Rob Johnson: American Dream Can't be Restored with Sky-high Inequality

Aug 30, 2011

At a recent event at the Hammer Forum, Roosevelt Institute Senior Fellow Rob Johnson joined Andy Stern to answer the question: Can we restore the American Dream? In his presentation, Rob pointed out that we can't simply return to our past, particularly given how much has changed in the aftermath of the financial crisis. "The challenges are not just simply going back," he points out, "but drawing on the best traditions of our past to create a new vision."

At a recent event at the Hammer Forum, Roosevelt Institute Senior Fellow Rob Johnson joined Andy Stern to answer the question: Can we restore the American Dream? In his presentation, Rob pointed out that we can't simply return to our past, particularly given how much has changed in the aftermath of the financial crisis. "The challenges are not just simply going back," he points out, "but drawing on the best traditions of our past to create a new vision."

So what's changed since the boom times of the American Dream? For one thing, the financial system sucks up about 40 percent of corporate profits. "The servant of finance, which is supposed to serve the economy and the economy and markets are supposed to serve social goals, has become the master," Rob says. Another is our staggering income inequality. Between 1917 and 1978, 70 percent of GDP growth went to the bottom 90 percent of our society. Now that equation has all but reversed. Over the past 30 years, the bottom 90 percent has seen its income growth decline, while "one percent of the population is getting two-thirds of the gains," Rob points out.

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This inequality comes with high costs. Rob points to a study that shows a correlation between high levels of income inequality with such tragedies as higher mental illness, obesity, high school dropout, incarceration, infant mortality, and homicide rates, while public trust declines. Unequal societies are also far less likely to foster social mobility. And the U.S. isn't just slouching along with other unequal nations, but is a real outlier toward bad outcomes, Rob points out.

Yet in the face of all of this, the government continues to be in Wall Street's pocket, enforcing an austerity agenda even with soaring unemployment rates. So Rob has some sympathy with some of the Tea Party's motivations. "They look at the government as an insurance agency for the rich and the powerful with the premiums paid by them," he says. "Can you imagine belonging to a golf club where you paid dues but only the rich and powerful got to play the course?" DC should take a hard look at FDR's Second Bill of Rights, particularly given our high levels of unemployment. Otherwise, we have a big problem on our hands.

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Roosevelt Fellows React: Will Krueger's Common Sense Break Through?

Aug 29, 2011

As President Obama just announced, Princeton Professor Alan Krueger is his pick to be the next Chairman of the Council of Economic Advisers. Will Krueger's background in labor bring a fresh perspective to the table? Or will he too be stymied by business as usual? Roosevelt Institute Fellows weigh in.

As President Obama just announced, Princeton Professor Alan Krueger is his pick to be the next Chairman of the Council of Economic Advisers. Will Krueger's background in labor bring a fresh perspective to the table? Or will he too be stymied by business as usual? Roosevelt Institute Fellows weigh in.

"At a time when the economic and political hurricane in Washington appeared to cause all people with any economic training or talent to evacuate the administration, it is welcome news to see that Princeton economist Alan Krueger has joined as the head of the Council of Economic Advisers. He is a fine economist with government experience at the Treasury and the Labor Department and he should be very familiar with the people and practices of government. There are no issues more important to address than the persistent and devastating high levels of unemployment, and Krueger's academic strengths are ideally suited to meet the challenge. Dr. Krueger has also done a great deal of work on the economics of popular music. One hopes that he can change the tune of austerity that is currently a hit in Washington D.C. and refocus our nation on the need to eliminate the tolerance of so many idle resources." -Senior Fellow Rob Johnson

"I think the choice of Krueger is great, but a little too late. He's well respected across the ideological spectrum within the mainstream economic discipline, and he's generally a liberal economist, concerned about issues of economic and racial inequality, and not zealously anti-labor. (In fact, he's probably slightly pro-labor.) He's not a Krugman or Stiglitz or Sachs politically, but he's not far behind them. His work has been important in debunking right-wing ideology about the effect of the minimum wage. In fact, one of the most important studies of his career may be a highly influential paper and book he wrote with David Card using a 'natural experiment' of a minimum wage increase in New Jersey and not Pennsylvania to empirically assess whether or not an increase in the minimum wage had an adverse affect on unemployment, finding it did not. The method and evidence used were of the highest and most cutting-edge within the discipline, forever changing the debate.

"Which brings me to my second point: as Krugman recently pointed out, science doesn't matter to today's right. So although Krueger is an excellent economist and a great appointment, it doesn't seem like it will matter much in terms of the policy debate and policy choices on the agenda. And frankly, it's not as if Christina Romer, his predecessor, really had much influence relative to the Summers and Geithners in the administration. So I'm really less sanguine about his influence now (and that of Rebecca Blank, one of the top poverty scholars of her generation over at Commerce) on issues of economic policy and inequality." -Fellow Dorian Warren

"It's good to have a highly competent labor economist running the place. He has long been concerned with unemployment, wage stagnation, and inequality. Whether he can break through the political wall at the White House is another question." -Senior Fellow Jeff Madrick

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All the Cars in China: How American Workers Can Gain from Chinese Growth

Aug 25, 2011William Lazonick

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In the latest installment of his “Breaking Through the Jobless Recovery” series, economist William Lazonick explains how the US needs to take a lesson from China and align the interest of its multinational corporations with the interests of the country.

If you want to talk job creation, let's talk China. While the United States suffers through a prolonged jobless recovery, with another recession on the horizon, the Chinese economy has continued to boom. In the second quarter of 2011 the China's GDP growth rate slowed to 9.5% year-on-year, down from 9.7% in the previous quarter and 11.9% a year earlier.

