A Year of Ben Bernanke Press Conferences

Apr 25, 2012Mike Konczal

A year ago, in April of 2011, Ben Bernanke gave his first press conference.  I wrote it up for the American Prospect here.  Looking back, I had flagged that more of the questions asked Bernanke whether he was doing too much, rather than too little, to stimulate the economy.  I noted:

A year ago, in April of 2011, Ben Bernanke gave his first press conference.  I wrote it up for the American Prospect here.  Looking back, I had flagged that more of the questions asked Bernanke whether he was doing too much, rather than too little, to stimulate the economy.  I noted:

the press conference, roughly nine questions worried about inflation, a weak dollar, the country's S&P rating, oil prices, and whether the government can fashion an appropriate response to the financial crisis or long-term unemployment at all. These all reflect the worry that government is doing too much instead of too little. Meanwhile, there were only two questions asking why the Federal Reserve wasn't doing more to lower unemployment. When Binyamin Appelbaum asked, "Is it in the Fed's power to reduce the rate of unemployment more quickly? How would you do that? Why are you not doing it?" it was almost out of place.

That wasn't the case today.  The questions were much harder and more frequently about why Bernanke wasn't doing more to get the economy going.  They took for granted, as the first questioner pointed out, that "unemployment is still high, the economy is slowing, inflation is subdued" and Bernanke and the FOMC is, to their critics, "still being too cautious."  I count, on a quick scan, five questions related to the idea that the Federal Reserve has the ability to do more and is choosing not to do it, with only two more related to concerns of inflation hawks or a "bond bubble."

There's a lot of reasons for this: the wasted year of 2011 for the economy, the continued low interest rates of the United States even after a ratings downgrade, growing fears of a permanent decrease in the labor force participation rate and hysteresis, and more.  But part of this change is the result of the economics blogosphere pushing the debate about monetary policy at the zero-lower bound into the mainstream of financial and economics journalism.  The econoblogsphere should be proud of itself, and I will try to do more to advance this important conversation to whatever extent I can.

A year ago I held an event for the Roosevelt Institute on the Future of the Federal Reserve.  It was the same day as the Bernanke press conference, and as such we asked each of the participants to ask Bernanke a question, and we put them online.  Matt Yglesias' question was:  "I would ask him about his own paper on self-induced paralysis in Japan and what he has changed his mind about since then."  This change from Ben Bernanke the professor who called for aggressive monetary action to the Ben Bernanke we see now must have been on the minds of all the reporters in the room, as it is the subject of a great Krugman New York Times Magazine article this upcoming weekend.  The question finally got asked by Binyamin Appelbaum, who, as we note above, asked the hardest question about the Fed not doing enough a year ago at the first conference.  Bernanke's full answer:

Binyamin Appelbaum: Unemployment is too high and you said you expect it to remain too high for years to come, inflation is under control and you expect it to remain under control. You said you have additional tools available for you to use, but you're not using them right now. Under these circumstances, it's really hard for a lot of people to understand why you are not using those tools right now. Could you address that? And specifically, could you  address whether your current views are inconsistent with the views on that subject you held as an academic.
Ben Bernanke: Yeah, let me tackle that second part first. So there's this, uh, view circulating that the views I expressed about 15 years ago on the Bank of Japan are somehow inconsistent with our current policies. That is absolutely incorrect. My views and our policies today are completely consistent with the views that I held at that time. I made two points at that time. To the Bank of Japan, the first was that I believe a determined central bank could, and should, work to eliminate deflation, that it's falling prices. The second point that I made was that, um, when short-term interest rates hit zero, the tools of a central bank are no longer, are not exhausted there, are still other things that, um, that the central bank can do to create additional accommodation.
Now looking at the current situation in the United States, we are not in deflation. When deflation became a significant risk in late 2010 or at least a moderate risk in late 2010, we used additional balance sheet tools to return inflation close to the 2% target. Likewise, we've been aggressive and creative in using nonfederal funds rate centered tools to achieve additional accommodation for the U.S. economy. So the, the very critical difference between the Japanese situation 15 years ago and the U.S. situation today is that, Japan was in deflation and clearly, when you're in deflation and in recession, then both sides of your mandate, so to speak, are demanding additional deflation. 
Why don't we do more? I would reiterate, we're doing a great deal of policies extraordinarily accommodative. You know all the things we've done to try to provide support to the economy. I guess the, uh, the question is, um, does it make sense to actively seek a higher inflation rate in order to, uh, achieve a slightly increased pace of reduction in the unemployment rate? The view of the committee is that that would be very, uh, uh, reckless. We have, uh, we, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable, in that we've been able to take strong accommodative actions in the last four or five years to support the economy without leading to a, [indiscernible] expectations or destabilization of inflation. To risk that asset, for, what I think would be quite tentative and, uh, perhaps doubtful gains, on the real side would be an unwise thing to do.
Watch the video - Bernanke gets really agitated answering this question.  That's the argument to deal with.  I need to think this through more, but on its face it seems like they think they need to maintain their credability in order to keep rates at or below their target.  There's no tradeoff here - the credibility at best has allowed Bernanke to fight off opportunistic disinflation from becoming a goal (which may, in fact, be a victory).  
Meanwhile if the Bernanke wants to maintain credibility the best way to do it isn't by keeping the economy in a permanent quasi-recession but instead annoucing an NGDP target or announcing what he wants and what he is willing to tolerate to get it - say 3% inflation until unemployment is below 7%, like Chicago Fed President Charles Evans has suggested.
Important other notes: In response to a question about the dropping labor force participation, Bernanke noted that the rate was dropping because they are "no longer getting increased participation from women... society ages and also, for other reasons, male participation has been declining over time."  However a lot of it "represent cyclical factors, much of it is young people, for example, who presumably are not out of the labor force indefinitely, but given the, uh, weak job market, they are going to school or doing something else, rather than, than working."  As such "the unemployment rate may not fall as quickly going forward," because when the economy picks up "many of these folks are going to come back into the labor force looking for work."
Bernanke notes that in the absense of a zero lower bound the interest rate would be negative but that they've done other things to counteract this.  "We, we see monetary policy as being approximately in the right place at this point. Based on the analysis that we've been doing of the economy and the outlook."
All in all, the media has gotten a lot better pushing the Federal Reserve to account for its role in the weak economy over the past year.  Let's take victories where we can get them.

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Our Brave New Service Economy

Apr 23, 2012Bryce Covert

More low-wage, dead-end jobs might sound good to business owners, but is that what we want for our country?

More low-wage, dead-end jobs might sound good to business owners, but is that what we want for our country?

One of Romney’s big selling points is that he knows the “real economy” (much like some conservatives know “real America,” I guess) because he has experience as a businessman. Conservatives have started substituting business acumen for political acumen, making the mistake of comparing what’s required to run a country to what’s required to run a company. At first blush it almost makes sense: both oversee groups of people, both deal with budgets, both make decisions. But not only does that experience not necessarily translate to the White House, it also belies a deeper problem about the kind of economy we’re trying to recreate in the aftermath of the Great Recession. Viewing the country, and its economy, as a private business isn’t likely to create solid middle-class jobs.

“This American Life” had a recent episode called “What Kind of Country” that explored what kind of country Americans want this to be, but parts of it had more to do with what kind of economy we want. Take the example they give in act three: Colorado Springs. With a stretched city budget, local businessman Steve Bartolin, CEO of the Broadmoor Hotel, decided to look and compare it to running his hotel. After all, he tells the reporter on the story, “We have the same number of employees as the city… I look at us as a service delivery organization,” just like the city, apparently. They are both concerned with “how do you deliver the highest quality of service in the most efficient, cost effective manner.”

His main focus became how much both entities spend on their employees. “They’re running a 70 percent labor cost and we’ll run a 35 percent labor cost,” he says. “Any business person can look at that and say, ‘Jesus, we’re going to be out of business by 2014 at this pace.’” He writes a manifesto to the city council that ends up being circulated all over town: the city should lower starting wages for its employees, require them to pay more for their health insurance, and start contracting out anything it can to private businesses.

