of this anti-Wall Street effort. I'm frightened to death... They're having an impact on what the American people think of capitalism." Chris Moody wrote a must-read article on the matter, including the ten dos and don'ts that Luntz suggested to his audience.

    As Seth Ackerman pointed out, there's an entire industry around Democrats and liberals trying to get an edge on Luntz with even more carefully polled wordplay. However, by talking directly about the power of the 1 percent over our lives, the broken political process, burdensome debts, and a collapsed labor market, the Occupy movement has gotten Luntz's attention in a few short months. As Ackerman puts it:

    For twenty or thirty years, Democratic politicians... have been paying what must amount to billions of dollars by now to consultants, pollsters, and think tank gurus to tell them how to talk to the public about inequality in some way that might spark sustained public engagement... Then the Occupy movement comes along and after two and a half months shifts the national consciousness so palpably that Republican governors are scrambling to ask their Rasputins how capitalism can be defended to their constituents back in Peoria.

    Luntz suggests 10 sets of words, phrases, and concepts to abandon and has some easily defended ones to use instead. "Jobs" and "entrepreneur" are out. "Careers" and "job creators" are in. Many people across the spectrum are noticing that Luntz is suggesting a retreat from the word "capitalism," but few reference where he wants to retreat to:

    1. Don't say 'capitalism.'

    "I'm trying to get that word removed and we're replacing it with either 'economic freedom' or 'free market,'" Luntz said. "The public...still prefers capitalism to socialism, but they think capitalism is immoral. And if we're seen as defenders of quote, Wall Street, end quote, we've got a problem."

    Luntz suggests retreating to "economic freedom" as an easily defensible phrase conservatives can use to describe the economic status quo. This is astute, as there's been a long, 30-year conservative project to locate freedom in the laissez-faire marketplace.

    It hasn't always been this way. Take this 1930 cartoon in the Chicago Defender, where economic freedom is seen as part of the right to unionize (click for larger image):

    (Source: Foner, The Story of American Freedom.)

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    Economic freedom as freedom from coercion was once a core part of progressive thought. Economic freedom as economic security was a central part of the New Deal and Roosevelt's four freedoms. And economic freedom as freedom from domination in the workplace is a central aspect of what unionization brings to the country. This was thought of as essential to the lives of the individuals and democracy itself -- as Samuel Gompers said, "Men and women cannot live during working hours under autocratic conditions, and instantly become sons and daughters of freedom as they step outside the shop gates."

    This is on the minds of people I've talked with at various Occupy movements. Early on in Occupy Wall Street I went and asked 15 random people at Zucotti Park what "freedom" meant to them. Their answers invoked these earlier versions of economic freedom as essential aspects: “I think that freedom is your ability to carry out what you want to do. It’s not just about your social freedom, it is also about economic freedom." "Freedom is...when people can go to public universities and not have to go into debt. So not only so they can get the careers they want, but so they can be productive people in society." With the movement, we have an opportunity to change the dialogue.

    Corey Robin's excellent essay in The Nation, "Reclaiming the Politics of Freedom," can act as a guide to why this is so important and what the roadmap toward changing it could look like. He says:

    The secret of conservatism’s success -- as any reading of Reagan’s speeches and writings will attest -- has been to locate this notion of freedom in the market... We must confront this ideology head-on: not by temporizing about the riskiness or instability of the free market or by demonstrating that it (or its Republican stewards) cannot deliver growth but by mobilizing the most potent resource of the American vernacular against it. We must develop an argument that the market is a source of constraint and government an instrument of freedom. Without a strong government hand in the economy, men and women are at the mercy of their employer, who has the power to determine not only their wages, benefits and hours but also their lives and those of their families, on and off the job...

    The politics of freedom does not dismiss the value or importance of state resources. But rather than conceiving of them as protections against the hazards of the market or indices of public compassion, it sees them as sources of power, as the tools and instruments of personal and collective advance. Armed with universal healthcare, unemployment benefits, public pensions and the like, I am less vulnerable to the coercions and castigations of an employer or partner. Not only do I have the option of leaving an oppressive situation; I can confront and change it -- for and by myself, for and with others. I am emboldened not to avoid risks but to take risks: to talk back and walk out, to engage in what John Stuart Mill called, in one of his lovelier phrases, “experiments in living.”...

    That is why the politics of freedom refuses to view the state as the conservative does: as a constraint. Or as the welfare-state liberal does: as a distributive machine. Instead, it views the state the way the abolitionist, the trade unionist, the civil rights activist and the feminist do: as an instrument for disrupting the private life of power. The state, in other words, is the right hand to the left hand of social movement.

