How Banks Take a Big Bite Out of Government Benefits

Nov 2, 2011Bryce Covert

What might look like a win-win for state governments and beneficiaries only serves to harm them -- and send profits to some of the largest banks.

What might look like a win-win for state governments and beneficiaries only serves to harm them -- and send profits to some of the largest banks.

Consumers witnessed a victory this week when Bank of America backed off its threat to institute a $5 fee for using a debit card, following a public outcry that led most of the other big banks to foreswear similar moves. But not everyone has been spared debit card fees. As Janell Ross pointed out at The Huffington Post yesterday, banks are making nice profits from doling out government benefits through prepaid debit cards.

It's obvious that in a sour economy like ours, usage of programs like unemployment benefits, food stamps, and cash assistance will skyrocket. It used to be that most of these programs distributed actual money to beneficiaries. Food stamps were quite literally stamps. These days, however, things have been 'modernized' so that many benefits come through prepaid debit cards administered by banks like JP Morgan, Bank of America, and other behemoths.

So what's the problem? Doesn't this just make it more convenient for users? Isn't plastic easier than cash?

The first problem is that users, who are clearly already strapped for cash if they're turning to government benefits, are finding themselves hit with fees for using the cards. As an example, Ross points to one analysis that California families will pay over $16 million in surcharges to access benefits this year. While there has been a lot of action around limiting swipe fees and much outrage at charging customers to use regular debit cards, prepaid debit cards are a whole other animal. Even consumers using them to access their privately earned money may be charged for buying the cards, swiping the cards, and withdrawing money. And people getting benefits through them aren't any exception: they face charges for withdrawing money too many times, using an out-of-network ATM, drawing more money than is in the account, leaving the card inactive for a certain period of time, and some even charge per purchase.

Secondly, big banks are making a tidy profit by acting as middlemen for what should be publicly provided services. In just three months, from July and September, Ross reports that U.S. Bancorp, which provides unemployment benefit debit cards, made $357 million in revenue in the division that handles the cards. That amount is more than one-fourth of its total revenue. I previously reported that JP Morgan made $5.47 billion in net revenue for most of last year in the division that handles food stamp cards, and it was up two percent is the last three months of the year. The head of the division himself has said, "Volumes have gone through the roof in the last couple of years... This business is a very important business to JPMorgan in terms of its size and scale."

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And while banks only make money off of unemployment benefits by charging fees to use cards, they are paid directly by state governments to administer food stamps. Florida, for example, paid JP Morgan $50 million over the last three years to administer the program. The bank is paid for each case it handles, meaning its profits rise as the rolls of those using food stamps rise (and numbers are really rising -- they were up to 43.6 million Americans in February).

And there is a third, larger problem: it's another iteration of what Suzanne Mettler has nicely termed the "submerged state." The submerged state encompasses government policies that have become more and more skewed toward hidden delivery mechanisms: from student loans subsidized by the government but offered by private banks, to tax incentives and tax breaks to aid people and encourage shared values, to benefits and services that are contracted out to private players. The direct role of the government in all three of these is obscured or completely invisible to the average American.

This is problematic in two ways. The first is that, as pointed out above, hefty profits accrue to the private sector when it can exploit the gap between the government and its beneficiaries. This isn't equally shared across the entire economy, however; most of the profits go to the FIRE sector, which Mettler points out have "outpaced growth in other sectors of the American economy... not from 'market forces' alone but rather from their interplay with the hidden policies that promoted their growth and heaped extra benefits on them." More profits mean more money to spend on lobbying to protect the very policies that allow them to profit off of these services. Rinse, wash, repeat.

It also affects political engagement. Mettler is famous among a certain subset of the blogosphere for a chart showing that majorities of people surveyed who had in fact benefitted from government programs -- many of them belonging to the submerged state -- said they had never "used a government social program." This is the larger danger of allowing the private sector to carry out government programs: "polices of the submerged state obscure the role of the government and exaggerate that of the market, leaving citizens unaware of how power operates, unable to form meaningful opinions, and incapable, therefore, of voicing their views accordingly," Mettler writes. It will only lead to a less engaged, and therefore less democratic, electorate.

Contracting banks out to provide benefits through plastic cards may at first glance seem like a win -- governments are spared the hassle of delivery, beneficiaries are spared the hassle of paying with cash -- but in the end it only benefits the banks.

Bryce Covert is Editor of New Deal 2.0.

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Debt, Unemployment, and Income Inequality are Public Health Issues

Oct 26, 2011Bryce Covert

The economic problems facing the average American can affect much more than a bank account.

