How to Make Banks Really Mad: Occupy Foreclosures

Oct 19, 2011Mike Konczal

Could the next step after camping in Zuccotti Park be camping out in homes facing foreclosure?

Could the next step after camping in Zuccotti Park be camping out in homes facing foreclosure?

As people think a bit more critically about what it means to "occupy" contested spaces that blur the public and the private and the boundaries between the 99% and the 1%, and as they also think through what Occupy Wall Street might do next, I would humbly suggest they check out the activism model of Project: No One Leaves. It exists in many places, especially in Massachusetts -- check out this Springfield version of it -- and grows out of activism pioneered by City Life Vida Urbana. It is similar to activism done by the group New Bottom Line and other foreclosure fighters. Here is PBS NewsHour's coverage of the movement.

The major goal of Project: No One Leaves is to mobilize as many resources as possible to protect those going through foreclosure and keep them in their homes as long as possible in order to give them maximum bargaining power against the banks. For those focused on "weapons of the weak," this moment -- with banks and creditors using state power to conduct massive amounts of foreclosures, thus impoverishing poor neighborhoods through a financialized rationality -- is a crucial opportunity for resistance. From the webpage:

Post-Foreclosure Eviction Defense. We mobilize tenants and former homeowners living in recently or about to be foreclosed homes (bank tenants) to stop evictions, protect Springfield’s housing and communities, and mobilize bank tenants to fight back against major lending institutions and banks that are tearing our communities apart.

Their model, a two-step process known as the Sword and the Shield, works:

“The Sword”. Encouraging residents to stay in their homes, and to make their stories public, we organize blockades, vigils and other public actions to exert public pressure on the banks. The sword works together with:

“The Shield”: We inform bank tenants of their rights and work with legal services & progressive lawyers, to use aggressive post-foreclosure eviction defense to get eviction cases dismissed, win large move-out settlements (if it makes sense for that family/person), and force the banks to reconsider foreclosure evictions.

They use public action through blockades, protests, and marches, along with smart legal advice on how to maximize legal resistance to forced removal. Beyond the fact that this is a major space for resistance, it is also a great way to mobilize people. And as JW Mason notes, there is power in having a clear opponent as well as a special type of bargaining power people might not realize they have:

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Homeowners who still have title have a lot to lose and are understandably anxious to meet whatever conditions the lender or servicer sets. But once the foreclosure has happened, the homeowner, paradoxically, is in a stronger negotiating position; if they're going to have to leave anyway, they have nothing to lose by dragging the process out, while for the bank, delay and bad publicity can be costly. So the idea is to help people in this situation organize to put pressure -- both in court and through protest or civil disobedience -- on the banks to agree to let them stay on as tenants more or less permanently, at a market rent.

But there's another important thing about No One Leaves: They're angry. The focus isn't just on the legal rights of people facing foreclosure, or their real chance to stay in their homes if they organize and stick together, it's on fighting the banks. There's a very clear sense that this is not just a problem to be solved, but that the banks are the enemy. I was especially struck by one middle-aged guy who'd lost the home he'd lived in for some 20 years to foreclosure. "At this point, I don't even care if I get to stay," he said. "Look, I know I'm probably going to have to leave eventually. I just want to make this as slow, and expensive, and painful, for Bank of America as I can." Everyone in the room cheered.

Slow, expensive and painful indeed -- it's like putting the banks through their own version of HAMP. Some may reply, "But wait, aren't foreclosures healthy for the economy? Mitt Romney thinks so." But according to the latest research using discontinuities across state lines, "estimates suggest that foreclosures were responsible for 15% to 30% of the decline in residential investment from 2007 to 2009 and 20% to 40% of the decline in auto sales over the same period." This research is being debated, but the opposite evidence -- that quicker foreclosures help the macroeconomy -- can't be found there or anywhere else.

So does this fit well with Occupy Wall Street's agenda? Given the rampant fraud and abuses in the current foreclosure chain, from manufacturing documents to "robo-signing" to fee-stacking to everything else, the Obama administration's refusal to support a serious investigation is a major example of the government-financial alliance and two-tier system of justice that those in Occupy Wall Street hate. Occupy Wall Street likes to pick spaces that are legally contestable -- like private-public parks -- and draw attention to real conflicts between those with power and those without. A residence post-foreclosure is one of those spaces.

This type of demand allows Occupy Wall Street to tap into already existing networks of foreclosure fighters, avoiding the risk of looking powerless by relying on Congress to do anything. And ultimately, it gets at the banks in a way occupations normally don't: Banks may or may not feel that they aren't appreciated enough because of these protests, but they'll definitely be mad if someone is disrupting their foreclosure mills through occupation and refusal to leave.