    It will be challenging to square this idea of the state as a partner in economic freedom with the more anarchist-leaning tendencies of much of Occupy thought, but it's a debate worth having.

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • The Fed Scrambles to Save Banks, Stalls on Unemployment

    Nov 28, 2011Mike Konczal

    Side-by-side, two worst case scenarios elicit very different reactions from the Federal Reserve.

    Side-by-side, two worst case scenarios elicit very different reactions from the Federal Reserve.

    I never congratulated Charles Evans, President of the Federal Reserve Bank of Chicago, for dissenting in the most recent FOMC meeting on behalf of the unemployed. ("Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.") I'm a big fan of the Evans Rule and am surprised inflation doves haven't been more vocal about it. As Goldman Sachs noted, "This was the first 'dovish' dissent since December 2007 (President Rosengren)." Given that unemployment has turned out to be worse than the Fed's projections at any time, it is about time that those who are worried about unemployment inside the Fed start making noise.

    These first murmurs instead stand in contrast to the financial bailouts. Bloomberg just released a big story, based on its successful FOIA requests, that uncovered just how aggressive the Federal Reserve was with its emergency lender-of-last-resort powers. Kevin DrumMatthew Yglesias, and Paul Krugman argue that what is really shocking is how total the rescue and backing of the financial sector was while the real economy was left to rot. As Krugman puts it, "The real scandal isn’t so much that those banks got rescued as that the rest of the population didn’t."

    Part of why the bailouts were packaged the way they were was because Lehman Brothers' bankruptcy went a lot worse than the Federal Reserve's expectations of how the collapse of a major investment bank would go. When the collapse went far worse than its expectations, it reacted with maximum force.

    Is there an equivalent story for unemployment? I'll try to graph this using the FRB's Summary of Economic Projections. From its FAQ: "Economic projections are collected from each member of the Board of Governors and each Federal Reserve Bank president four times a year, in connection with the Federal Open Market Committee's usual two-day meetings (typically held in January, April, June, and November)... The unemployment rate is the average civilian unemployment rate in the fourth quarter of a year."

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    Members of the Federal Reserve get together four times a year and project their expectations of unemployment for several years going forward. Below is that data plotted against the unemployment rate. Specifically, it has the average projected unemployment rate across the entire year and takes the average of the core tendencies that are reported as that rate. The actual unemployment is in bold red and projections from each point going forward are in shades of orange (click for larger image):

    As you can see, there's no point in which unemployment was projected to be worse than it actually was. Especially in 2009-2010 -- the actual unemployment rate was significantly higher a year or two later. Here's a zoomed in view of the 09-11 range (click for larger image):

    If we were to replace the FRB with a group of monkeys armed with darts, one would imagine that they would make at least a few projections above the actual rate of unemployment. It's funny -- the FRB tried to revise how bad unemployment is but doesn't revise it anywhere near enough to lower it to where the economy actually is.

    So to recap: Lehman Brothers goes worse than the Federal Reserve's projection and the Fed goes to the most extreme lengths it can find to extend emergency lending. Every single unemployment number turns out to be worse than all of the Federal Reserve's projections, and it finds every excuse to look the other way. Only Charles Evans has the courage to say that we should let inflation go to 3 percent while unemployment is over 7 percent to catch up to trend growth. Amazing.

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • Eight Reasons Why Extending Unemployment Benefits Will Boost the Economy

    Nov 22, 2011Mike Konczal

    Unemployment insurance will keep families -- and our economy -- afloat.

    Unemployment insurance will keep families -- and our economy -- afloat.

    In the aftermath of the super committee's collapse, Democrats are going to have to fight to get unemployment insurance benefits extended. This is one of many "orphan programs" left behind that are set to expire at the end of the year. Since it looks like there is going to be a debate over whether or not to extend the benefits, what can we say with certainty about the costs and benefits of extending unemployment benefits?

    1. Even considering the cost, unemployment benefits are a deal. Extending unemployment benefits would cost around $44 billion for one year. (Source: CBO.) Specifically, "CBO estimates...$44.1 billion would stem from the one-year extension of EUC and EB provisions. That extension would allow people who exhaust their regular unemployment compensation during calendar year 2012 to receive up to 53 weeks of EUC, and would make it easier for states to provide up to an additional 20 weeks of benefits under EB (depending on the states’ laws and unemployment rates)." Given that interest rates are so low, and real interest rates are even negative, this is a great value.

