Mike Konczal

Roosevelt Institute Fellow

Recent Posts by Mike Konczal

  • Who are the 1% and What Do They Do for a Living?

    Oct 14, 2011Mike Konczal

    mike-konczal-newThere's good reason to focus on the top 1%: they're distorting our economy.

    Look, a crazy anti-capitalist anarchist carrying a bizarre sign incompatible with the basic tenants of liberals:

    Or not.

    There's good reason to focus on the top 1%: they're distorting our economy.

    Look, a crazy anti-capitalist anarchist carrying a bizarre sign incompatible with the basic tenents of liberals:

    Or not.

    A lot of emphasis is on the "99%" versus the "1%" in these protests. But who are the 1% and what do they do for a living? Are they all Wilt Chamberlains and Oprahs and other people taking part in the dynamism of the new economy? Nope. It's same as it ever was -- high-level management and the financial sector.

    Suzy Khimm goes through the numbers here. I'm curious about occupations. I'll hand the mic off to "Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data" by Bakija, Cole, and Heim. This is the latest and greatest report on occupations and inequality. Here's a chart of the occupations of the top 1%:

    distribution_1_percent

    Inequality has fractals. Let's go into the top 0.1% -- what do they look like?  Here's the chart of the occupations of the top 0.1%, including capital gains:

    It boils down to managers, executives, and people who work in finance. From the paper: "[o]ur findings suggest that the incomes of executives, managers, supervisors, and financial professionals can account for 60 percent of the increase in the share of national income going to the top percentile of the income distribution between 1979 and 2005."

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    For fun, there are more than twice as many people listed as "Not working or deceased" than are in "arts, media, sports." For every elite sports player who earned a place at the top of the income pyramid due to technology changes and superstar, tournament-style labor markets that broadcast him across the globe, there are two trust fund babies.

    The top 1% of managers and executives often means C-level employees, especially CEOs. And their earnings versus the average worker have skyrocketed in the past 30 years, so this shouldn't be surprising:

    How has this evolved over time?  Can we get a cross-section of that protest sign above?

    Same candidates. There's a reason the protests ended up on Wall Street: The top 1% and top 0.1% comprises all the senior bosses and the financial sector.

    One of the best things about Occupy Wall Street is that there is no chatter about Obama or Perry or whatever is the electoral political issue of the day. There are a lot of people rethinking things, discussing, learning, and conceptualizing the kinds of world they want to create. Since so much about inequality is a function of the legal structure known as a "corporation," I'd encourage you to check out Alex Gourevitch on how the corporate is structured in our laws.

    The paper notes that stock market returns drive much of the manager's income. This is related to a process of financialization, something JW Mason has done a fantastic job outlining here. The "dominant ethos among managers today is that a business exists only to enrich its shareholders, including, of course, senior managers themselves," and this is done by paying out more in dividends that is earned in profits. Think of it as our-real-economy-as-ATM-machine, cashing out wealth during the good times and then leaving workers and the rest of the real economy to deal with the aftermath.

    Both articles mention chapter 6 of Doug Henwood's Wall Street; anyone interested in how things have changed and where they need to go would be wise to check it out. It's even available for free pdf book download here.

    There's good reason to focus on the top 1% instead of the top 10 or 50%. There is evidence that financial pay at this elite level is correlated with deregulation and the other legal changes that brought on the crisis. High-ranking senior corporate executives' pay has dwarfed workers' salaries, but is only a reward for engaging in shady financial engineering practices. These problems require a legal solution and thus they require a democratic challenge and a rethinking of how we want to structure our economy. Here's to the 99% and Occupy Wall Street helping get us there.

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • The Obama Economy: What Could Have Been

    Oct 13, 2011Mike Konczal

    Are President Obama and his economic team really victims of circumstance, or were they brought down by their own poor judgment?

    Are President Obama and his economic team really victims of circumstance, or were they brought down by their own poor judgment?