One loud message from Occupy Wall Street is an outcry against income inequality. The flipside of that issue, and another grievance of the movement, is sky-high levels of personal debt. When working Americans are taking home less during the recovery, and have seen their share of national income falling for three decades, they must turn to debt to plug the holes and cover the basics. And there are millions of Americans who aren't even lucky enough to have a job right now.

The economic problems facing the average American can affect much more than a bank account.

One loud message from Occupy Wall Street is an outcry against income inequality. The flipside of that issue, and another grievance of the movement, is sky-high levels of personal debt. When working Americans are taking home less during the recovery, and have seen their share of national income falling for three decades, they must turn to debt to plug the holes and cover the basics. And there are millions of Americans who aren't even lucky enough to have a job right now.

All of these grave economic concerns also are also issues of public health. Striklingly, it turns out that each of the protest's main causes -- income inequality, unemployment, and high levels of debt -- are all making us unhealthier.

Foreclosure is now shown to not just be a financial strain, but a mental and physical one. As Craig Pollack and Julia Lynch write in the New York Times, "A growing body of research shows that foreclosure itself harms the health of families and communities." The authors cite a paper released by the National Bureau of Economic Research that found people who live in places with high rates of foreclosure -- New Jersey, Arizona, California, and Florida -- are at significantly more risk of being hospitalized by diabetes, high blood pressure, and heart failure. The authors found that in their own survey, 32 percent of people facing foreclosure in Philadelphia reported missing doctor's appointment and 48 percent had let prescriptions go unfilled, which is "significantly higher" than other people in the area.

It's not just a risk to physical health, but also greatly affects mental health. More than one-third of those in their survey had symptoms of major depression. The NBER study found a higher number of suicide attempts. And for every 100 foreclosures, that study found a 12 percent increase in anxiety-related hospitalizations and emergency room visits.

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It's pretty clear that foreclosures, as Mike Konczal says, are a lose-lose-lose situation financially. Neither the borrower, the lender, nor the community benefit -- they all suffer. It's also clear that they're a lose-lose situation in terms of health.

It's not just foreclosure that's affecting our health. Unemployment also takes its toll. As the Washington Post reported, "A 2009 survey by Mental Health America, a mental health advocacy group, concluded that the unemployed were four times more likely to report symptoms of mental illness than a working individual." Another study by Rutgers University's John J. Heldrich Center for Workforce Development found highly increased levels of stress for the jobless, and 11 percent sought professional help for depression in the past year. These findings are corroborated by larger research, which finds a strong correlation between high levels of unemployment and suicide, an a recent CDC study found that "the U.S. suicide rate has ticked up every time the economy has fallen into recession since the 1929 stock market crash."

And last but not least, the very issue of income inequality itself, a phenomenon starkly on the rise for the last three decades, is making us sick. More than income or absolute wealth, inequality that has the biggest impact on health, Time reports. This plays out across the globe:

At a basic level, a country's overall economic success does predict its people's well-being, but the healthiest and happiest countries in the world are not the richest. Rather, they are countries where wealth is shared widely and more equally... Indeed, in country-to-country comparisons, researchers find that the greater the difference between the richest and the poorest in a society, the worse off everyone in that society seems to be.

Japan and Scandinavia, which have more equal societies, also experience "greater life expectancy, lower infant mortality, reduced obesity, heart disease and mental illnesses, and lower rates of murder and addictions."

These financially related health problems will end up creating a vicious cycle, as many people do not have the money to treat them and may even turn to credit cards to pay for health care, landing themselves in more debt. Not to mention that health issues can even come in the way of finding a job for those who are unemployed. It's important to keep in mind that the economic problems facing so many Americans today have impacts far beyond their wallets.

Bryce Covert is Editor of New Deal 2.0.

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We Can't Wait, But Obama May Have Waited Too Long

Oct 26, 2011Jeff Madrick

His new slogan and new strategy are right on target. But they may be too little too late.

“We can’t wait,” says President Obama. He is now out pushing some modest programs to help underwater homeowners and the unemployed. We can’t wait for Congress, which won’t pass his jobs bill, he tells Americans.

His new slogan and new strategy are right on target. But they may be too little too late.

“We can’t wait,” says President Obama. He is now out pushing some modest programs to help underwater homeowners and the unemployed. We can’t wait for Congress, which won’t pass his jobs bill, he tells Americans.

He is right. But where was Obama two and a half years ago when he took office? We couldn’t wait then, either. Where was he after the 2010 mid-term loss? We could not wait then, either. As I wrote in November 2010, Obama will be running for reelection with an unemployment rate no lower than 8.5 percent, maybe 8.2 percent. It will probably be higher than 8.5 percent, as it turns out. No incumbent won before with an unemployment rate above 7.2 percent. The exception is Reagan, under whom unemployment, after soaring, had fallen by three full percentage points.