Mike Konczal is a Fellow at the Roosevelt Institute.

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The Lesson the Left Can Learn on Inequality from Occupy Wall Street

Oct 17, 2011Mike Konczal

The protesters' particular focus on inequality is a perfect starting place for a progressive movement revival.

The protesters' particular focus on inequality is a perfect starting place for a progressive movement revival.

Right now Occupy Wall Street has favorable polling. So did the Tea Party at its beginning. As Seth Ackerman pointed out to me, once people saw that the Tea Party wasn't a new thing but this old, arch-conservative thing, one that wants to take our global historical moment and wage total war against public sector workers and uteri, they turned against it. One symptom that it was an old thing was the books that it circulated: from Hayek's underwhelming Road to Serfdom to Bircher Cold War tracts from the types who thought Eisenhower was a member of the communist conspiracy.

Ackerman noted that it isn't clear what will happen with Occupy Wall Street ideologically, if only because at this point the left-liberal project and progressivism more generally is chaotic and up for grabs. This makes for a fun, fascinating, and scary moment for a potentially insurgent left.

This movement is very focused on inequality. But why? A lot of different ideas have already surfaced. With so much of the debate about the 99% and the 1% framed in the context of extreme inequality, it might be worthwhile to step back and examine the liberal arguments against inequality and discuss what I see of them in Occupy Wall Street.

This is a great cheat-sheet -- a list of objections to inequality resulting from the high liberalism tradition from TM Scanlon's "The Diversity of Objections to Inequality" (article not free online, here's a summary). Liberals, in general, have five objections to inequality:

A sixth point will hopefully be added in the future: A more equal distribution creates a better economy. There's an assumption that the market, instead of creating concentrations of wealth and power that slow growth, assigns resources to where they are best used in both the short and long term. However, it is hotly contested whether income inequality causes crashes; researchers at the IMF found models where it can. And a whole other strain of research finds that equality causes growth to be more sustained (see summaries by Georgia Levenson Keohane and Brad Plumer).

As Scanlon is quick to note, only a few of these are necessarily egalitarian -- you can be concerned with relieving the suffering of the poorest without actually caring about disparity of incomes. And there is usually a huge emphasis on how the power referred to in number three is primarily a problem of electoral politics and policy instead of a problem of dominating, controlling power relations between individuals.

So where does Occupy Wall Street stand on these? What I find fascinating is that there is much more of a focus on forms of power and domination as opposed to the more general concerns of egalitarian liberalism, those focused on stigmatization and fairness. This is a healthy move for the debate.

On Oct. 23, the FDR Library presents a free forum on FDR’s foreign policy advisers. Click here to find out how you can join the conversation!

One of the major concerns you hear from people in occupations is that the political process has become fundamentally corrupted. This gets right at number three: Money has become so concentrated and such an overwhelming presence in our politics that we need some ways of reforming it at a structural level. The stakes are higher in Occupy Wall Street. The government blurs into the private sector, wealth is no longer a measure of contribution but instead rent extraction, and no party or individual can be trusted to work within the system. There needs to be a reboot. How did we get here? Hacker and Pierson's Winner Take All Politics is a good place to start when looking for the answer.

Another argument is that Wall Street itself is out of control. Having failed quite profitably in its sole responsibility -- allocating capital responsibly, not towards Pets.com, junk mortgage debt, strip-mining companies for short-term gains, and worthless housing stock nobody wants -- and then getting bailed out when it all collapsed, the sheer presence of the financial sector among the top 1% feels like a crime. This power is more ruthless than than that in the normal discussion. It drives the entire economy, and it appears to have just driven it off a cliff. For more, 13 BankersEconnedAge of Greed, and Wall Street from the 1990s all walk readers through this story.

What about the 99%? I've previously looked through the We Are the 99% Tumblr and found that the biggest emphasis was on debt, ranging from student loans to medical debt, and a lack of enough employment to get by month-to-month. Here inequality is less a problem related to the more traditional liberal concerns of fairness or the idea that a few are left behind, and more a problem in which inequality is making indentured peasants of a huge part of the population. Risks are shifted to individuals who are already struggling, opportunities and possibilities are ruthlessly revoked, employment is nonexistent, and month-to-month survival is a battle for more than the just the very bottom. Books such as Graeber's Debt: The First 5,000 Years approach this from an anthropological point of view. Other works include Elizabeth Warren's book on how fixed costs of the middle class drive even two-income families into poverty, as opposed to more general discretionary spending (read: "frivolous" spending), or Tamara Draut's Strapped.