    Ezra Klein wrote a 7,000 word summary of what went right and wrong on economic policy during the first three years of the Obama administration. It's well-reported and fun to read, and you should check it out. I imagine that the piece will function as a kind of baseline argument for critiquing the Obama administration on the economy from the liberal wonkosphere corner of the blogosphere. I'm going to throw out some critical thoughts below.

    The piece is quite consciously avoiding the narrative, storytelling approach to politics and the presidency. It reads as almost the mirror image of something like Drew Westen's approach to how Obama did on the economy -- Obama's passion isn't in question here. Klein's piece is all projections based on available evidence, political possibilities given political constraints, and negotiating with hostile counterparties. As such, there are a couple of ideas-level issues at play that should be made more explicit.

    Fiscal Policy

    First off, Obama is much more of a fiscal conservative than I had imagined. Or more specifically, he's someone who generally takes Rubinonomics for granted but couldn't shift gears when it came to the largest downturn since the Great Depression. Hence a lot of concerns over the deficit and, more importantly, a real focus on expanding the short-term deficit if and only if it involved closing the long-term deficit.

    Noam Schieber at The New Republic was getting word from Treasury as early as late 2009 that it thought that it needed “some signal to U.S. bondholders that it takes the deficit seriously” and that “spending more money now [on stimulus] could actually raise long-term rates, thereby offsetting its stimulative effect.” This naturally led the administration to want to strike "grand bargains" with the other side, a path that led it down some bad roads.

    The flip side of this is the administration's focus on "confidence" -- financial markets, Wall Street, and the business community -- as a way of bringing growth up and unemployment down. This has most obviously driven policy in regards to Wall Street and the financial markets (more on that in a second), but we see this in terms of dealing with the deficit. It has also brought in approaches that emphasize positions that are much more "supply-side" -- patent reform, regulation cutting, appointing senior business leaders to key positions, a key State of the Union based on "Winning the Future" through education investments -- that can't be justified as getting us back to full employment. By the time of the debt ceiling fight, these administration talking points were becoming a parody of right-wing talking points and Hooverism.

    In Klein's article, he writes that the consequence of misjudging the severity of the recession was not being not able to go back to Congress later. I think a more important problem is that it created a priority for tax cuts over longer-term investments, which would have been better stimulus. I've had staffers tell me on background that members of Congress would approach the administration in 2009 looking to build out huge, New Deal-style infrastructure on a separate track, only to be told that the recovery would be fully underway by the time it kicked in -- thus wasted. There was no response to this. That's a problem given the narrow window they had to operate in the Senate.

    Monetary Policy

    Ryan Avent has tackled the Federal Reserve problem here. There's a new Federal Reserve iPad app. It is pretty rad. You can click on all the members of the FOMC. You can also click on the two vacant seats and it says that they are vacant:

    Even iPad apps are mad at Obama for not being aggressive on the Fed appointments!

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    Housing

    First of all, the article focuses on a "This Time Is Different" approach to financial crises. One antibody our country had for financial crashes in the 19th century, pre-Keynes, was mass temporary bankruptcy for bad debts. During the 19th century you saw bankruptcy laws passed in the aftermath of bad financial crises to assign the losses and move the economy forward, which were repealed shortly thereafter. This happened with the Panic of 1837, which was followed by a devastating recession.

    The Obama administration was either indifferent or hostile to changes in the bankruptcy code -- like cramdown -- following this crash, even though Obama campaigned on it. A technical point: cramdown isn't about making the banks eat the loss; it's about the loss coming from credit writedowns versus a fire sale of a house in foreclosure -- hence cramdown wouldn't raise costs. But either way, in addition to forgetting things since Keynes, we are also in the business of forgetting things from the 19th century.