    2. Without an extension, GDP will decline. The loss of not having that $44 billion pumped into the economy would cause at least a 0.3 percent decline in GDP in 2012. (Source: JPMorgan Chase & Co. chief U.S. economist Michael Feroli.)

    3. Given spending multipliers, this will have a ripple effect. Because of a government spending multipler, that 0.3 percent decline is more like 0.5 percent, with a subsequent, significant impact on jobs. (Source: EPI.)

    Since we are in a liquidity trap, where monetary policy is made significantly more difficult by a zero lower bound, then there's a multipler to government spending. Unemployment benefits in particular have a good bang-for-the-buck effect. Heidi Shierholz and Lawrence Mishel of EPI argued this with their chart:

    4. This is about more than just GDP; it's about keeping people afloat. The stakes go beyond economic aggregates. Unemployment insurance has kept 3.2 million people out of poverty in 2010.This includes nearly a million children. (Source: Census, h/t EPI.)

    That's a lot of jobs gained and a lot of misery avoided, with or without a multipler! But those jobs also increase demand. Won't unemployment insurance decrease the supply of labor?

    5. The potential increase in unemployment from extending benefits is small. Previous credible estimates of the effects of unemployment insurance in this recession have shown that they "increased the overall unemployment rate 0.4 to 0.8 percentage points," a point where it is still a great tradeoff. (Source: Federal Reserve Bank of San Francisco.)

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    One way to estimate this is to take job losers, who are eligible for UI, and measure their duration against quits, who are not eligible for UI. The San Francisco Fed source above does this, and finds the following chart:

    Even given these figures, I still think extending benefits is a fantastic idea. For more whether it is a great tradeoff, see this post from last year from WSJ's Kelly Evans and my somewhat critical response.

    6. And even those figures may be inflated. These results are found to be exaggerated by a better, more current study, which finds "UI benefit extensions raised the unemployment rate by only about 0.2–0.6 percentage points." (Source: Jesse Rothstein.) This study uses the conceptual method above but goes an extra step to break UI down by state, over time, and with individual characteristics.

    Moreover, most studies that find a 2%+ increase in unemployment don't use any of the control techniques mentioned above. (Example: Barro's WSJ editorial.) Indeed, what they all essentially do is look backwards, to data and studies from the 1980s and 1990s, and project those numbers into our current Great Recession. As Rothstein mentions, these studies all "involve extrapolations from pre-recession estimates of the effect of UI durations or from pre-recession unemployment exit rates." As a financial engineer, I respect taking data from inappropriate time periods and blindly projecting them forward without any type of diligence or attention paid to the underlying conditions. But this is not appropriate here, as we haven't had a major crisis like this in the past 30 years.

    7. Everyone is having a hard time finding a job. The overall labor market is weak, not just for the long-term unemployed. (Source: This post, from BLS data.)

    8. Other considerations make the case for extending benefits.

    The biggest counterarguments against extending benefits are concerns about structural unemployment and decreased work effort. The worry about a permanent, "structural" increase from UI extensions is subject to the Lucas critique. As Scott Sumner noted, “the maximum length of unemployment insurance is itself an endogenous variable. If stimulus were to sharply boost aggregate demand it is quite likely that Congress would return the UI limit to 26 weeks, as it has during previous recoveries.”

    Rothstein shows that at least half of this "increase" is the result of people staying in the labor force, which is a good thing, or at least a not bad and definitely not related to the major problems. As Heidi Shierholz notes, "less than 0.2 percentage points of the 4.4 percentage point increase in the unemployment rate over the Great Recession was due to an extension-induced reduction in the rate at which workers get a new job, which is the disincentive effect policy makers are actually concerned about. Moreover, even that may be a good thing -- a small UI-induced increase in the time it takes for an unemployed worker to get a new job is an asset of the UI program to the extent that it affords unemployed workers the needed space to find a new job that matches their skills and experience."

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • A Ticking Time Bomb: The Arab Spring and America's Lost Generation

    Nov 14, 2011Mike Konczal

    High unemployment pushed young people in the Middle East and North Africa to revolt. Why wouldn't it happen here?

    Is it useful to think of the Occupy movement more as a "left" movement or a "youth" movement? To answer that question, it's worth looking into data on the young, particularly as it relates to unemployment.

    High unemployment pushed young people in the Middle East and North Africa to revolt. Why wouldn't it happen here?

    Is it useful to think of the Occupy movement more as a "left" movement or a "youth" movement? To answer that question, it's worth looking into data on the young, particularly as it relates to unemployment.

    To leave the United States for a minute, one way people are trying to understand the Arab Spring is through the lens of massive youth unemployment and inequality. Given how high unemployment has been in these MENA (Middle-East and North African) countries, what else could we expect besides revolution?