A city councilwoman explains that payrolls for the city government are higher than the hotel’s because it doesn’t control its own pension costs, which are mandated by the state. But she also makes a very important point: it has to hire people with more training and experience. City engineers and police officers can’t be hired on the cheap like the service industry workers at the Broadmoor.

And herein lies a big problem. What Bartolin proposed, basically, is to make government employees more like service employees. This is highly problematic, particularly for the black Americans and women who have long relied on public employment because it paid decently, offered good benefits and stability, and enabled them to move up the economic ladder. Public employment has been credited with helping to create the black middle class. If we make these jobs as unstable and low-benefit as service jobs, we’ll be taking away a huge boon from groups who have historically benefitted from it.

But we’re not just dragging public employees down to the level of service workers. In fact, the jobs our economy is best at producing these days are service jobs. As Harper’s recently tweeted, the chances that an employed American works in the service industry are six in seven. Those jobs have been growing very quickly: from 2010 to 2011, occupations like salespersons, cashiers, and food preparation workers grew by 3.2 percent. As Nona Willis Aronowitz recently reported, one in 10 employed Americans works in food service, making up 9.6 million people. And young people are taking a lot of those jobs: a quarter of people ages 16 to 29 who have a job work in hospitality, meaning travel, leisure, and food service. “A study of 4 million Facebook profiles found that, after the military, the top four employers listed by twentysomethings were Walmart, Starbucks, Target, and Best Buy,” she writes.

These are low-wage, low-benefit jobs that rarely pay much more than minimum wage (if even that) and offer schedules that can change on a whim. A report from the Retail Action Project in New York found that over half of retail workers made under $10 an hour – and 12 percent earn the minimum wage. Less than a third get health benefits through their employer. The Restaurant Opportunity Centers United reported that the average yearly income for restaurant workers in 2009 was $15,092, and less than a third make a livable wage. And what about those hotel workers who might be under the employ of Batolin? Non-managers make less than $12 an hour on average.

And unlike government work, these jobs offer little training and room for advancement. The sector relies on employee churn to keep labor costs lower. (Just ask Barbara Ehrenreich.) Service careers aren’t designed to advance much farther than flipping burgers.

Is this what we want our economy to look like? Do we want most jobs to offer wages that don’t cover basic expenses and to deny workers the benefits they need to stay healthy? Businesspeople would call this cost effective. I call this unsustainable.

Bryce Covert is Editor of Next New Deal.


http://www.shutterstock.com/Image courtesy of Shutterstock.com.

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What the Tax Code Says About Our Values: The Good, the Bad, and the Unclear

Apr 17, 2012Lydia Austin

tax-chalkboard-150Our tax code represents more than just how we choose to collect revenue. It affects everyday decisions and embodies who we are as a society.

tax-chalkboard-150Our tax code represents more than just how we choose to collect revenue. It affects everyday decisions and embodies who we are as a society.

We’re all familiar with filling out tax returns – choosing deductions and organizing earned income in a way that won’t (fingers crossed) get us audited. But what do those boxes we check reflect about our societal structure and values? More than you might think.

The tax code affects more than just our pocketbooks. It’s well known that taxes shift incentives; that’s their purpose and why they (usually) work well. But careful consideration should be paid to these incentives, as they affect everyday decisions and what we, as a society, value.

Some tax provisions, like the Earned Income Tax Credit (EITC), are undoubtedly good for society. The EITC is a tax credit for low-income households with children, and the beauty of it is that it actually incentivizes work. Up to a certain income level, it subsidizes working more: the greater income a family receives, the greater their tax credit from the government. While this is only true up to a point, it’s hard to argue with a tax provision for low-income families that helps to decrease unemployment. Likewise, the ability to deduct charitable donations provides added incentive to support our favorite charities.