    David Dayen wrote up all the failures in housing policy. The important thing to follow is that the whole housing market approach was predicated on not upsetting the financial sector -- even to the point of not investigating basic unlawful behavior in foreclosures -- so that this "confidence" would get us back on track. Backing the financial sector instead of housing and people turned out to be backing the wrong horse. There's a backlog of housing that isn't going to go anywhere, armies of creditors and rentiers fighting each other indefinitely in the courts, investors wary of investing in a neighborhood when 2 million foreclosures hang over the economy each year, people's lives devastated, etc. Dayen:

    The Administration set aside $75 billion through TARP for HAMP, and to date have used $1.6 billion or so on a program that is effectively irrelevant at this point (and they have cleverly revised history to claim that it was only a $50 billion allotment, to make this look a little better). Without any need to clear Congress, the Administration had all the authority they needed to put this $75 billion to work, including the ability to punish servicers who failed to comply with guidelines...

    Then, for two years, Treasury swore up and down there was nothing they could do to punish servicers who didn’t comply. Finally, a few months ago, they started withholding incentive payments for noncompliance, as if they just magically acquired the power. It turns out, as Paul Kiel from Pro Publica displayed in a story this week, that Treasury wasn’t even checking on servicer compliance for at least the first year of the program...

    The truth that emerges from all of these facts is that the Administration had no interest whatsoever in using more than a token amount of the TARP authority they had already husbanded for mortgage relief and foreclosure mitigation....You can call this the function of bad politics, but I’d say it was more an extension of bank policy, a policy to preserve the wonderful sub-1 percent growth and still-vulnerable financial system we have going for ourselves....Even today there are programs that could be scaled up to work for the mass of homeowners. They aren’t being done not because of some Tea Party-fueled backlash, but because Wall Street would face trouble.

    Crisis

    Klein's final take is that the Obama team got some right, some wrong, but were ultimately boxed in by failing institutions and a crisis too big to handle.

    For a fun counterpoint, Corey Robin wrote in Dissent recently:

    My impression of American history was that those presidents universally considered great—Washington, Lincoln, Roosevelt—were beset by crises: the founding of a new nation, the Civil War, the Depression, the Second World War. And far from “balancing crisis management” with their pursuit of long-term goals, the great presidents saw, or found, in those crises an opportunity for reconstructing American politics from the bottom up. It was the crises, in other words, or at least how they handled those crises, that enabled them to pursue their long-term goals.

    That at any rate was the final judgment Teddy Roosevelt rendered on his own presidency: that he would never be remembered as another Lincoln because he didn’t have the benefit of confronting catastrophe.  Or so I remember reading somewhere, perhaps here.

    Whatever one thinks about Obama, it really makes no sense to say that he can’t be all that his supporters want him to be because of the Great Recession, two (now three) wars in the Arab and Muslim world, a recalcitrant opposition, and so on. Other presidents would have killed for opportunities like these.

    Your thoughts?

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • Was the Past Year a Throwaway for Job Growth?

    Oct 7, 2011Mike Konczal

    While month-to-month jobs numbers may have different takeaways, the larger picture is looking pretty bleak.

    Given the way they bounce around, following the job numbers month-to-month might not always be the best way to get a handle on the health of the economy. Some numbers come in high, some come in low, and it is difficult to step back and see the bigger picture. So let's compare the September 2011 labor market against the September 2010 one and figure out if yet another year can be thrown on the "Lost Decade" pile.

    While month-to-month jobs numbers may have different takeaways, the larger picture is looking pretty bleak.

    Given the way they bounce around, following the job numbers month-to-month might not always be the best way to get a handle on the health of the economy. Some numbers come in high, some come in low, and it is difficult to step back and see the bigger picture. So let's compare the September 2011 labor market against the September 2010 one and figure out if yet another year can be thrown on the "Lost Decade" pile.

    To start at the beginning, when the economy first tanked it threw a lot of people into unemployment very quickly. The unemployment rate skyrocketed during 2008-2009:

    So the economy has had a lot of work to do in stabilizing and then adding to the number of jobs. The recession technically ended in June 2009, and since then everyone has been waiting for the number of jobs to take off. Let's look at the total number of people employed since then, with an emphasis on the number a year ago:

    Employment has gone up just a little bit since it bottomed out in wake of the recession. But it isn't anywhere near where it was before the recession started. And it really isn't even that much higher than it was a year ago.