Double-digit growth rates are nothing new for China. Since launching  game-changing economic reforms in 1978, China's GDP has grown at an average of almost 10 percent per year. One driver of that growth has been vast additions to China's productive capacity. For example, in 1979 China accounted for 4.6% of world crude steel production compared with 16.6% for the United States and 15.0% for Japan. China surpassed the United States in steel production in 1993 and Japan in 1996. In 2010 China's crude steel production was 6.6 times its level 15 years earlier, and represented 44.3% of the world total, compared with 7.7% for Japan and 5.7% for the United States.

China's growth has been also been sparked by technology transfer from the advanced economies. A prime objective of the 1978 economic reforms was to build the nation's science and technology infrastructure, which was especially in need of modernization after the tribulations of the Cultural Revolution (1966-1976). In addition to launching a massive educational effort to increase the supply of scientists and engineers, from 1985 the Chinese government invited multinational corporations to invest in joint ventures with Chinese state-owned enterprises under the policy of "trading markets for technology" (TMFT). As the phrase suggests, the lure for multinationals was the potential to gain access to burgeoning product markets in a rapidly growing nation with one-sixth of the world's population.

Quick to grasp the opportunity was the German automaker Volkswagen, which entered China in a joint venture with Shanghai Automotive International Company in 1985, followed by another one with First Automotive Works in 1987. By 2000 Volkswagen produced 52% of the passenger cars in China, most of them for government and taxi fleets. At the time, however, China's car production represented only 1.5% of world production, and China ranked a distant 13th among all national car industries.

The past decade has changed all that. In 2010 China produced 13.9 million cars, 23.8% of the world total, about 37,000 cars greater than the combined production of Japan (8.3 million) as number two and Germany (5.6 million) as number three. Volkswagen produced 1.7 million cars in China in 2010, 2.8 times its production a decade earlier but now representing only 2.9% of total Chinese production. In the Chinese market Volkswagen was now second to (guess who?) the much maligned General Motors.

Back in 2000 GM produced just 30,000 cars in China, one-tenth of Volkswagen's China output, and just one-third of one percent of GM's worldwide production. By 2006 GM had surpassed VW in China, and in 2008 produced just over one million cars there, 17% of its worldwide total. Then in 2009 came GM's bankruptcy, with its worldwide car production falling by 17%, even though its Chinese production rose by 69%! In 2010 GM boosted its worldwide car production up to 6.3 million, about a quarter of a million more than in 2008, before it went bankrupt. The 2010 total now included 2.2 million cars produced in China, 1.2 million more than in 2008 and 35% of GM's worldwide production.

Bottom line: Without China, GM would still be in bankruptcy, and maybe even out of business.

At the same time, GM, VW, and other multinational corporations face lots of indigenous competition in the Chinese car industry. In 2010 no indigenous Chinese companies were represented among the top 15 car producers in the world, although combined the top 15 companies (six Japanese, three German, two each American and French, and one each South Korean and Italian) produced 8.6 million cars in China. Of the next 25 largest car producers in the world, however, 17 were Chinese, with a total output of 5.9 million cars, or 42% of China's car production. (Note: There is some double-counting between foreign and indigenous producers because of joint ventures.)

These indigenous Chinese companies are the ones to watch. According to research by Kaidong Feng in his recent Sussex University Ph.D. dissertation on indigenous innovation in China, it is the indigenous Chinese car companies, and in particular nongovernmental enterprises such as Geely, Chery, and Brilliance, that have not been involved in joint ventures with multinational corporations, that are the most innovative in the industry, particularly in product innovation. Why?  In joint ventures, domestic companies give up strategic control to multinationals. While under TMFT, multinationals are supposed to transfer technology to the Chinese, but they tend to keep the latest developments to themselves. When, as has typically been the case in joint ventures, the Chinese partners are state owned enterprises, the strategic mandate from the government has been to expand production capacity (stressing process innovation) rather than generate higher quality products.

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In contrast, the nongovernmental enterprises can tap into the state-funded science and technology infrastructure for knowledge and people. They can access the national banking system for finance capital while maintaining their strategic autonomy from the government in the allocation of resources and returns. These indigenous companies, some of which succeed and many of which fail, seek to set themselves apart from the competition through innovation.

Dr. Feng has found similar results for the communications equipment industry, in which Huawei Technologies and ZTE are the most prominent examples, as well as, in collaboration with Qunhong Shen of Tsinghua University, for the electric power industry. A just completed study on the development of the Chinese semiconductor industry by UMass student Yin Li shows similar results. This recent research builds on and confirms the pioneering work of the late Qiwen Lu. In his book, China's Leap into the Information Age, published in 2000, Lu documented and analyzed indigenous innovation in the rise of China's first successful computer electronics companies during the 1980s and 1990s, including Legend (now Lenovo) and Founder (for a summary of Lu's findings, see my paper, "Indigenous Innovation and Economic Development"). Going forward, state-of-the-art work on the subject will be the focus of a workshop on "Chinese ways of innovation" in Los Angeles in October.

As both response and encouragement to these developments in China's technological capability, in 2006 the Chinese government made the promotion of indigenous innovation central to its Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020). China's progress in indigenous innovation is apparent in its advanced technology product trade with the United States. In 2000, 5.5% of US advanced technology product imports came from China, while 17.8% came from Japan and 10.4% from Canada. A decade later China's share of US advanced technology imports had ballooned to 32.6%, compared with 6.6% from Japan and 3.6% from Canada. Among the ten advanced technology product categories, US imports from China are highly concentrated in information and communication technology (88%  in 2010). China alone accounted for 50% of all US information and communications technology imports. Over the past decade China has also become much more important in US advanced technology product exports, rising from a share of 2.4% in 2000 to 7.9% in 2010.