On the other hand, the United States’ treatment of earned foreign income is depressing – by which I mean depressing our economy. Americans are taxed on their worldwide incomes, regardless of where that income was earned. Most countries exempt foreign income from taxation, but not us. Instead, the government provides tax credits for taxes paid to other governments (because if you earn money in Germany, the German government wants a part of it). This does not completely erase companies' desire to locate outside of the United States; many countries have cheaper labor costs or other incentives to locate there, which offset the tax trouble.

Most troublingly, our taxation of foreign income discourages companies from being American. Since other countries do not treat foreign income the way the U.S. does, corporations and companies that do a lot of business overseas have an incentive to either start out as a non-American company or sell their operations to their overseas affiliate, thus reducing their overall tax burden.

Then there are the areas where the effects of our tax code are more ambiguous. For instance, depending on the dynamics of a relationship (meaning income dynamics, not which side of the bed you prefer), the tax system can either incentivize or discourage marriage. If one partner earns significantly more than the other, then after marriage when both partners split the income, they will likely be in a lower tax bracket. Conversely, if two partners both earn moderate to high incomes, combining their income after marriage can penalize them by pushing them into a higher tax bracket. As noted in William Statsky's Family Law, some couples divorce on December 31 and remarry on January 1 in an effort to dodge the marriage penalty, since your marital status at the turn of the New Year determines how you can file. But don’t get any ideas – most of these couples are stopped from breaking up and getting back together for tax reasons (and it’s usually pretty evident).

It’s clear the tax code affects our lives more than inducing stress during the month of April. It can encourage or discourage labor, marriage, and philanthropy. We make decisions in part because of how the tax structure incentivizes us to act. But is the government promoting the right values?

America needs a tax system that doesn’t cater to special interests or current holders of wealth. Our tax laws and provisions need to reflect our belief in equity, equality, non-discrimination, prosperity for all, and economic growth. Unfair tax practices that push corporations’ business overseas or penalize marriage should be reconsidered or done away with, while efficient taxes that work should be promoted.

Preferential treatment should not be given to capital income over labor income, as is currently the case, and while the current income tax code is outdated and convoluted, any revision needs to bear in mind our commitment to a progressive tax structure. If the income tax were scrapped and a consumption tax implemented instead, assurances would need to be made that this system would be tempered by progressive laws, so the heaviest burden does not fall on low and middle-income earners.

A closer look at our tax system is warranted for anyone who cares about the future of this country. What seem like mundane decisions regarding money in fact have enormous social consequences. Though many find discussing taxes dull, they have important consequences on our societal value system – and our actions.

Lydia Austin is a junior at the University of Michigan Gerald R. Ford School of Public Policy, where she is studying tax policy and international economics.

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E-Government Can Help Entrepreneurs Cut Through Red Tape

Mar 16, 2012Blake Falk

money-question-150As part of the 10 Ideas: New Ideas for a New Economy series, a proposal to create a one-stop resource that would ease the regulatory burden on the recovery's real job creators.

money-question-150As part of the 10 Ideas: New Ideas for a New Economy series, a proposal to create a one-stop resource that would ease the regulatory burden on the recovery's real job creators.

"We know the startup sector is important, and it is sputtering." So said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, at the Conference on Small Business and Entrepreneurship During an Economic Recovery. Although recent employment reports have signaled improvement in the labor market, with the unemployment rate falling to 8.3 percent and jobless claims tumbling, a closer inspection of underlying trends concerning new business creation is troubling. As Lockhart noted, between 1992 and 2005, the rate of new business creation outpaced the rate of exit by about two percentage points, providing a net increase in employment. However, with the onset of the Great Recession, the relationship between these two metrics was overturned. Business failures rose sharply while the rate of establishment fell from 870,000 a year in 2006 to 720,000 in 2010, signaling a reversal in new business and employment trends.