    And the population is still growing. How has the employment-population ratio fared?

    The percentage of the population working has actually declined over the past year. There's a technical debate about how many jobs the economy needs to create in order to keep up with population growth, but the short answer is that we aren't getting anywhere near what we need over the longer run.

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    Unemployment is down from ~9.6 percent to 9.1 percent. But that good news comes alongside an increase in people who fall into the "out of the labor force" category. The new trend for unemployed workers -- that they are more likely to quit the labor force than find a job -- has continued during this time.

    And with weak job growth, the large cluster of people thrown into unemployment over the past year is slowly, if ever, absorbed back into the workforce. As such, the duration of unemployment continues to grow.

    Meanwhile, as many are commenting, another major trend is the decline in the number of government jobs. Beyond the short-term spike in hiring for the 2010 Census, there have been huge numbers of government layoffs during a weak recovery, which puts massive pressure on aggregate demand at the worst time:

    Meanwhile, many continue to argue whether this month was good or that month was off. But stepping back, it looks to have been a lost year since last September. In general, we are below the number of jobs our economy can produce, leaving millions unemployed and unproductive. We are treading water with no hopes of serious moves in fiscal, monetary, and housing policies that could kick the economy and get it moving again. When we wonder how a lost decade can pass, remember that a decade is just a series of months one after the other, a series of months where it's never quite bad enough to jolt action, compiled into years that are tossed down the drain.

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • The Young Are on the Streets Because They Have the Most to Lose

    Oct 3, 2011Mike Konczal

    mike-konczal-newWhy are so many of the protesters on Wall Street college-age kids? Because their futures are at stake.

    This Occupy Wall Street sign is my favorite:

    The sign has a clever double meaning. The young have the most to lose by standing idle and not having their voices heard in the political process, and they have the most to lose by actually being idle -- or unemployed.

    Why are so many of the protesters on Wall Street college-age kids? Because their futures are at stake.

    This Occupy Wall Street sign is my favorite:

    The sign has a clever double meaning. The young have the most to lose by standing idle and not having their voices heard in the political process, and they have the most to lose by actually being idle -- or unemployed.

    The media hasn't learned the lessons from the 1960s, as there is still a tendency to dismiss young people protesting because they are young. You can see this phenomenon in the original New York Times coverage, and it appears in much of the rest. But at the heart of dismissals of young college kids in the 1960s was the idea that they had a very bright future ahead of them that they were taking for granted. For instance, here's President Nixon in the New York Times, May 1970:

    You know, you see these bums, you know, blowin' up the campuses. Listen, the boys that are on the college campuses today are the luckiest people in the world, going to the greatest universities, and here they are, burnin' up the books, I mean, stormin' around about this issue, I mean you name it -- get rid of the war, there'll be another one.

    Can it be argued that young people, college educated or not, are particularly lucky in this recession? Every category of worker is doing terribly in the Lesser Depression. My former editor Derek Thompson has a must-read article, "Who's Had the Worst Recession: Boomers, Millennials, or Gen-Xers?," which compares the three age categories across employment, income and wealth, and finds that everyone is suffering across the board.

    But let's focus on the young. The issue of debt, especially student debt, hovers over the protests. How is the employment ratio looking for young people with a college degree? Here's data from last year:

    And that doesn't factor in the fact that many college educated workers are working jobs that don't require college degrees. They are essentially using their degrees to crowd out those with a high school diploma or some college education from the jobs they would normally take. And no matter what jobs they are able to get, student debt hangs around their necks like an albatross.

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    This impacts everyone who is young. Here's a summary of the recent 2010 Census' American Community Survey by PBS:

    • Employment among young adults between the ages of 16 to 29 was at its lowest level since the end of World War II. Just 55 percent were employed, compared with 67 percent in 2000.
    • Nearly 6 million Americans between the ages of 25 to 34 lived in their parents' homes last year.
    • Young men are nearly twice as likely as women to live with their parents.
    • Marriages among young adults hit a new low. Just 44 percent of Americans in that age group were married last year.
    • Other trends were also headed in the wrong direction. In 43 of the 50 largest metro areas -- often a magnet for 20-and-30-somethings -- employment declined.