These advanced technology product imports and exports reflect the globalization of production since they include international trade in value-added components and work-in-progress along the global value chain. Through these production relationships, the economies of China and the United States are tightly intertwined, although with very different impacts on national economic performance. While China is leaping ahead, the United States is falling badly behind.

As William Greider warned in his best-selling book of 1998 on "the manic logic of global capitalism", we live in "One World, Ready or Not". In 2011 China's innovative trajectory is ascendant, while the United States faces tough times. And don't wait for China to implode: it won't for a long time. Instead Americans should be thinking about how the United States can respond to the new competitive challenge.  For a start, we need to invest the massive profits from globalization of US multinationals back in the United States.

That means not only policies for the repatriation of a substantial proportion of the foreign profits of US corporations, but also a coordinated and concerted national strategy for how these profits can be invested in innovation and job creation to get the United States back on track. The United States needs a national program of business-government cooperation to recreate what Harvard Business School professors Gary Pisano and Willy Shih have called the "industrial commons". Or to echo Ralph Gomory, former president of the Sloan Foundation and head scientist at IBM, America's response to the Chinese challenge requires an alignment of the interests of its companies with the interest of the country.

William Lazonick is director of the UMass Center for Industrial Competitiveness and president of The Academic-Industry Research Network. His book, Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States (Upjohn Institute 2009) was awarded the 2010 Schumpeter Prize.

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Recession Has Lit the Fuse on Explosive Student Debt

Aug 24, 2011Bryce Covert

Troubling long-term trends have gotten even worse as schools, government, and families cut back and student loans skyrocket.

This week's credit check: Average student debt can spiral up to $100,000 with interest and late payments. Room and board charges at colleges have doubled in actual dollars since 1982.

Troubling long-term trends have gotten even worse as schools, government, and families cut back and student loans skyrocket.

This week's credit check: Average student debt can spiral up to $100,000 with interest and late payments. Room and board charges at colleges have doubled in actual dollars since 1982.

It's no great secret that student loan debt is exploding. The total amount is set to top $1 trillion, more than total credit card debt. But accompanying that post-recession surge in student debt (as all other consumer debt is being paid down) is a surge in delinquencies. As The Wall Street Journal reports, "In the second quarter, 11.2% of student loans were more than 90 days past due and the rate was steadily rising, according to data from the Federal Reserve Bank of New York. Only credit cards had a higher rate of delinquency -- 12.2% -- but those numbers have been on a steady decline for the past four quarters."

The rise in student borrowing is a longtime trend, but things have clearly gotten worse in the recession. A lot of it is because of decisions schools are making. In a recent Atlantic Monthly article, Andrew Hacker and Claudia Dreifus explain that higher tuition -- paid for by student loans -- "keeps most colleges going." Private colleges Loyola University and Franklin Pierce see 77 and 85 percent of students enroll with loans, respectively. Historically black colleges, which tend to have lower endowments and a poorer population, are closer to 90 percent. Part of this, they report, is not because the actual education is more costly, but because "room and board charges have doubled in actual dollars since 1982 to enhance campus life." That's a long-term trend. But part of it is unique to the recession: As endowments tanked, priorities changed. They note:

Recent actions by Dartmouth and Williams, two wealthy schools, convey a lot about academic priorities. In the past, both schools announced that anyone they accepted would be able to enroll without having to take out loans. That is, the colleges would ensure all the aid that was needed to make attendance possible... That was before 2008. But when Dartmouth and Williams' endowments tanked, hard decisions had to be made. Among the first was telling their needy students they would henceforward have to borrow.

The government has taken much the same tack in looking at its own shrunken budget post-recession. Back in March, President Obama proposed a budget that ended an experiment that gave Pell Grants for summer courses and eliminated a subsidy for paying interest on student loans for grad students. His plan was better than the GOP's, which wanted to cut the maximum Pell Grant payment by $845, end funding to other aid programs, and kill AmeriCorps. This comes on top of a longtime trend in which student debt has come to replace grants. As Roosevelt Institute Fellow Dorian Warren reminded his host Melissa Harris-Perry on MSNBC, "When we were in college, Melissa, Pell Grants paid almost half our college in the 90s. Now Pell Grants barely cover a quarter. It's all student loans." Grants used to cover two-thirds of financing an education; now two-thirds comes from loans. Post-recession, the government is looking to shrink that even more.

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Families have also reacted to the recession by, understandably, socking less away for college and pitching in less for tuition. As Hacker and Dreifus note, "Fully two-thirds of our undergraduates have gone into debt, many from middle class families, who in the past paid for much of college from savings." Those savings have likely dried up. A typical family spent only about $2,055 on education last year. Only half of freshmen entering college said their parents had put anything aside for their education, and of those who had, half had saved less than $20,000.

With so many sources of aid pulling away either out of necessity or stupidity, students are left hanging at just the time they need more help. The College Board puts average debt at $27,650, but that figure can spiral up to $100,000 due to interest and late payment penalties, which are even more likely in a recession. This is on top of the bleak job market graduating students face. The New York Times writes, "The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008... Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted. That compares with 90 percent of graduates from the classes of 2006 and 2007." It's hard to pay student loans when you don't have a job.