Given the current momentum in the labor market, some question if new business creation is truly vital for the recovery. With established companies currently sitting on record cash reserves worth nearly $2 trillion, it would seem that they already have the resources to reduce unemployment considerably. However, new business creation during and after the recovery must recuperate for more reasons than simply job numbers, even though businesses with fewer than 50 workers are the largest employers in the nation and have consistently led payroll gains during the recovery. Federal Reserve Chairman Ben Bernanke stated that beyond playing an "important role in fueling past recoveries," new businesses help drive innovation, provide an economic alternative to those facing income instability, and "help sustain the vitality of the neighborhoods" in which they are located. The recovery is not just clawing out of the hole created by the financial crisis of 2008, but rebuilding a new base from which sustained, dynamic, and meaningful employment and economic growth can occur. New business creation therefore remains a crucial component of the economic recovery.

But what tools are likely to affect this positive and sustained momentum? Certainly cyclical unemployment, symptomatic of the Great Recession, is the main contributing factor to the dismal employment situation. However, permanent change in the labor market in the wake of the financial crisis must come in the form of changing its structural inefficiencies. One such change that will reduce unemployment during and after the recession is reforming and simplifying the process of founding a business. Even if one has the necessary capital, the current bureaucratic obligations of formally starting a business are demanding.

Without the services of a lawyer, prospective new business owners must often navigate the red tape of permits, incentives, and regulations of multiple city, state, and federal agencies. Requiring a significant investment of time and effort on the part of the entrepreneur, the current process of establishing a new firm should be made more time efficient. The structural barrier to new businesses created by these regulatory hurdles can and should be fixed -- not only for the sake of the recovery, but for future job growth, since these restrictions will not disappear when the recovery ends.

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From a simple accounting perspective, "the cost disadvantage on small business in each sector is driven largely, but not entirely, by compliance with environmental regulations and with the federal tax code." Complying with these regulations is more difficult for smaller businesses because they possess reduced economies of scale relative to larger ones and consequently stretch their human capital thin. This burden is especially severe on small firms in the manufacturing sector, with the estimated cost per employee being 118 percent and 151 percent higher than medium and large-sized firms. Given that manufacturing is currently "supporting first quarter overall growth in the economy " and "driving the economy forward," this regulatory strain on new manufacturing businesses relative to larger manufacturing firms may be injuring the momentum manufacturing has provided during the recovery.

Beyond accounting costs, the time costs of setting up a new business cannot be monetized. However, given that new businesses have very limited resources with regards to legal and administrative burdens, there are indirect economic impacts of time and lost productivity due to the multiple tasks required. For instance, a new restaurant owner in New York City who "wants to serve alcohol and have a pool table [...] needs no fewer than 11 city permits and licenses." Determining which agencies he or she must contact, as well as the different permits, incentives, and certifications he or she must complete presents a legal quagmire for entrepreneurs. This difficulty is largely due to the hundreds of new and sometimes contradictory rules agencies issue each year, meaning new business owners are tasked with legal burdens on top of the stresses of establishing a new business.

So how can these structural inefficiencies be remedied? One proposed solution is to create a single location from which all permits and forms for new businesses can be obtained across all local, state, and national agencies. This singular resource will steeply reduce the time commitment of retrieving and returning the forms for entrepreneurs. Given the proliferation of web-based processes and the movement to an Internet society, this one-stop location for new business owners need not be a brick-and-mortar establishment. Instead, it can take the form of a one-stop website, accessible at all times from anywhere.

One model for a one-stop website is New York City's NYC Business Express. Spearheaded in 2006 by New York City Mayor Michael Bloomberg, NYC Business Express offers "clear, focused content where traditionally there was an overload of information." Establishing a business was compared to finding "five needles in 35 haystacks" due to the significant number of city, state, and federal regulations and agencies a business owner in New York City must interact with. However, the NYC Business Express website hosts upwards of 20 different city agencies' permits, incentives, licenses, and payments that can be retrieved online at any time. The website also walks new business owners through the process step by step in a manner customized to the entrepreneur's line of business. As a result, the previously tedious and deterrent process of establishing a new business in New York City is now compared to someone handing "you the five needles you need and they're categorized, labeled, and come in a leather-bound carrying case with clear instructions on how to use them." This time-saving service has led to more than 22,000 accounts being logged on the site as well as cities like Boston, Newark, Portland, and San Francisco, which have reached out to New York City to create similar websites of their own.