This ties into traditional liberal concerns. Liberals want institutions that allow people to develop their talents and also ones that insure them against the bad luck of health and unemployment. These institutions have been unraveled, and their public nature has been replaced with debt. And when people involved in Occupy Wall Street talk about this phenomenon, they connect how debt functions as a new safety net with the experience of servitude and suffering. Not in a relative sense of inferiority and shame (although that's there too), but in actual deprivation and the feeling of powerlessness against creditors, bosses, and the top of the elite.

Indeed, these concerns are reflected in the format of the general assembly and other current, institutional characteristics of Occupy Wall Street. Without permanent, clear leaders, there is no one to arrest, corrupt, or otherwise take over. That address their concerns about political domination from sources internal and external. The focus on mass participation and consensus derives, in part, from inequality in political access. Resources and responsibilities are distributed in the most egalitarian manner because physical deprivation is just one bad month away for many in the occupations (indeed, in the country). Collective enterprises offer a potential solution to giving workers real power in the workplace, power that can be put into action across the country and isn't dependent on Obama and the Senate.

This strikes me as firmer ground on which to try and build up a resurgent left. What's your take?

Mike Konczal is a Fellow at the Roosevelt Institute.

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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."

On Oct. 23, the FDR Library presents a free forum on FDR’s foreign policy advisers. Click here to find out how you can join the conversation!

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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Prisoners' Dilemma: How Our Incarceration System Makes Them Permanent Outsiders

Sep 23, 2011Mike Konczal

Executing innocent people is abhorrent, but so is a system that destroys prisoners' ability to rejoin the outside world.

Executing innocent people is abhorrent, but so is a system that destroys prisoners' ability to rejoin the outside world.

Troy Davis was executed by the state of Georgia Wednesday night. The story of Troy Davis -- a man executed under flimsy, recanted eyewitness testimony while there existed enough doubt to make the state think twice about taking a person's life -- is often a stand-in for what is wrong with the criminal justice system. But the alternative to his execution -- that Troy Davis would have likely spent his life under incarceration without parole on flimsy, recanted eyewitness testimony -- shouldn't be the goal either. The larger problem is the way the prison system has morphed into one that perpetuates the permanent exclusion of prisoners from society.

This is true in both a literal and conceptual way. As UCLA law professor Sharon Dolovich wrote in his paper "Creating the Permanent Prisoner" (h/t Prison Law Blog):

Of the 2.3 million people currently behind bars in the United States, only 41,000 -- a mere 1.7% -- are doing LWOP. Based on these numbers, one might well regard LWOP as the anomaly, and certainly not emblematic of the system as a whole… I argue that it is LWOP that most effectively captures the central motivating aim of the contemporary American carceral system: the permanent exclusion from the shared social space of the people marked as prisoners. This exclusionist system has no real investment in successful reentry… If this project is to be abandoned and its destructive effects reversed, the implicit assumption that individuals who have been subject to criminal punishment have thereby forfeited their status as fellow citizens and fellow human beings must be confronted and rejected.

Having a system that pushes people towards permanent exclusion from society is even worse given that we incarcerate a higher share of our population than any other country. Drawing both on the empirical literature on prisons as well as the political philosophy of Giorgio Agamben and his notion of homo saer, Dolovich paints a picture in which the penal system has moved from a system of deterrence and just deserts to one of permanent exclusion. This is obvious with the sentence of life without parole, which is around 1.7 percent of the total incarcerated population and growing. But Dolovich walks through three new mutually-reinforcing trends in the penal state that push against the possibility of reintegration for all convicts.

(From a Mother Jones slideshow.)

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The first is the lived experiences of prisons themselves. Severe overcrowding, inadequate medical care, infection rates for HIV, Hepatitis C, tuberculosis, and staph far higher than on the outside world, the degradation of the custodial experience, the high costs of keeping social ties intact, punitive long-term isolation, and the ever-present threat of violence all characterize our current prison system. These are conditions designed to keep a subject “broken, with no skills, and a very high risk of recidivism" which “destroy[s a] prisoners’ ability to cope in the free world.”

As Dolovich notes, it is "also not difficult to recognize in these conditions a particular normative view of the people subject to them. Plainly put, these are not conditions that would be imposed on those widely regarded as fellow citizens and fellow human beings. They are instead the conditions of Agamben’s 'state of exception,' in which bare biological life is all that is left."