And don't forget, this debt isn't going anywhere, no matter how little students are able to pay it back. Unlike almost all other forms of consumer debt, student loans can't be discharged. Barmak Nassirian of the American Association of College Registrars and Admissions Officers told Hacker and Dreifus, "You will be hounded for life... They will garnish your wages. They will intercept your tax refunds. You become ineligible for federal employment." They can also dock Social Security checks when you retire, he adds. No matter when the economy finally pulls out of this stagnation, students will still be saddled with a heavy load.

Bryce Covert is Assistant Editor at New Deal 2.0.

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Verizon Strike is About All of Our Economic Futures

Aug 24, 2011Richard Kirsch

When a company making big profits squeezes its workers, we all pay.

For now, Verizon's striking workers are back on the job. A two-week walk-out by 45,000 Communications Workers of America (CWA) and International Brotherhood of Electrical Workers (IBEW) members from Massachusetts to Virginia led to Verizon finally agreeing to seriously engage the unions at the bargaining table. But the tough bargaining is just beginning. The issues at hand are about more than just a labor dispute -- they are at the heart of the problems facing our economy.

When a company making big profits squeezes its workers, we all pay.

For now, Verizon's striking workers are back on the job. A two-week walk-out by 45,000 Communications Workers of America (CWA) and International Brotherhood of Electrical Workers (IBEW) members from Massachusetts to Virginia led to Verizon finally agreeing to seriously engage the unions at the bargaining table. But the tough bargaining is just beginning. The issues at hand are about more than just a labor dispute -- they are at the heart of the problems facing our economy.

So what about the rich getting richer while average Americans tread water? The Chairman of Verizon, Ivan Seidenberg, made $18 million last year, 300 times that of the average worker (see Verizon proxy statements). Verizon made $3 billion in profits for the first half of this year alone and $22.5 billion in the past four years. Still, the company is asking its workers for $1 billion in annual concessions, which work out to about $20,000 a worker. Verizon's list includes cuts in pensions, holidays, sick leaves, and benefits for workers injured on the job. The company is asking workers to pay thousands of dollars more for health care each year, while Seidenberg and his wife get free health care for life.

Corporate America is doing fine while paying fewer taxes at home and shipping jobs overseas. Verizon got corporate tax refunds from the IRS totaling $1.3 billion in 2009 and 2010, years in which it made $7.5 billion. Verizon has outsourced thousands of jobs and is asking in the new contract for provisions that would make that outsourcing even easier.

Unions are a shrinking part of the American work force, leading to lower wages and benefits. CWA and IBEW represent Verizon's landline business. Despite repeated attempts to unionize Verizon, only 70 Verizon wireless workers belong to a union. One bright spot is that the unionized members of Verizon are also installing the company's FiOS product, which delivers cable television and Internet. But Verizon is competing with big, non-unionized cable companies like Time Warner and ComCast, where wages and benefits are significantly lower. There is better news in the broader wireless industry, where 40,000 employees of AT&T wireless are unionized. But that represents about one-third of the industry, whereas virtually the entire landline business is unionized.

Is new efficient technology replacing the old and displacing jobs? Verizon wants to make it seem like its unionized landline workers are working for a dying technology. But much of what we think of as new technology relies on the landlines installed and maintained by Verizon's unionized workers. Did you realize that your wireless signal actually goes through landlines that carry it from a cell tower? Or that when you use Skype or make a call on Gmail that they are carried by landlines? Severe limits on available spectrum force wireless companies to constantly find new ways to transmit signals over wired connections.

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Where did Verizon get the funds to start Verizon Wireless? From the cash generated by its traditional landline business. But while Verizon shareholders continue to reap the benefits of that investment, Verizon wants to stop the landline workers from sharing in the returns.

In short, what's at stake in the labor dispute between Verizon and its unions are the middle class jobs that drive the economy but are fast disappearing. It's not a surprise that Verizon's Chairman, Seidenberg, is also the Chairman of the Business Roundtable, the organization that represents the CEOs of America's biggest companies. Verizon is working hard in its proposed contract to keep up with all the corporate Joneses that have reaped record profits by cutting wages and benefits, shipping jobs overseas, and legally bribing Congress to create huge loopholes in the corporate tax code.

In two weeks we will mark the tenth anniversary of the attacks on the World Trade Center. Will we remember that in the days following the catastrophe, Verizon technicians resurrected the entire communications infrastructure of lower Manhattan, allowing the stock market and world financial markets to resume business with barely a hitch? In the last decade, Wall Street did great -- even after crashing the economy and getting government bailouts. It's the Main Street workers who kept the Wall Street infrastructure going who remain under attack, just as our entire economy remains under attack by companies like Verizon that would destroy middle class jobs in the United States to protect their multi-millionaire CEOs and corporate shareholders.

Next time you pick up your telephone, remember that the fight that Verizon's workers will continue to wage with the company over their contracts in the coming weeks and months is not just about whether the men and woman who make that call possible will continue to hold decent jobs that provide security for their families. It's about whether one more middle class engine of America's puttering economy will be wrecked.

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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Bloomberg Case: Open Season to Discriminate Against Mothers?

Aug 23, 2011Joan Williams

working-mother 150Judge Loretta Preska rolled back the clock on mothers seeking justice for straightforward discrimination.

working-mother 150Judge Loretta Preska rolled back the clock on mothers seeking justice for straightforward discrimination.