Soon enough, the media got on the message about the dangerously high unemployment rate. But the Obama team countered that all they needed was economic momentum in their favor. If rates are falling, it doesn’t matter how high the absolute level is. After all, that is what election models like Ray Fair’s of Yale implied. But these high rates were unprecedented.

No worry, we will get our financial house in order, the administration said. We’ll get that irksome government spending down. That’s what the surveys say the people want. Spending on social programs is the issue. (Of course what created the deficits had nothing to do with Social Security or Medicare. It was almost all the recession, Bush tax cuts, and the wars. Medicare part D was a smaller contributor, but not basic Medicare.)

All I can say is holy cow. By now, maybe few remember that one of the president’s first priorities on taking office in early 2009 was “fiscal responsibility.” He started out wanting to cut government, just like Clinton pronounced the end of the age of big government. Yes, he wanted a health care package and eventually came up with a brave, if inadequate, stimulus plan. But a few days before he was inaugurated, he announced that he would call a White House Fiscal Responsibility Summit for February 2009. He had indeed inherited a trillion dollar deficit that perhaps he thought he could pin on George Bush to score political points. At the summit, notes Tom Edsall in a fine new book, The Age of Austerity, he promised “to cut the deficit we inherited by half by the end of the first term in office.”

In fact, we already had a jobs crisis in early 2009. Even before the recession of late 2007 to mid-2009, far fewer jobs had been created under George Bush during recovery and expansion than in any comparable post-World War II period. GDP growth was slow, but job growth almost invisible. In January, before the summit, the unemployment rate was 7.8 percent, up from 5 percent 12 months earlier. It was on its way to 10.1 percent in October.

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Obama had signed into law the $800 billion stimulus plan. His economists seriously overestimated its benefits, expecting unemployment to top out at the then seemingly high rate of 8 percent. It is important to get one thing correct: Christina Romer and Jared Bernstein weren’t wrong about the value of Keynesian stimulus. (By all accounts, Romer wanted more.) But they were wrong about how big a hole America had fallen into already.

Despite the disappointing economic performance, Obama proposed a commission early the next year to balance the budget. It was to be headed by a conservative Democrat, Erskine Bowles, and a very conservative Republican, Alan Simpson.

We are all not Keynesians now. Throughout his first and second years in office, Obama promoted fiscal responsibility. Apparently his economic team agreed. He bought into austerity economics instead of trumpeting the success of the stimulus. My gut feeling by now is that he really believes in austerity and “fiscal responsibility,” much like Jimmy Carter did. And when the Democrats lost badly in the November 2010 elections, he still didn’t get it. He welcomed the proposals of his budget balancing commission, and by then there were quite a few others singing the benefits of spending cuts and budget balancing. All the proposals called for more spending cuts than tax increases.

Only when the unemployment rate rose back to 9 percent or so and stayed there throughout the spring and fall of 2011 did the president decide to change his tune. He discovered we had a jobs crisis. He discovered that’s what the American people were really upset about. He did the unthinkable and proposed a jobs program that in fact was half good. He changed the tone of his rhetoric. Clearly, he was now at last running for office again. This seems to be what focuses his mind.

The Republicans shrugged him off. Why not? It worked every other time. But he demanded that they pass the jobs bill “now.” The shift seemed a little cynical, but it was an improvement. He is no longer waiting for the Republicans. He is doing what he can by executive orders. This is the right plan. But he has so turned off the American people with his obliviousness to their plight that they will be hard to bring back to his side.

And he doesn’t stick up for himself even now. His budget plan would actually stabilize American debt at about 70 percent of GDP by 2017 or so, a territory even most cautious economists believe is sustainable. Has Obama told anyone that? Ask anyone in the press whether they know that.

This is why Occupy Wall Street has been so successful. No one in Washington heard Americans' distress. Democracy was not working. Obama, who promised change, surrounded himself with old-time Washington pros who had tin ears and small-time ambitions -- and economists who had no sense of the depth of the crisis.

We can’t wait. Darned right. But Obama did wait. Too long?

Roosevelt Institute Senior Fellow Jeff Madrick is the author of Age of Greed.

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Why We Need the Government to Create Not Just Jobs, but Good Jobs

Oct 17, 2011Richard Kirsch

A new book exhausts all the private sector possibilities, ultimately showing why the government has to ensure decent wages for all.

A new book exhausts all the private sector possibilities, ultimately showing why the government has to ensure decent wages for all.