    In our desperate bid to replicate Japan, we are also replicating the poverty and joblessness among Japanese youths. This 2010 AOL article, "Japan's Economic Stagnation Is Creating a Nation of Lost Youths," can give you a sense of our trajectory.

    Will we get our own version of the hikikomori? Young people are doubling up and not moving out of their parents' houses in this recession. If we looked at solely their own income, their poverty rates would be astounding. From the Census Bureau:

    These “doubled-up” households are defined as those that include at least one “additional” adult -- in other words, a person 18 or older who is not enrolled in school and is not the householder, spouse or cohabiting partner of the householder...

    In spring 2007, there were 19.7 million doubled-up households, amounting to 17.0 percent of all households. Four years later, in spring 2011, the number of such households had climbed to 21.8 million, or 18.3 percent...

    Young adults were especially hard-hit, with 5.9 million people ages 25 to 34 living in their parents’ household in 2011, up from 4.7 million before the recession. That left 14.2 percent of young adults living in their parents’ households in March 2011, up more than two percentage points over the period.

    These young adults who lived with their parents had an official poverty rate of only 8.4 percent, since the income of their entire family is compared with the poverty threshold. If their poverty status were determined by their own income, 45.3 percent would have had income falling below the poverty threshold for a single person under age 65.

    Even if we can ever move out of the short-term recession, it will impact young people for years to come. Looking at a research summary compiled previously by Roosevelt Institute super-intern Charlie Eisenhood, Beaudry and DiNardo (1991) found “that every percentage increase in the [national] unemployment rate is associated with a 3-7 percent drop in entry-level contract wages.” Kahn (2009) found an estimate on the high end of that spectrum, discovering an “initial wage loss of 6 to 7% for a 1 percentage point increase in the unemployment rate measure.”

    Unfortunately, the recession’s effect is not limited just to the initial job search and wages. The negative impact persists far beyond that. Kahn found that the effect “falls in magnitude by approximately a quarter of a percentage point each year after college graduation. However, even 15 years after college graduation, the wage loss is 2.5% and is still statistically significant.”

    Job mobility is also affected. Kahn found a “negative correlation between the national unemployment rate and occupational attainment (measured by a prestige score) and a slight positive correlation between the national rate and tenure.” She concludes that “workers who graduate in bad economies are unable to fully shift into better jobs after the economy picks up.” Worse, Oreopoulos found permanent wage effects on workers with low expected earnings (based on occupational prestige).

    So yes, young people have an important stake in what happens going forward. Do we continue policies that benefit Wall Street and the top 1 percent? Do we tax the rich to rebuild America? Do we reform a financial sector that dominates the economy? The list of choices in front of us goes on and on. Their whole future, indeed all of ours, depends on it. It's no wonder that they've taken to the streets.

    Mike Konczal is a Fellow at the Roosevelt Institute.

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  • No More False Choices: Christina Romer on Fiscal vs. Housing Policy

    Sep 27, 2011Mike Konczal

    mike-konczal-newRomer refuted four of the most popular objections to President Obama's jobs plan. Any other takers?

    Christina Romer wrote an excellent New York Times article on Sunday, "A Plan on Jobs Deserves a Hearing." In it, Romer discusses four objections to the new Obama jobs plan. In keeping with developing a map of demand and supply explanations for the weak economy, I want to specifically address how Romer discusses the different demand-side approaches. First, let's take another look at that demand-side map:

    Romer refuted four of the most popular objections to President Obama's jobs plan. Any other takers?