When Sekiko Garrison told former boss Michael Bloomberg she was pregnant, his answer was simple: "Kill it." Allowing mothers flexible work arrangements, he commented, was like allowing a man time off to practice his golf swing. The CEO who took over when Bloomberg left the company demanded that managers "get rid of these pregnant bitches" (referring to two women on maternity leave). The Head of Global Human Resources commented that mothers "belong at home" and that "women [do] not really [have] a place in the workforce." The Head of News commented that "half these f**king people take the [maternity] leave and they don't even come back. It's like stealing money from Mike Bloomberg's wallet. They should be arrested." The Head of Global Data asked, "Who would want to work with an office full of women?"*

And yet Federal Judge Loretta Preska said last week there was so little evidence of discrimination that she would not allow the Equal Employment Opportunity Commission (EEOC) to proceed to trial to try to prove that Bloomberg had discriminated against mothers. Preska, a pro-business Bush appointee, ended her opinion with a severe scolding: "At bottom, the EEOC's theory of this case is about so-called 'work-life balance'... [T]he EEOC's claim...amounts to a judgment that Bloomberg, as a company policy, does not provide its employee-mothers with a sufficient work-life balance." Preska quotes (as binding authority?) former General Electric CEO Jack Welch: "There's no such thing as work-life balance. There are work-life choices, and you make them, and they have consequences."

Where to start? The plaintiffs in this case were not asking for work-life balance. They were asking that their employer not discriminate against them because they were mothers. Recent social science suggests that motherhood is the strongest trigger for gender discrimination in today's workplace. If you give people identical resumes, one a mother and the other not, the mother is 79% less likely to be hired, 100% less likely to be promoted, offered an average of $11,000 less in salary, and held to higher performance and punctuality standards, according to a study by Shelley Correll, Steve Benard, and In Paik. Note: identical resumes. This is not a measure of the desire for work-life balance. It's evidence of extraordinarily strong discrimination against mothers. And, as the quotes from Bloomberg management demonstrate, discrimination against mothers is not only very strong. Often, it's also very open.

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Discrimination at Bloomberg appears to have been very open indeed. Yet through a series of procedural rulings, Judge Preska threw out most of the EEOC's evidence and then held that it had so little evidence it could not take the case to trial. First, she rejected the EEOC's statistical evidence. Then she threw out statements like those above. Those statements she could not throw out for technical reasons she simply ignored. (The comments about leave-takers stealing Mike's money were not excludable for any of the reasons the judge identified. And by the way, it is illegal under the Family and Medical Leave Act to discourage people from taking FMLA leave. Would you be discouraged by these comments?)

I won't go deeply into the technical problems with the court's opinion. But the court got caught in a time warp. Ten years ago, suits against mothers were often stymied because courts could not find a suitable "comparator" -- a similarly situated pregnant man. Courts eventually solved this problem by abandoning their search for a comparator, instead allowing plaintiffs to prove discrimination by introducing evidence of stereotyping (e.g., comments about how mothers belong at home). But Judge Preska turned back the clock. She not only insisted on comparator evidence, but rejected the obvious comparison between people who took maternity leave and those who did not. Instead, she insisted that the plaintiffs compare their salary growth to that of employees who took leaves of similar length. But healthy men don't typically take long leaves, which means that plaintiffs' salary growth was compared to that of employees who, one assumes, either were seriously ill, seriously disabled, or else had gone on an extended vacation to discover themselves in Aruba. Not surprisingly, under these circumstances the significant salary disparity found by the plaintiff's expert magically disappeared.

But the most troubling thing about this case is Judge Preska's confusion about the difference between work-life balance and discrimination against mothers. "The law does not mandate 'work-life balance.' It does not require companies to ignore employees' work-family tradeoffs -- and they are tradeoffs -- when deciding about employee pay and promotions." True that.

What employers are not allowed to do is discriminate against mothers on the fast track because a different group of mothers decided to leave the fast track. If the judge doesn't understand that, she needs a refresher course on the basics of anti-discrimination law, set down in the 1970s. You can't penalize women who don't conform to stereotypes just because other women do conform to them.

If we abandon these basic principles of anti-discrimination law, it's open season on mothers. And that's a really, really devastating setback for women. Studies show what dooms women economically in the United States is not being a woman -- it's being a mother. If the courts refuse to protect mothers on the fast track simply because other mothers decided to leave, we are not going to have gender equality anytime soon. That's for damn sure.

*These quotes can be found in the EEOC brief.

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

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The Global Tax Dodgers: Why President Obama and Congress Lack Job Creation Plans

Aug 18, 2011William Lazonick

need-job-150In the latest installment of his “Breaking Through the Jobless Recovery” series, economist William Lazonick explores why American business leaders have taken a hike on the nation.

need-job-150In the latest installment of his “Breaking Through the Jobless Recovery” series, economist William Lazonick explores why American business leaders have taken a hike on the nation.

By now the story is familiar. For the last decade US-based business corporations have been engaged in the massive offshoring of good jobs to high-growth, low-wage areas of the world, especially China and India. In general, these companies have found offshoring to be immensely profitable. For working people in the United States to gain some benefit from this globalization process, US-based corporations must repatriate some of their foreign profits to invest in high value-added job opportunities back home.

Yet prevailing US tax law both encourages offshoring and discourages the repatriation of profits. In principle, US individuals and corporations are supposed to pay US taxes on their worldwide income. Through an overseas tax deferral law, however, a US company does not pay the 35 percent corporation tax on foreign earnings until it repatriates these profits to the United States. The tax law gives US corporations an added incentive not only to offshore employment but also to reinvest the earnings of offshored operations outside the United States.