The millions of underemployed Americans today, working part-time or in jobs significantly beneath their skill level, underline a persistent feature of our workforce, starting long before the Great Recession: one out of four jobs pay sub-standard wages. Good Jobs America, a new book written by Paul Osterman and conceived with co-author Beth Shulman before her death, tackles this other half of the jobs crisis: the need to create more good jobs, with wages that can support a family.

A great strength of the book is the authors' creation of new data on low-wage jobs, bringing to light how little so many of us bring home from our work. The authors are exquisitely cognizant of the current policy and political climate that looks skeptically on the ability of government to intervene in the "power and correctness of the market." As a result, much of the book carefully examines the arguments and strategies that rely on non-government interventions in the labor market to increase job quality, as well as a refutation of conservative arguments against public policies to increase wage levels. In thoroughly exploring other avenues of change, and doing their best but ultimately failing to identify promising paths that don't rely principally on government, Osterman and Shulman make it clear why they conclude "what is needed is a broader political, social, and economic environment that supports progressive employment strategies." By exhausting the limits of other avenues, the book ultimately ends up making the case that we must have government action to ensure decent jobs for all.

The authors refute the "myth" that education is the solution to the problem by pointing out the obvious: "There will always be hotel room cleaners and food servers and medical assistants and the myriad of other low-wage jobs." Education may help an individual, but it won't solve the large societal problem. Furthermore, they review research that finds "most adults holding these jobs will not escape them." They describe numerous programs developed in industries like health care and hospitality to create career ladders for low-wage employees and -- while doing everything they can to accentuate the positive -- find that few of the programs are sustainable or result in many employees moving into better jobs.

The persistence of the problem is underlined in their discussion of another common bugaboo: immigration. Data they assembled show that from 1994 to 2010, while the proportion of immigrants in the workforce increased by 70 percent, the percentage of jobs that were low-wage stayed the same, 24 percent. Their data also reveal that while immigrants held more low-wage jobs in 2010, the percentage of immigrants who took jobs that were below the low-wage standard remained at just below 40 percent.

As the authors deeply believe that employers need to be part of the solution, they look closely at the problems that employers face in raising wages and promoting career training. But they find that "high-road" employers are few and far between, motivated by the rare business with a mission or CEO that is committed to decent wages and benefits. They find no evidence that a Costco has any impact on a retail job market dominated by WalMart, which when it comes into a market suppresses wages in its competitors. The history of labor partnerships also is not promising. Levi-Strauss' attempt at paying good wages collapsed under the pressure of foreign competition and when an agreement between the hotel employee union HERE and San Francisco hotels to trade employer flexibility for more training and wage increases melted in the face of non-union competition.

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!

The authors also highlight community and non-union worker organizing that has led to the passage of local ordinances and agreements with large employers. But they admit that these are few and far between, with the biggest benefit being a change in the political relationships of power rather than the creation of many new good jobs.

Their exploration of what could be the most promising new labor market for good jobs, green jobs, is very telling. They do a marvelous job of detailing the competing forces in Boston when the city government tried to balance the trade-off between weatherizing more homes or paying higher wages. It negotiated with multiple actors: community action agencies, environmental groups, unions, big and small contractors. The results were not promising. On the other hand, Portland, OR provided a model of success due to the rare cooperation between community and environmental groups and unions, bolstered by strong political leadership.

Which gets us back to government. The 2009 economic stimulus legislation required that prevailing wages, following the Davis-Bacon law, be paid for weatherization jobs. But the Obama administration interpreted that as prevailing wages in the already low-wage weatherization industry. That was a lost opportunity to use a major investment in green jobs to set a foundation for good jobs.

So what will work? Looking at the history of what has worked in our past -- legislation and regulations promoting wage standards, job safety, and unionization -- they conclude simply, "The government made bad jobs into good." There's plenty of ammo in the book showing that minimum wage laws do work and that unionization leads to better jobs.

The authors say that creating a climate for good jobs requires a shock to the system that will come from "public policy or employee voice." Actually, they recommend both: laws that raise wages and protect union organizing, accompanied by cooperation between community groups, more internally democratic unions, and small business associations.

On the next to last page, the authors finally reach for a broader strategy that meets the political challenge of our times. Ending where they began -- "the gap between the low-and-middle-class is collapsing" -- they conclude that "the reality is that strengthening job quality is a middle-class issue" and making the concerns of low-wage workers compelling "requires a broader political base than is currently at hand."