The second is the wave of aggressive sentencing standards alongside a collapse in the granting of parole. During the past 20 years, many states have adopted laws ("truth-in-sentencing," "three strikes") designed to impose fixed terms of increased length for crimes. This is well correlated with the rise of Republican governors who had a system of laws designed by ALEC ready to go upon taking over. The flip side of this is the decreasing use of parole for prisoners. Dolovich notes that the California Board "has denied 98% of the petitions it hears." The laws have morphed to put people in prison longer and keep them there, thus increasing exposure to the dehumanizing aspects discussed above.

The third are the challenges upon leaving the system that put people right back into the system. This isn't just the bias of people examining an ex-con; there are a massive amount of legal hurdles that keep ex-cons outside the full public sphere. People who leave prison have “[b]ans on entry into public housing, restrictions on public-sector employment, limits on access to federal loans for higher education, and restrictions on the receipt of public assistance... The American Bar Association Criminal Justice Section recently embarked on a project to catalogue all state and federal statutes and regulations that impose legal consequences on the fact of a felony conviction. As of May 2011, the project had catalogued over 38,000 such provisions, and project advisors estimate that the final number could reach or exceed 50,000."

These three all together create a new kind of subject, someone who exists permanently on the outside of our civilization, never meant or able to reintegrate back into our full social space. As people begin to figure out how to undo the unjust system we've created, this is one area to focus.

Mike Konczal is a Fellow at the Roosevelt Institute.

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The Twisted Logic Behind the Federal Reserve Dissenters' Arguments

Sep 22, 2011Mike Konczal

Three members are living in a world very different from what the unemployed are experiencing.

Three members are living in a world very different from what the unemployed are experiencing.

I made the case that liberals should engage monetary policy more directly in The New Republic today. I want people to pay special attention to the Evans Rule, which derives from Chicago Fed President Charles Evans's fantastic speech "The Fed's Dual Mandate: Responsibilities and Challenges Facing U.S. Monetary Policy." The rule proposes that the Federal Reserve could simply state that it will keep interest rates at zero and tolerate three percent average inflation until unemployment gets down to seven percent. I'd consider going further and announcing a targeted transition to a permanent four percent inflation target, while keeping rates near zero until unemployment is at least 6.5 percent. But these are the areas where liberals need to focus their energy when it comes to monetary policy.

Because Operation Twist won't cut it, especially with the housing market a complete mess. But even this mediocre action had three dissenting votes: Fed Presidents Richard Fisher, Narayana Kocherlakota, and Charles Plosser.

Having a map of the demand-and-supply sides of the policy debates is crucial to analyzing their arguments, and I'll allude to it throughout this post. The dissenting arguments aren't in the demand side, but instead in the supply side. Instead of thinking we have a demand problem but that monetary policy is ineffectual in this environment -- an opinion held by many people -- their explanations for why they are against future monetary policy use the language of the supply-side.

We don't know yet exactly why they dissented this time, but there are clues from their previous statements. To understand Fisher's perspective, there is this clue from the August 20th FOMC meeting (my bold for the following three quotes):

Voting against this action: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser... Mr. Fisher discussed the fragility of the U.S. economy but felt that it was chiefly nonmonetary factors, such as uncertainty about fiscal and regulatory initiatives, that were restraining domestic capital expenditures, job creation, and economic growth. He was concerned both that the Committee did not have enough information to be specific on the time interval over which it expected low rates to be maintained, and that, were it to do so, the Committee risked appearing overly responsive to the recent financial market volatility...

He said something similar in an August 17th speech applauding Texas' job growth. "Those with the capacity to hire American workers -- small businesses as well as large, publicly traded or private -- are immobilized. Not because they lack entrepreneurial zeal or do not wish to grow; not because they can’t access cheap and available credit. Rather, they simply cannot budget or manage for the uncertainty of fiscal and regulatory policy." That logic falls under the "government-induced uncertainty" circle in my map.

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For Kocherlakota, a clue lies in his big paper "Labor Markets and Monetary Policy," which states:

There are good reasons to believe that expected after-tax productivity p fell. Over the past three years, the U.S. economy has experienced large increases in the federal budget deficits, contributing substantially to the overall federal debt. In addition, many states and municipalities are facing budgetary challenges. It is natural for firms to expect that these budget challenges at all levels of government may be met at least partially by future increases in tax rates. Both in the model and in reality, firms know that hiring a worker is a multiyear commitment, and so what matters for that decision is productivity, net of taxes, over the medium term of the next several years. If firms expect to face higher taxes in this time frame, then their measure of p has fallen.

What about the utility that a person derives from not working? In response to the recession, the federal government extended the duration of unemployment insurance benefits. Thus, it is plausible that z has risen in the past three years. This increase -- in and of itself -- means that firms must offer higher wages... In this scenario, nominal rigidities are playing a much less important role in suppressing the creation of job openings. Correspondingly, monetary policy should be considerably less accommodative... However, if (p−z) has fallen by 0.15, then the implied u* is 8.7 percent. This is indeed a wide range of possibilities.