The deferral law has a long history, dating back to 1960 when the Eisenhower administration wanted to encourage an expanded US business presence around the world. From 1961 to 1963, President Kennedy tried, without success, to get rid of the law, arguing that it resulted in the export of US jobs and deprived the United States of tax revenues. Since then, the Democrats have tried from time to time to rescind this corporate tax privilege.

In June 1976, for example, an attempt to overturn the law narrowly failed in the US Senate. As observed in the Wall Street Journal just before the Senate vote: "Closing some tax ‘loopholes' of corporations and the rich is required for its own sake, liberals say, and to help finance full extension of last year's tax cuts and an immediate tax break for retired persons." (From "Senate Liberals to Renew Attempts at Cut In Tax Benefits for Corporations, the Rich," June 28, 1976). On the day after the vote, the New York Times reported: "The defeat by a vote of 45 to 44 was another in a series for organized labor and its supporters in the Senate who charge that thousands of United States jobs are lost because multinationals are encouraged by the deferral tax advantage to build plants overseas." (From "Tax Law Retained for Multinationals," June 30, 1976).

Fast forward to February 2004 when Sen. John Kerry, a declared candidate for the Democratic presidential nomination, issued a press release that indicated his objection to the tax deferral law in no uncertain terms:

My economic policy is not to export American jobs, but to reward companies for creating and keeping good jobs in America. Unlike the Bush Administration, I want to repeal every tax break and loophole that rewards any Benedict Arnold CEO or corporation for shipping American jobs overseas.

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The preferred approach of the Bush administration to inducing repatriation of foreign profits was the Homeland Investment Act as part of the American Job Creation Act of 2004. It provided a corporate tax rate of 5.25% for profits repatriated in one fiscal year, with the stipulation that these profits had to be used for investments that create jobs. The Act expressly prohibited the use of these funds to pay dividends or do stock buybacks. US corporations responded by repatriating $299 billion in profits in 2005, compared with an average of $62 billion in 2000-2004, and a subsequent decline to $102 billion in 2006.

A study of the impacts of the tax break by Dhammika Dharmapala, C. Fritz Foley, and Kristin J. Forbes found, however, that "[r]ather than being associated with increased expenditures on domestic investment or employment, repatriations were associated with significantly higher levels of payouts to shareholders, mainly taking the form of share repurchases. Estimates imply that a $1 increase in repatriations was associated with an increase in payouts to shareholders of between $0.60 and $0.92, depending on the specification." The authors suggest that companies were able to make these distributions to shareholders without violating the terms of the repatriation legislation by using the repatriated funds "to pay for investment, hiring, or R&D that was already planned, thereby releasing [domestic] cash that had previously been allocated for these purposes to be used for payouts to shareholders."

A persistent promise in Barack Obama's campaigns for the Senate in 2004 and the presidency in 2008 was that he would end tax breaks for corporations that ship jobs overseas. True to his word, in a speech in May 2009, President Obama declared: "It's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York." In June 2009, Microsoft CEO Steve Ballmer responded that an end to the overseas tax deferral would make "U.S. jobs more expensive" and that if the Obama administration insisted on changing the tax law, Microsoft would be "better off taking lots of people and moving them out of the U.S." In September 2009, the Obama administration met with US high-tech executives and agreed to shelve the plan to end the tax deferral.

Nevertheless, in his State of the Union address on January 27, 2010, President Obama insisted that "it is time to finally slash the tax breaks for companies that ship our jobs overseas and give those tax breaks to companies that create jobs right here in the United States of America."

This tax loophole has not yet been closed. Indeed, in October 2010, John Chambers, chairman and CEO of Cisco Systems, and Safra Catz, president of Oracle, published an op-ed in the Wall Street Journal in which they sought to counter criticism in the press that US corporations were sitting on one trillion dollars in cash instead of investing in jobs in the United States. The two high-tech executives claimed that US corporations were holding the cash in question overseas and recognized that these funds "could be invested in U.S. jobs, capital assets, research and development, and more" if US corporations had an incentive to do so. "But," they continued, "for U.S. companies such repatriation of earnings carries a significant penalty: a federal tax of up to 35%. This means that U.S. companies can, without significant consequence, use their foreign earnings to invest in any country in the world -- except here."

Having deftly transformed an existing government tax concession to US corporations into a tax penalty on US corporations, Chambers and Catz noted that, among other things, repatriated profits could "provide needed stability for the equity markets because companies would expand their activity in mergers and acquisitions, and would pay dividends or buy back stock." To lure the $1 trillion back to the United States, they proposed a 5% tax on repatriated profits that would yield the US government a quick $50 billion, which could then "be used to help put America back to work...[by giving] employers -- large or small -- a refundable tax credit for hiring previously unemployed workers (including recent graduates)." "Such a program," they crowed (their plan having saved their companies 30% in taxes on foreign profits), "could help put more than two million Americans back to work at no cost to the government or American taxpayers. How's that for a good idea?"

Along with other business executives, Chambers presented his "good idea" directly to President Obama at the White House on December 15, 2010. In mid-January 2011, Treasury Secretary Tim Geithner met with a dozen CFOs who pushed for an end to taxes on foreign profits on the grounds that it would make US companies more competitive internationally. In his State of the Union address on January 25, 2011, Obama mentioned innovation 11 times, but made no mention of the repeal of the tax deferral law to help finance it. Instead, he just exhorted Congress to simplify the tax system: "Get rid of loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years -- without adding to our deficit." This past July, in Congress, the "Gang of Six", lobbied by the Business Roundtable, pushed for an end to the taxation of foreign profits.