Building that political base will require making more than a rhetorical link between the concerns of the shrinking middle class and the working poor. We will need to build a movement that unites "the 99%" to those pushing for a broader jobs agenda, that demands that we not only create more jobs, but that every job pays enough to support a family with security and dignity. The agenda must look beyond the workplace to broader systems of opportunity and social insurance: education, health care, retirement, and leave policies. Organizing that movement must link across communities, exemplified by efforts like the Caring Across Generations campaign that is uniting unions and community groups to create two million good jobs for those who care for seniors and people with disabilities. We need to build a political movement through campaigns at the local, state, and federal level that demand good jobs for everyone in America.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute and a Senior Adviser to USAction, whose book on the campaign to win reform will be published in 2012. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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Occupy Wall Street's Middle Class Vision for the Left

Oct 17, 2011Joan Williams

occupy-journalOccupy Wall Street could bring disaffected blue-collar workers back into the progressive fold by recasting the left as the voice of the middle class.

occupy-journalOccupy Wall Street could bring disaffected blue-collar workers back into the progressive fold by recasting the left as the voice of the middle class.

When the second Google hit (after Wikipedia) for "corporate cronyism" links to a speech by Sarah Palin, you know why progressives need Occupy Wall Street.

Occupy Wall Street's power lies in the "We are the 99%" theme. The poignant and evocative stories on the Tumblr of that name feature hard-working, settled, middle-class families who have had the rug pulled out from under them by recent economic conditions. A single mom who put herself through college and grad school only to lose her job due to chronic illness, who now can't sell her house and worries that her children and grandchildren don't have much of a future. A 38-year-old cancer survivor, unemployed and with $50,000 in student loans, who can't get health insurance. A 21-year-old making $10.50 an hour at one job and looking for another so she no longer has to choose between paying bills and eating, who sleeps in her car because she can't get approved for an apartment. Her parents can't help because her father lost his job, "the bank took our house," and her mother is sick and can barely afford her medicine.

These are stories of the tremendous toll taken by the Great Recession on middle-class Americans who have done everything right: they work hard, seeking a second job if the first cannot support them; they scrimp and save to buy a house; they pay their bills on time. And then they tumble out of the settled middle class due to illnesses, or a lost job, or an accident -- things over which they have no control.

These are stories of the group that has shifted sharply Republican since 1970. Actually, it's only the whites in this group who have shifted: Blacks of all classes still vote overwhelmingly Democratic. But Democrats have lost many nonunionized whites in what Theda Skocpol has called the "missing middle" -- the middle 50% of Americans, whose median income is $64,000. I will call them blue collar, although the sad fact is that many of the blue-collar jobs that offered a stable middle class life have long since disappeared, leaving many in low-paid pink or routine white-collar jobs that offer very low pay and no benefits.

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!

Occupy Wall Street's focus on this group is a big change from the Democrats' focus, since about 1965, on the poor -- the bottom third of Americans whose median income is $19,000. While the poor no doubt need help, so do the missing middle. While the standard of living of blue-collar families doubled between the end of World War II and 1973, blue-collar jobs disappeared after that, and the standard of living in blue-collar families stalled out despite the fact that wives entered the workforce. Even more devastating, the cherished stability these families enjoyed in the 1950s and 1960s evaporated due to the "great risk shift" documented by Jacob Hacker. That's the message of the "We are the 99%" movement.

Understandably, Republicans are alarmed. They have launched a counteroffensive called "We are the 53%" -- that's the percentage of Americans who pay federal income taxes. This represents a move that, for Republicans, is tried and true: it seeks to bond the missing middle to the business elite. For once, progressives are contesting this narrative by articulating in very clear and concrete terms what blue-collar families share with newly vulnerable professionals.

So Occupy Wall Street has definite potential. It's worth pointing out, though, that this potential can easily be squandered. Republicans already have begun to malign the movement as composed of "trust fund hippies." This is a smart move. One of the things that drove blue-collar whites out of the Democratic camp was the rise of hippies and yuppies (or trustafarians) whose willingness to take risks were -- unbeknownst to them -- perceived as enactments of upper-middle-class privilege. It didn't help when hippies called the police -- who had good, stable, respected blue-collar jobs -- "pigs."

I hope that Occupy Wall Street avoids all this. If they reinforce the trust fund narrative, their activism will further reinforce the hold of Wall Street Republicans. But if they avoid that, and if the Democrats take the hint and begin to listen to the 99%, Occupy Wall Street could be the beginning of something big.

Joan Williams is the author of Reshaping the Work-Family Debate.

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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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We are the 99%: A Progressive Narrative in One Powerful Phrase

Oct 14, 2011Richard Kirsch

Occupy Wall Street's message goes a long way toward crafting a solid progressive story about the economy.

One of the most common criticisms of progressives is that, unlike the right, we don't have simple messages that tell our story. Our young leaders at Occupy Wall Street have come up with a powerful answer: We are the 99%.

Occupy Wall Street's message goes a long way toward crafting a solid progressive story about the economy.