    For instance, in early February then-IMF chief Dominique Strauss-Kahn told a conference, "this summer I made a speech in Morocco about the question of youth employment including Egypt, Tunisia, saying it is a kind of time bomb" and "such a high level of unemployment, especially youth unemployment, and such a high level of inequality in the country create a social situation that may end in unrest." Here is the "youth unemployment" blog tag at the IMF to give you a sense of what people there have been saying about it. In particular, they point out that it should be a major concern for the MENA and African regions.

    Interestingly enough, it was even a concern before the mass protests broke out. Regional IMF officials Ratna Sahay and Alan MacArthur gave a presentation on January 23rd, "Challenges for Egypt in the Post Crisis World," at the Egyptian Center for Economic Studies in Cairo (h/t WSJ). Protests would begin a few days later. Here's a key slide from that presentation:

    Part of you may want to immediately start pointing out differences between this country and those. Maybe you are furious at terrible, unresponsive, corrupt governments ignoring the plight of their populations. Maybe you think that if these countries only had neoliberal, "flexible" wage contracts and a leakier safety net like we have in the United States, then unemployment would be much better.

    You may then head over to our monthly unemployment numbers and note that American youth unemployment is in the same ballpark as these MENA countries.

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    I've taken numbers from the IMF presentation slide above and compared them to the United States' youth unemployment averages from October 2010-October 2011 from the BLS's CPS data:

    I can't find what constitutes "youth" for "youth unemployment" in the IMF's definition, and I'm not even sure if it is consistent across the different countries they estimated. As such, I'm including ages 16-19 and ages 16-24, though I believe they are looking at 16-24. For the 16-19 age group, we are at the same level of unemployment as Egypt and well above the region as a whole. At the broader 16-24 range, we are above Syria and Morocco, which both saw large-scale movements in the Arab Spring.

    One potential explanation for the high level of youth unemployment in MENA countries is that they have huge demographic issues to deal with -- they have a massive wave of people under 35 years of age to assimilate into their economies. What's our excuse, other than confidence fairy terror spells and a desire to go after public sector workers? And given this, how could we ever say youth unemployment in the United States' Lesser Depression isn't a "time bomb"?

    I have to admit I'm a bit hardened to the various charts I'm able to put together from the Bureau of Labor Statistics' data, but this graph of the employment-to-population ratio for 16-24-year-olds going back to 1948 floored me:

    Remember that the increase from the 1950s onward reflects women entering the labor force. And notice how it doesn't improve after the early 2000s recession. Every age group has seen a substantial drop in the employment-population ratio, but no other group I've seen comes close to this plummet. For the first time in half a century, a majority of young people aren't working.

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • A Two-Step Solution to the Student Loan Crisis

    Nov 7, 2011Mike Konczal

    Let's roll back damaging bankruptcy "reforms" and give Americans the same treatment banks have experienced.

    Let's roll back damaging bankruptcy "reforms" and give Americans the same treatment banks have experienced.

    Due to legal decisions about how to structure the rules governing student debt, student loans stay forever, are virtually impossible to discharge under hardship, churn fees when they go bad, and creditors can access anything, including Social Security, in their attempts to be repaid. This is significantly more strict than the rules for other kinds of debt. Here's a great way to describe the legal frame we use to treat student loans, from Elizabeth Warren in 2007: "Why should students who are trying to finance an education be treated more harshly than someone who negligently ran over a child or someone who racked up tens of thousands of dollars gambling?"

    So what's the solution? There's a short-term and a long-term problem. The long-term problem, in my mind, can only be solved by unapologetically embracing the promise of a "public option": free public universities that are capable of constraining cost inflation. This requires us to also face and resist the corporatization and privatization of our existing public universities.

    But that doesn't get us out of the current situation. What can be done? I propose two things:

    1. Party Like It's 1989

    Instead of being so bold as to ask that people trying to invest in themselves, and ultimately the country, are treated as fairly as someone who negligently ran over a child, I'm just going to suggest we just do a mulligan on the 1990s and 2000s student loan "reforms."