With this kowtowing to corporate interests and their constant quest for "maximizing shareholder value," it is no wonder that neither Obama nor Congressional Democrats can come up with a jobs plan. Like it or not, the US economy is an autocratic corporate economy in which the CEOs of major corporations must take the lead in investing in innovation and job creation for a jobs plan to have a significant and sustainable impact. That was true in the era of Dwight D. Eisenhower and it is true in the era of Barack H. Obama.

Back then, however, US corporations were still focused on investing in the US economy, and they had not yet succumbed to the debilitating ideology that corporations should be run in the name of shareholder value. Top corporate executives, not President Obama or Congress, are the ones who control the resources to create jobs in the business sector and pay the taxes to support job creation in the government sector. These business leaders have, however, taken a hike on the nation, and indeed even on the working people and taxpayers who built the very business organizations that have made them so incredibly powerful and rich.

William Lazonick is director of the UMass Center for Industrial Competitiveness and president of The Academic-Industry Research Network. His book, Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States (Upjohn Institute 2009) was awarded the 2010 Schumpeter Prize.

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Obama's FDR Moment

Aug 17, 2011Eliot Spitzer

smiling-fdr-profile-150Americans are looking to the President for bold ideas. Here are two.

smiling-fdr-profile-150Americans are looking to the President for bold ideas. Here are two.

President Obama should heed the famous wisdom of FDR: "Above all, try something." Being passive in the face of rising anxiety breeds discontent, doubt, and ultimately, contempt.

Interestingly, the president's one grand moment to date -- his embrace of the plan to capture Osama Bin Laden --emerged from a willingness to be bold, even when many of his advisers were counseling otherwise. He defied the more modulated approaches many military advisers recommended, and the payoff, both substantive and political, was huge. The president should take this lesson and apply it to his actions in the domestic arena.

First, he should act dramatically to help the American homeowner. There is a continuing and incendiary crisis in the housing market, with about 20 percent of all homes underwater (that is, the mortgage owed on the house is greater than the value of the house). This is dragging down our economy, creating a downward spiral of foreclosures and abandonment. The lack of mortgage reform also reminds every homeowner of the unfairness attached to the bailouts: The banks, in their moment of insolvency and need, got hundreds of billions in direct cash payments, guarantees, and transfers in the form of artificially low interest rates, all of which have led to a massive transfer of wealth from taxpayers and savers to the banks. Yet homeowners who have seen their primary asset drop in value have been given nothing at all by the banks and nothing meaningful by the president.

The administration, in conjunction with the Federal Reserve, should insist that banks, in return for all the taxpayer subsidies they have gotten and continue to receive, reduce any mortgage that exceeds the value of the house. Once it is established that the homeowner is underwater, other variables can be considered to determine how much the mortgage should be reduced: the income of the borrower, the year the mortgage was issued, the behavior of the bank in recommending the mortgage, or the culpability of the borrower in misrepresenting income levels.

Borrowers with reduced mortgages would have more money to spend, thus boosting the economy and relieving the housing market of a huge overhang. Owners would regain mobility, and the market could set a clearing price. Many also believe that the banks would come out ahead --facing fewer foreclosures, less abandonment, fewer houses stockpiled.

In addition, the banks could also receive a piece of the upside when and if owners sell their houses for more than the value of the reduced mortgage. How much of the upside could be worked out with rules designed to encourage rational behavior by all parties. (If the bank got 100 percent of the price above the value of the mortgage, there would be no incentive for an owner to charge more; if the bank got only a tiny percentage of the price differential, it would never recoup the amount by which the mortgage has been reduced.) The opportunity is to force the banks to give the housing market a shot in the arm -- while also allowing them to retain an equity stake that permits them to recoup any short-term loss.

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The critical point is this: The best way to revive the housing market is to help out the millions of Americans who are underwater on their mortgages. It is also the best way for the president to make it clear he is acting on behalf of the public at large.

Second, the president should do more to help the American worker. He should establish a jobs program. Do the simple math: We are spending more than $110 billion annually in Afghanistan. Stop it. Or scale it back to the sort of covert operations and drone war that is warranted. Savings? Perhaps about $100 billion -- per year. Use that money to create up to 5 million jobs at $20,000 each. With the unemployment among those aged 16 to 19 at an astonishing 25 percent, and unemployment among black people at 15.9 percent, there is no question that the crisis of unemployment is destroying the fabric of our nation. Those who refuse to work get denied all other benefits.

Put Jack Welch and Jeff Immelt, former and current CEOs of GE, in charge of using this labor well. Just as FDR did during the Great Depression, put these Americans to work in states, counties, schools, parks. Make them work -- but pay them. Get the dollars flowing back into the economy to help pull us out of the Great Recession. And when the unemployment rate dips below an agreed upon number, indicating that the labor market is healthy again, phase out the program.

There are ideas out there. All the president has to do is argue for them. Americans are not used to feeling that we are not masters of our own fate. We are a nation steeped in the idea that we can redirect the course of history at will. What we need at this moment is a president with bold ideas and the passion to fight for them.

Eliot Spitzer is the former governor of the state of New York.

Crossposted from Slate.com.

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Consumers Don't Want More Debt, They Want Jobs and Decent Wages

Aug 17, 2011Bryce Covert

Americans are focused on paying back their debts while they worry about finding jobs and bringing home enough money to pay the bills.

This week's credit check: Consumer spending accounts for 70% of the US economy. Household debt is currently 90% of GDP.

Americans are focused on paying back their debts while they worry about finding jobs and bringing home enough money to pay the bills.

This week's credit check: Consumer spending accounts for 70% of the US economy. Household debt is currently 90% of GDP.