One of the most common criticisms of progressives is that, unlike the right, we don't have simple messages that tell our story. Our young leaders at Occupy Wall Street have come up with a powerful answer: We are the 99%.

For the past several months, I've been working with a group of progressive leaders and communicators on the development of a "progressive economic narrative," a way of telling our story about the roles of the individual, business, and government in creating shared prosperity. The right has a well-developed view, to the point where after several decades it can now be summarized in three brief phrases: free markets, limited government, and individual liberty.

If we as progressives do our job well, we will also get to the point where we have three such phrases that are widely recognized. But that actually takes a long time. (Here are three candidates, but the fact that you may not nod your head readily when you read them is because you can't shorten the process: shared prosperity, government that works for all of us, and liberty and justice for all.)

For now, I'm celebrating the fact that we now have one phrase that tells much of our story: "We are the 99%."

This phrase's power is in the emotions it elicits. It is triumphant, not defeatist. It says, "We have the power and the moral authority, not you!" It conveys action -- we're standing up for ourselves and occupying your turf. It declares our common humanity. It is hopeful.

The progressive economic narrative I've been helping to draft has five conceptual pillars, and understanding them helps illustrate why "we are the 99%" also works intellectually. The first pillar of the narrative defines the progressive view of our economic problem: the crushing of the middle class by the rich and by corporate America. "The 99%" is a great unifying expression of inequality, as it avoids the separations that come from labels like "the middle class," "working class," and "poor." It says we're all screwed together by rising inequality and highlights those who are responsible: the super-rich and big corporations.

The second pillar defines what makes a successful economy: the well-being of our families in a big middle class and the productivity of our nation, not the stock market and corporate profits. "The 99%" is a simple declaration that our economy is driven by the vast majority of people, not a few super-rich.

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The fourth pillar (I'll come back to the third) defines the political problem: our government has been captured by the super-rich and corporate America, corrupted by big money and politics. "We are the 99%" affirms that we have to take our democracy back to ensure that our economy works for all of us, not just the richest few. This has been a consistent message from the Occupy Wall Streeters, who seamlessly link inequality, corporate power, and corruption.

The fifth pillar is a call to action. And here's where the triumphant power of "We are the 99%" works so well. It's no accident that the phrase took root in an action that people could easily do -- posting a picture of themselves with their story -- and was adopted instantly by a movement.

The third pillar explains the role of government in building a successful economy and the relationship of public action to individuals and business. It can be summarized thus: We build a large and prosperous middle class through the decisions we make together, investing in our people, expanding opportunity and security, paving the way for business to innovate, and doing business in ways that create prosperity and economic security for Americans.

This third pillar is essential to explaining how we should solve our problems and refuting the conservative view that the economy is driven by natural forces, best left on its own without government interference. "We are the 99%" opens the door for us to tell that story, but we need to fill in the blanks. When people say that Occupy Wall Street doesn't have demands, we should look at that not as a criticism, but as an invitation to complete the story. Everything about the phrase establishes the point that we build an economy that works for all of us when we make decisions that benefit the 99%.

Helping the American public understand a progressive worldview about the economy starts with our being clear on what we believe and telling that story consistently and widely. The best evidence that we're on the right track is when a simple message captures the hearts and minds of us, the 99%.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute and a Senior Adviser to USAction, whose book on the campaign to win reform will be published in 2012. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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How the Top One Percent Ripped Off the Bottom 99 Percent

Oct 11, 2011Jon Rynn

wall-street-150As the financial sector sucks up more and more money, the rest of us are left making less and less.

wall-street-150As the financial sector sucks up more and more money, the rest of us are left making less and less.

Occupy Wall Street has put a spotlight on the vast and growing economic inequality in the United States. It now takes its place as a top progressive priority -- perhaps the highest priority it has experienced since the Great Depression.

Underlying this greater and greater inequality is a shift of wealth from manufacturing to the top 1 percent and the financial sector. Over the past 40 years, the sectors of the economy that grew in output share grew very little in employment share -- making more money but paying it to a small group of people. The sectors of the economy that grew in employment share did not grow in output share, meaning that a growing number of workers had to share in a smaller pot of profits. From 1969 to 2007, the richest 1 percent has grabbed 15 percent more of the income of the United States, to a total of about 24 percent. Meanwhile, the manufacturing sector has lost a similar 15 percent of gross domestic product (GDP). This has led to a downward shift in income for the bottom 99 percent.