The time-based restrictions of establishing a new business are structural inhibitors to new business creation, but sites similar to the successful NYC Business Express can reduce such barriers. Since the tedium suffered by new business owners is nearly universal, these one-stop sites also need to be widespread in order to reduce structural barriers to a significant degree. NYC Business Express is a successful beginning, but time inefficiencies have not been resolved elsewhere. As these one-stop websites spread, they will reduce structural inefficiencies and permanently drive the dynamic process of new business creation that is crucial not only to the recovery, but to all future job growth.

Blake Falk is a Roosevelt Institute | Campus Network member at the University of North Carolina at Chapel Hill where he studies mathematical decision sciences and economics.

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What Small Business Really Needs: A Helping Hand, Not a Tax Cut

Mar 12, 2012Joseph Shure

Entrepreneurs aren't being discouraged by high taxes. They're struggling with a lack of support and resources needed to put their ideas into action.

During the 2008 presidential campaign, an Ohio man named Samuel Joseph Wurzelbacher confronted then-candidate Barack Obama about the Democrat's plan to raise taxes on individuals in high-income brackets. Wurzelbacher, who became known as Joe the Plumber, asserted the plan would hurt small business owners like him.

Entrepreneurs aren't being discouraged by high taxes. They're struggling with a lack of support and resources needed to put their ideas into action.

During the 2008 presidential campaign, an Ohio man named Samuel Joseph Wurzelbacher confronted then-candidate Barack Obama about the Democrat's plan to raise taxes on individuals in high-income brackets. Wurzelbacher, who became known as Joe the Plumber, asserted the plan would hurt small business owners like him.

At the time, it seemed as though Joe the Plumber gave a voice to the small business owner population, tired as they were of high taxes and strict regulations. But two things proved wrong with this picture: Joe the Plumber, it turns out, is not a plumber at all, he's merely worked for one. Also, he is woefully ill equipped to speak on behalf of small business owners.

The trope Wurzelbacher trotted out -- that small business owners just want the government to reduce their taxes and get out of the way -- is one we often hear coming from the mouths of conservative politicians and the press releases of right-leaning groups like the United States Chamber of Commerce.

While this stance may reflect the views of some entrepreneurs, it glosses over a reality that is becoming increasingly clear: many small business owners, most likely the majority of them, could benefit from policies that make it easier for them to do business. Small business owners need affordable healthcare, good infrastructure, and access to capital. Millions need more humane immigration laws.

I have seen this first-hand from having worked with hundreds of business owners; I'm the co-founder of the Intersect Fund, a New Jersey non-profit that provides training and loans to emerging entrepreneurs. I rarely hear my clients complain about taxes (as start-up owners, many earn low incomes). What I do notice, though, is that high health care costs hurt new businesses, and immigration related hurdles keep many from starting firms that could otherwise pay taxes and create jobs.

In addition, my clients struggle to find affordable capital with which to start or grow their businesses. Part of the reason the Intersect Fund exists is that big banks are uninterested in disbursing business loans of less than $25,000, and they balk at applicants with less-than-perfect credit.

We cater to clients at the "very small" end of the small business spectrum. The industry term for such a firm is "microbusiness," which we define as a business with five or fewer employees that needs $35,000 or less to get off the ground. The Association for Enterprise Opportunity estimates approximately 24 million of these firms operate throughout the country. If one third of them added one job each, the U.S. would enjoy full employment.

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Unfortunately, these businesses face some serious obstacles. An Aspen Institute study found approximately 10 million of them lack access to basic resources, such as technical assistance or business loans.

And the resources that do exist are distributed unequally: a 2003 Dartmouth study by David Blanchflower found African American business owners are twice as likely as their white counterparts to be denied a business loan, even when controlling for factors such as creditworthiness. The perception (often correct) that capital is unavailable, the study found, makes black business owners more reluctant than others to seek out capital.

Government efforts like the Community Reinvestment Act mitigate the effects of discrimination, and agencies like the Community Development Financial Institutions Fund, part of the Treasury Department, offer much needed aid to organizations that lend to underserved populations.