The biggest factors for him are government-induced uncertainty created by budgetary challenges, future tax increases, and unemployment insurance. In Kocherlakota's models, the natural rate of unemployment might be 8.7 percent or higher, so in his mind he's gotten us to Full Employment. Congrats!

Mind you, the models he uses don't even really leave room for insufficient demand to be part of the story, which is kind of a problem. But either way, he falls into the overlap between "government-induced uncertainty" and "productivity."

What about Plosser? Here's a February 2011 interview with the Wall Street Journal:

Mr. Plosser’s answer is unequivocal: This mess was caused by over-investment in housing, and bringing down unemployment will be a gradual process. “You can’t change the carpenter into a nurse easily, and you can’t change the mortgage broker into a computer expert in a manufacturing plant very easily. Eventually that stuff will sort itself out. People will be retrained and they’ll find jobs in other industries. But monetary policy can’t retrain people. Monetary policy can’t fix those problems.”

Scott Sumner has devastated the argument that this is about unemployed carpenters with a passing glance at the data, and as far as I can see Plosser has offered little additional data on this matter. And again, even if the "natural" rate of unemployment has jumped up to 6 percent or 7 percent, there are still millions of people who are unemployed and who can be affected by policy. But either way, he's operating from the "labor productivity" circle in the map.

So the three dissenters don't have a demand story in which monetary policy can't work. They have a story in which things would be fine if the government just got out of the way and stopped trying to regulate the financial sector, focused on balancing the budget immediately, and also stopped preventing people from moving to new careers by giving them unemployment insurance.

How did these people ever end up being some of the most crucial players with control over whether or not our country will leave the Great Recession and get back to full employment?

It would have been great if Charles Evans had dissented on behalf of the unemployed. It is important for the public to understand that the dissenters aren't balancing out a Fed that is too active, but instead holding a Fed that could be setting more aggressive expectations in check. They have their biases and are seeking out whatever stories and data will fit into it, and their biases end up being against trying to close the unemployment gap. And thus our unemployment crisis continues on.

Mike Konczal is a Fellow at the Roosevelt Institute.

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Mapping Out the Economic War of Ideas

Sep 21, 2011Mike Konczal

A literal take on the ideological bubbles that have formed in our economic debate.

For the next few posts, I will allude to an ongoing battle of ideas about what is troubling our economy and what solutions are available to fix it. So it might be a good idea to create a sort of topological map of the clusters of ideas and policies that constitute these arguments, as well as the overlap among them. This is a preliminary version of this map; I’d really appreciate your input about what is missing and how to make it better.

A literal take on the ideological bubbles that have formed in our economic debate.

For the next few posts, I will allude to an ongoing battle of ideas about what is troubling our economy and what solutions are available to fix it. So it might be a good idea to create a sort of topological map of the clusters of ideas and policies that constitute these arguments, as well as the overlap among them. This is a preliminary version of this map; I’d really appreciate your input about what is missing and how to make it better.

From those who think that the problem is related to demand and Keynesian theories, there tends to be three areas of focus: fiscal policy, monetary policy, and the debt hangover in the broken housing market. One can think all three are important -- I certainly do -- but most think one has priority over the others. Many will think one of the three isn’t in play or particularly useful as a focus of policy and energy. Here’s a rough map of all three. Quotations are ideas, non-quotes are policies, and parentheses are people associated with each:

konczaltopo1

(Click for larger image.)

Join the conversation from the comfort of your own computer on September 25 as noted experts discuss FDR's inner circle.

The flip-side to a demand crisis is a supply crisis, and there’s been a large effort to explain our high unemployment and below-trend growth as the result of supply-side factors. Having surveyed the arguments, I’ve split them into two categories. There are those who think that the government has created an increase in uncertainty. This results from a combination of deficits that scare bond vigilantes/job creators, new regulations that have killed all the potential new jobs, government-created disincentives to work. The second area of focus is on the productivity of the labor force, with special emphasis on a skills mismatch, the characteristics of the long-term unemployed, and the idea that something has fundamentally changed in our economy that will keep so many unemployed for the foreseeable future.

konczaltopo2

(Click for larger image.)

I’m making the productivity circle conceptually expansive enough to include “recalculation” stories, though I tend not to find these arguments convincing. I suppose I could add a third circle in the next version.

So what did I miss?  What should go in the next version of this chart?

Mike Konczal is a Research Fellow at the Roosevelt Institute.

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