Let’s look at the shift among sectors of the economy in a bit more detail, because as finance has risen, so have other lower pay sectors. A good way of looking at the health of an economy is to see if there is a difference in how much income a particular sector, such as manufacturing or finance, pulls in -- that is, how much of the economy (GDP) it constitutes versus how much employment it accounts for. You might think of this as what percentage of the economy each working person receives, viewing each sector as a whole. I will call this the “the ratio”: that is, the ratio of the GDP (value-added) share of the economy to the percentage of the employment share of the economy for a particular sector; I will always compare 1968 to 2009 (all data sourced from the Bureau of Economic Analysis).

Manufacturing has historically been the quintessential middle class sector because its share of GDP declined slightly, from 28 percent to 25 percent, between 1948 and 1968 in tandem with its share of employment (its ratio was 104 percent in 1968). Thus someone working in the manufacturing sector made an average income for the economy as a whole -- that is, he or she was right smack in the middle of the middle class. Since 1968, the employment share of manufacturing has been heading down by .38 percent per year, so that it is now 8.7 percent, while its share of the economy is 11.2 percent. The average employee is making about 30 percent more than the average for the economy, most likely because so many of the low-skill jobs were outsourced (along with most high-skilled ones).

At the same time, the finance, insurance, and real estate, or FIRE, sector increased its share of the economy from 14.2 percent to 21.5 percent, while the employment share only rose from 4.4 percent in 1968 to 5.7 percent in 2009. So this sector went from a ratio of 322 percent to 376 percent; for finance alone, the ratio almost doubled from a fairly middle class 116 percent in 1968 to 197 percent in 2009. Real estate always had a ratio of about 1000 percent, which is one more reason, perhaps, that society should not encourage real estate bubbles. Overall, the pot of money has exploded without an increase in payrolls.

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So FIRE took about half of the share of GDP that manufacturing lost while barely increasing employment. The rich got richer.

On the other hand, in what is called “accommodation and food services,” or basically hotels and restaurants, the share of the economy moved from 2.2 percent to 2.7 percent in the 41 years between 1968 and 2009, but its share of employment rose from 4.5 percent to 7.2 percent; the ratio fell from 49 percent to 33 percent. The “health care and social assistance” sector, dominated by the health care industry, saw its ratio decline from 73 percent to 63 percent; its share of GDP rose from 2.8 percent to 7.5 percent, but its employment soared from 3.8 percent to 11.9 percent. The other sector that saw a major decline was retail, which actually saw a decline in economic share from 7.9 percent to 5.8 percent at the same time that its employment share increased slightly from 9.9 percent to 10.8 percent. Call this the “Walmart” effect: driving out mom-and-pop stores, leading to a greater efficiency, but lowering the average wage from 79 percent to 54 percent of the economy-wide average.

If we combine these employment “growth” sectors, GDP share moves from 12.9 percent to 16 percent between 1968 and 2009 but the employment share grows from 18.2 percent to 29.9 percent. The ratio fell from about two-thirds of the average to less than half. More and more Americans are employed by sectors that aren’t bringing in a large share of the economy.

So where did the employment and economic output of the manufacturing sector go? When it declined, most of the income went into FIRE and the top 1 percent, and most of the employment -- such as it is -- went into lower paying service jobs or has ceased to exist.

Counter to conservative ideology, the economic role of the government has actually gone down -- at least when measured, as I have been doing here, by value-added data, which eliminates the effect of transfer payments. From 1968 to 2009, the share of employment for the federal government decreased from 9.7 percent to 3.8 percent, and its GDP share went from 6.9 percent to 4.3 percent, while for the state and local governments the employment share rose from 11.7 percent to 14.4 percent and GDP share went from 7.6 percent to 9.3 percent. So much for “big government." FIRE’s share of GDP is at 21.5 percent, while government at all levels is at 13.6 percent. Sounds like “big finance” to me!

All of these statistics point to the need to understand the “natural history” of the economy. The health of a particular sector of the economy is a relevant political issue, as is how we might change the relative importance of each. I have argued previously that manufacturing is at the center of the economy. If we were to move from a manufacturing sector with 9 percent of employment to 20 percent, the economy would add over 14 million jobs. To achieve a change like that, we need to redirect our resources from the “economic royalists” and top 1 percent to the bottom 99.

Jon Rynn is the author of the book Manufacturing Green Prosperity: The power to rebuild the American middle class, available from Praeger Press. He holds a Ph.D. in political science and is a Visiting Scholar at the CUNY Institute for Urban Systems.

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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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Why the 99 Percent is Crying Out

Oct 5, 2011Bryce Covert

Occupy Wall Street is right to be angry. Americans are falling farther and farther behind.

The biggest controversy over Occupy Wall Street is about what they stand for. Are they a bunch of dirty hippies with no agenda? Do they really think they can change the entire system? Why won't they just put out a concrete list of demands and policy prescriptions?