There seems to be a Catch-22 right now that has a lot of people worried: consumers are feeling reluctant to spend and more inclined to save because the economy is so crappy, yet we need consumer spending to ramp up to stop it from sucking. Consumer spending, after all, accounts for 70% of the economy. Without that part humming smoothly, it'll be hard to get the whole system back to full working order. But according to economists at JPMorgan, household purchases dropped in June for the third consecutive month, the first time that's happened outside a recession since 1959 (all adjusted for inflation) -- although retail sales rose .5% in July.

So why won't Americans go out and spend their money like true patriots? Because a lot of them are focused on paying down the debt they racked up in the run up to the recession. The rate of borrowers 90 or more days late on credit card payments just fell to 0.6%, the lowest in 17 years. Total outstanding revolving credit card debt was down 4.6% during the first half of the year compared to the same period a year before. Consumers spent $72 billion more paying down credit card debts than buying things in 2009 and 2010. Clearly we have put a high premium on breaking free from credit card debts and avoiding the high interest rates and fees associated with being behind.

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But we have a long way to go. There's still a lot of debt hanging over consumers. In 1990, household debt was about 60% of GDP; in 2000, it was less than 70%. But right now it's at 90% -- better than the first quarter of 2009, when it was 99.5%, but still leaving plenty more room to deleverage.

Beyond high debt loads, consumers are also pretty freaked out by current economic signs. In the first weeks of August, consumer sentiment fell to the lowest level since 1980, when the country was in a recession (and we're technically not in one right now). What's getting them down? High unemployment, stagnant wages, and the ridiculous debate in Congress over the debt ceiling. Their top worries are about the difficulties they face in bringing money home -- and how little Congress seems poised to do about fixing their problems. Little wonder that when we're not sure we're going to have a job, let alone make enough to pay the pills, Americans are wary of splurging.

The Fed seems to have been hoping that it could goose consumers into taking on more debt to go buy things by announcing last week that it was going to keep credit cheap. But consumers aren't asking for more debt to help them spend. They're asking for more jobs and decent wages. After being admonished time and again for "recklessly" racking up debts in the run up to the financial crisis, now they're being admonished for not taking on enough debt. Rather than trying to find ways to make us borrow, maybe it would be better for everyone if we were simply employed and paid well for the work we're doing.

Bryce Covert is Assistant Editor at New Deal 2.0.

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FDR Tackled a Jobs Crisis By Putting Americans to Work -- Not Handing Out Pinkslips

Aug 15, 2011David B. Woolner

History shows that we can effectively respond to high unemployment. But the real deficit in the U.S. today is leadership.

History shows that we can effectively respond to high unemployment. But the real deficit in the U.S. today is leadership.

"Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing great -- greatly needed projects to stimulate and reorganize the use of our great natural resources."

~Franklin D. Roosevelt, March 4, 1933

The economic news of the past few weeks -- highlighted by the debt ceiling debacle; the downgrade of US credit worthiness; the wild gyrations in the stock market and the wholly inadequate growth in the US job market in June and July -- all seem to point to one thing: the economic crisis that began in 2008 is far from over.

Worse still, given the political gridlock in Washington and the inability and/or unwillingness of the leadership on both sides of the political aisle to face the real crisis we face today -- the jobs crisis -- the prospects for a meaningful recovery seem remote at best. Many economists predict that the US will slide back into a recession. This is bad news for the millions upon millions of Americans who are out of work; bad news as well for the millions of young people just entering the work force. For the first time since the Great Depression, we face the ugly prospect of the loss of skills that often comes with long term unemployment or the lack of meaningful career opportunities for our youth.

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One would think that in the face of such a calamity our government would do everything within its power to expand or at least maintain the workforce. But with the current Administration having embraced the mantra of deficit reduction and budget slashing, and with one branch of Congress ideologically opposed to government intervention in the economy, government layoffs, especially at the state and local level, are actually pushing up the rate of unemployment.

Over three quarters of a century ago, when faced with a similar jobs deficit, Franklin Roosevelt used the power of the federal government to do just the opposite -- to put people to work. Under the auspices of such New Deal programs as the Civilian Conservation Corps (CCC) or the Works Progress Administration (WPA) millions of Americans found meaningful employment restoring our nation's forests and watersheds and building the economic infrastructure we needed to grow the economy well into the future. Equally important, the skills required to build the 1000s of bridges, roads, schools, airports, dams and other key pieces of economic infrastructure necessary for a modern economy were not lost to that generation.

FDR did this because -- as he said in his first inaugural -- the most immediate and primary tasked needed to meet the economic emergency was to put people to work. This not only led to a significant drop in the unemployment rate (by more than 10 percent in his first term), it also helped fuel a period of economic expansion that would average 14 percent per year for the next four years.

Thanks to these efforts, the American people could look to the future with confidence rather than fear. Yes, times were hard. But under the leadership of the Roosevelt Administration, the federal government was engaged in an active effort to provide real jobs -- not handouts -- to millions and the industrial expertise we needed to meet the challenges of the Second World War were in place at the critical hour.

The national unemployment rate has now been at roughly 9 percent for more than two years. By any measure such a statistic -- which tells us little about the millions of under employed or those who have given up looking for work -- constitutes a national crisis. Yet all we hear about these days in Washington is the need to cut government spending (including federal aid to states) and reduce the deficit. Following this false logic will lay off more workers in the midst of the worst economic crisis since the Great Depression. Given the dire state of affairs, the American people are right to fear the future. In addition to a jobs deficit, we now face a deficit of leadership at a time when we can least afford it.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute.

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