    Christina Romer wrote an excellent New York Times article on Sunday, "A Plan on Jobs Deserves a Hearing." In it, Romer discusses four objections to the new Obama jobs plan. In keeping with developing a map of demand and supply explanations for the weak economy, I want to specifically address how Romer discusses the different demand-side approaches. First, let's take another look at that demand-side map:

    Romer argues for the job plan, which is centered around solutions in the fiscal circle (infrastructure, tax cuts) and doesn't primarily include solutions in the housing circle (except for housing refinancing, which is unlikely to go anywhere). Romer addresses this head-on:

    WE NEED A HOUSING PLAN, NOT MORE FISCAL STIMULUS The bubble and bust in house prices has left households burdened with too much debt. Until we deal with this problem — perhaps by providing principal relief to the 11 million households whose mortgages are larger than the current value of their homes — we’ll never get the economy going.

    The premise of this argument is probably true: recent evidence suggests that high debt is holding back consumer demand. But it doesn’t follow that the government needs to directly lower debt burdens to stimulate job growth.

    Recent research shows that government spending on infrastructure or other investments raises demand even in an economy beset by over-indebted consumers. Another effective approach is to aim tax cuts and government payments at households that would like to spend, but can’t borrow because of their debt loads (such as the poor and the unemployed).

    History actually suggests that the “tackle housing first” crowd may have the direction of causation backwards. In the recovery from the Great Depression, economic growth, which raised incomes and asset prices, played a big role in lowering debt burdens. I strongly suspect that fiscal stimulus will be more cost effective at speeding deleveraging and recovery than government-paid policies aimed directly at reducing debt.

    We should, however, be thinking hard about whether the president’s stimulus plan is the best one for a debt-heavy economy. It may be too tilted toward broad tax cuts, when bigger increases in government investment spending and more targeted tax cuts would promote faster growth.

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    I tend to think there's enough space for advancement on all three fronts, especially as they are three distinct battlefields -- Congress and budgets for fiscal, the FOMC and expectations for monetary policy, and regulators and the foreclosure industry for housing. If all three approaches had to go through one place I could understand the need to pick our battles, but they exist in different spaces with different arguments. As such, I've always thought liberals need to take them all on at once.

    But in general, those who think that we have a housing debt hangover think that running a larger fiscal deficit is a good thing. This is a representative argument: "If the private sector is incapable of absorbing all desired savings the government has to jump in – at least temporarily, while the private sector is paying down its excess debts. The government offers savers a safe asset (government bonds) and uses the funds to directly boost aggregate demand."

    Or as Richard Koo puts it:

    Indeed the key lesson from the Japanese experience is that fiscal support must be maintained for the entire duration of the private-sector deleveraging process. This is an extremely difficult task for a democracy in a peacetime, because when the economy begins to recover, well-meaning citizens who dislike reliance on government will argue that since fiscal pump-priming is clearly working, it is time to reduce (what they see as wasteful) government spending. But if the recovery is actually due to government spending and the private sector is still in balance-sheet-repair mode, premature fiscal

    reform will invariably result in another meltdown, as the Japanese found out in 1997 and the Americans in 1937...

    Although government deficit spending should be avoided when the private sector is healthy and forward looking, once in several decades when the private sector gets carried away in a bubble and damages its financial health, a prompt and sustained fiscal medicine from the government is essential in minimizing both the length of recession and the eventual bill to the taxpayers.

    Romer adds an interesting argument to this overlap -- that the best way to deal with the housing hangover is to boost wages and employment, which can be done through fiscal policy. Unemployment is well-correlated with deleveraging, foreclosures and underwater mortgages, so relief through this channel will go toward the areas most in need. I'd add that even places where there wasn't a housing bubble -- say, Texas -- have very high unemployment rates in excess of 8 percent, indicating something larger at work than simple deleveraging.

    I agree with what Romer hints at, that the job plans is too tilted towards tax cuts. Building in infrastructure will have a payout years down the road that will make this an even better investment, but with real interest rates negative we should be getting as much of it out the door as we can until output returns to trend.

    With the Romer editorial in hand, what are the arguments against this job bill again?

    Mike Konczal is a Fellow at the Roosevelt Institute.

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