Occupy Wall Street is right to be angry. Americans are falling farther and farther behind.

The biggest controversy over Occupy Wall Street is about what they stand for. Are they a bunch of dirty hippies with no agenda? Do they really think they can change the entire system? Why won't they just put out a concrete list of demands and policy prescriptions?

While signs at the protests have many, many messages -- from BP to Iran to capital punishment -- the affiliated Tumblr, We Are the 99 Percent, exposes what's motivating people to get on the streets. With over 700 submissions at this point, Americans from all over have been writing down personal stories to explain their frustrations. While those protesting on Wall Street have grievances that are far ranging, those on the Tumblr are almost all sparked by a combination of a few common things: joblessness, debt, and low wages. They are the stories of those who can't make ends meet. These days, that covers a lot of us.

Here's a sampling just from the most recent page (my bold):

My mother (leader in her field of pathology, MA) is upside-down on her house. My father (multiple PhD's) lives in his car so that he can do what he loves for a living rather than be a slave to the system.

I am 45 years old. I was laid off twice in 18 months... I am "unemployable" because of layoffs. I have not worked since November 2008.

I am 27 years old with $100,000 in debt. I was laid off in 2009 and have been struggling ever since then. I have not made more than $10,000 a year since then.

My husband and I have $80k in student loan debt. I am in the process of being diagnosed with Multiple Sclerosis, a hard enough thing in and of itself. I also have over $30,000 in medical debt because of that... We own cheap cars, live frugally, have a roommate to help, and try hard to keep up... I work when I'm not too sick, and he works full time.We have a combined annual income of less than $40k annually.

I have an MS from a top state university- & $135k in student loans (& growing). I've lost 2 jobs in 3 months.

Lost my job in 2006. Sold my home and moved in with my 87-year-old mother.... Cancer survivor. Need medical care. Can't afford health insurance... TOO YOUNG TO RETIRE. Watching my retirement funds and savings shrink.

As a newer, less established member of the faculty I was out of work when my college cut classes. Over a year later and I still can't find work... Because of deferments my $41,000 loan has become $62,000.

Adjusted for inflation, a smaller American reality than that of my dad -- a civil servant who dropped out of college... My son is learning to speak Mandarin.

I am 29 years old. I have a Master's degree. I am $120,000+ in student loan/medical debt. In the past 18 months I: was diagnosed with cancer, lost 2 jobs, worked 70 hours/wk and unable to keep up. I get more calls from creditors than I do friends... I have $4 in my bank account and no job.

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And I find this one perhaps the most emblematic of the average American's experience:

We live within our means, we own our cars, yet cannot accumulate much savings. We live responsibly, and consider ourselves "citizens" and not "consumers." We find it troubling that living simply can still accrue so much debt... We are one emergency away from financial ruin.

"Living simply can still accrue so much debt." That's been the American experience for years now. As Ezra Klein put it, the Tumblr is full of "small stories of people who played by the rules, did what they were told, and now have nothing to show for it."

For those who are lucky enough to work, the money we take home has been either stagnating or decreasing, and it's getting worse in the aftermath of the recession. As reported by Bloomberg:

Take-home pay, adjusted for prices, fell 0.3 percent in August, the third decrease in five months, and personal income dropped for the first time in two years, the Commerce Department reported last week. The declines followed news from the Census Bureau that median household income in 2010 fell to $49,445, the lowest in more than a decade, and the poverty rate jumped to 15.1 percent, a 17-year high.

That figure, $49,445, isn't going to cut it. A recent report showed that a household with two working parents and two young children needs to earn $67,920 to meet basic needs without relying on public support. It only drops to $57,756 for a single parent with two young kids. Not to mention that rent, food, and health costs are rising. On top of this, 14 million Americans don't even have jobs. When we don't bring in enough money to pay for the basics, the next place we have to turn is debt. Our total revolving debt comes to $796.1 billion, with the average household carrying $14,743 in credit card debt. Household debt is currently 90 percent of GDP, up from 70 ten years ago. It's no wonder, then, that despite making some headway in paying down our debt loads, consumers are still struggling to do so.

And student debt is a whole other story. The total is on track to reach $1 trillion this year, more than our combined credit card debt. Alongside this surge is a rise in delinquencies post-recession. This is partly fueled by the government, schools, and hard-pressed parents pulling back on support. It is also certainly fueled by the dismal job market and graduates' unemployment rate -- which will have ramifications for their earning capacity for years to come.

I'm not surprised that people are at their wit's end over personal finances. I'm not surprised that they're blaming the banks that make money from keeping us in debt. I'm just surprised it took this long for the anger to find its voice.

Bryce Covert is Assistant Editor of New Deal 2.0.

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