    Here's a quick, high-level history of student loans and the bankruptcy code, courtesy of University of Illinois law professor Bob Lawless:

    In 1976, Congress first added an exception to the bankruptcy discharge dealing with student loan debt. That exception was continued in the 1978 Bankruptcy Code, and the exception was expressly limited to student loans from a governmental unit or nonprofit institution. Even then a student loan could be discharged if more than five years had passed since the loan first became due (typically after graduation) or if the debtor could show payment of the student loan would cause undue hardship, which is a difficult burden to show.  In 1990, five years was changed to seven years and in 1998 was dropped altogether, leaving undue hardship the only reason a court could discharge a student loan from a governmental unit or nonprofit institution. As part of the 2005 changes to the U.S. bankruptcy law, Congress again amended the student loan discharge exception to allow even loans from for-profit lenders to be excepted from the bankruptcy discharge.

    Let's put that in a chart, adding the other issues of Social Security and no statute of limitations I talked about here:

    Why not just undo the rules from the 1990s and 2000s? It is hard to see these as anything other than a giant subsidy to private agents. If you look at Sallie Mae's leaked lobbying documentation, you'll find that "[t]he number two item... wasn't increasing federal student loan limits or beating back the loan consolidation companies... It was bankruptcy; specifically, preserving the special status that private student loans gained in the broad changes to bankruptcy laws that Congress enacted in 2005. To Sallie Mae, that provision is the key to its version of 'private credit economics.'" There's little evidence these reforms increased access for anyone and functioned more as an easily captured subsidy.

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    We can keep nondischargeability for five years if people are concerned about moral hazard. That concern emanates from the 1970s and stories of doctors declaring bankruptcy the day after they graduated medical school. This will at least stabilize and formalize the system of indenture that is required for people to fully develop their talents and abilities in our country, instead of our system that currently keeps people for life. Let's regraph what it looks like when we go back to 1989:

    That looks way better. But how do we deal with the current affordability crisis? Getting unemployment down and incomes up are an obvious solution. Sarah Jaffe suggests mass debt forgiveness, Justin Wolfers disagrees. I have a suggestion that splits the difference.

    2. Convert the American People into a Bank

    A miraculous thing happened in late September 2008. Goldman Sachs and Morgan Stanley were reborn from investment banks into bank holding companies by a decree of the Federal Reserve. Normally getting a license like this takes a year and a half and requires following extensive regulatory rules. The Federal Reserve did it over a weekend for Goldman, Morgan Stanley, and a host of other financial firms.

    This allowed them many banking privileges that helped during the crisis, including access to the discount window, but none of the scrutiny that normally comes with them. As Alan Grayson and others noted, Goldman's CFO bragged that "our model never really changed." They got to escape normal banking regulatory rules during the subsequent time period. These "deathbed conversions" from investment bank to bank holding company were yet another part of the extensive way the bailouts worked beyond TARP, and they were proof that the firms were Too Big To Fail.

    Since regular Americans are also in crisis mode and Too Big To Fail, why not symbolically declare regular Americans a bank too? Why not also do a "deathbed conversion" on those who are suffering under the burden of heavy student debts and low incomes and let them immediately refinance all their student loan rates at the current ultra-low discount window rate? Why not mass refinance them into the current low rates the financial sector enjoys? This would give the 99% just a hint of the kind of total government support places like Goldman Sachs have experienced.

    We've thrown open the floodgates for the financial sector. Why not for regular Americans? There have been past congressional efforts to lower the interest rate, ones that passed the House, so this is feasible. And it would be the logical conclusion of the crisis we've just lived through, delivering stimulus to the economy and reducing the burden of debts on those trying to rebuild the economy. Open the discount window.

    Crisis Economics

    For the economics people, this two-step solution helps with the liquidity problem (cheaper refinancing), the solvency problem (bankruptcy), and the balance sheet problem (lower rates, more purchasing power) -- the three problems one needs to deal with in the aftermath of a financial crisis. In terms of monetary policy, those who have been carrying out QE have been begging for policymakers to find ways to get ultra-low rates to the front lines as quickly as possible, most notably in housing policy. As Bernanke said at his latest press conference:

    One area where monetary policy has been blunted, the effects have been blunted, has been the mortgage market where very tight credit standards have prevented many people from purchasing or refinancing their homes and therefore the low mortgage rates that we've achieved have not been as effective as we had hoped. So, monetary policy maybe is somewhat less powerful in the current context than it has been in the past but nevertheless it is affecting economic growth and job creation.

    That's Fed speak for the fact that the administration dropped the ball on the mortgage market (HARP, especially) and has in turn screwed up its ability to do its jobs in helping the economy. But what is good for housing is also good for student loans. Aggressive monetary policy flowing into student loans would have a similar amplification, which makes targets more credible and gets more money being spent, which makes balance-sheet repair easier and has a general virtuous cycle on demand.

    Wins all around. So what are the problems?

    Mike Konczal is a Fellow at the Roosevelt Institute.

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