The effects of the Affordable Care Act remain to be seen, but the provision enabling individuals under 26 to sign on to their parents' insurance plans has already removed a significant barrier to entrepreneurship for more than a million young adults.

Millions of entrepreneurs -- especially those of modest means and those whom the financial services industry has historically ignored -- benefit every day from policies that seek to expand access to entrepreneurial opportunity. Instead of taking the hands-off approach that Joe the Plumber and his ilk promote, the federal government and states should re-think what "pro-business" means. They should play an active role in promoting small business development.

At a time when small businesses are so important, I believe voters deserve a clear picture of which policies help them and which hurt them. To this end, I'll be working in the coming months with entrepreneurs, industry organizations, and trade groups to develop a scorecard with which to assess a candidate's or party's stance on issues that affect entrepreneurs.

To be clear, Joe the Non-Profit Microlender (me) is no better qualified than Joe the Plumber to speak on behalf all small business owners. My observations represent neither entrepreneurs at large, the views of my clients, nor the positions of my organization. But I would propose a couple of things: first, an entrepreneur's potential should hinge on her talent and drive, not on her race, gender, origin, or income bracket. Second, a business climate that tolerates inequality ends up quashing potential that our economy -- especially now -- can scarcely afford to waste. Policies that ensure equality would spur far more growth than a tax cut ever could.

Joe Shure is a Roosevelt Institute | Pipeline Fellow and co-founder and associate director of the Intersect Fund.

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It's a Crime to Deny Our Care

Feb 3, 2012Richard Kirsch

In an excerpt from his new book, Fighting for Our Health, Roosevelt Institute Senior Fellow Richard Kirsch notes that like Occupy Wall Street, the health care reform movement looked beyond politicians and targeted the corporate interests that were opposing progress.

In an excerpt from his new book, Fighting for Our Health, Roosevelt Institute Senior Fellow Richard Kirsch notes that like Occupy Wall Street, the health care reform movement looked beyond politicians and targeted the corporate interests that were opposing progress.

When Occupy Wall Street burst onto the scene, a consistent critique was that the movement lacked an agenda and political focus. But a key factor that made OWS powerful was that it was aimed at Wall Street -- a corporate target rather than a political target. At a time when most people believe that the government is a captive of the super-rich and mega-corporations, the Occupiers were going directly to the puppet masters and not bothering with the puppets.

The tension between focusing attention on the actual lawmakers and the powerful forces that control them -- and their impact on people's lives -- was one that Health Care for America Now constantly balanced in running the campaign to pass health reform. One reason that we were successful is that we used this tension to drive our activism.

The public hates health insurance companies. They believe they are greedy and put profits before people's health. This is personal for people, so many of whom have their own health insurance horror stories. We knew opponents of reform would try to scare people, making claims that they would lose their health insurance, that the government would set up death panels, and so on. We knew our best weapon against fear was anger, and that the best target for anger was health insurance companies.

At the same time, our job was to get health insurance legislation through Congress, and it wasn't clear that demonstrations outside insurance company headquarters would move a member of Congress. We needed to be absolutely sure that members of Congress heard directly from their constituents.

This tension led our campaign to focus directly on Congress, including having many people with health insurance horror stories tell them at lobbying visits and in town hall meetings. But after the Tea Party demonstrations in the summer of 2009 fomented public anger against government, we turned our attention much more squarely on the insurance companies. We created a new national ad campaign, both on TV and in print publications read on Capitol Hill, with the theme, "If the insurance companies win, you lose."  That message tied congressional action on reform to the industry. At the grassroots, activists wrapped insurance company lobbying conferences with yellow crime tape printed with the words "it's a crime to deny our care."

The culmination of the effort came in early March 2010, when the legislation desperately needed a final push to get the votes necessary for it to pass the House. That is when 5,000 demonstrators carried out a citizens arrest of insurance company CEOs, waving wanted posters and signs saying, "Stop Big Insurance -- Tell Congress to Listen to Us."


March 9 was a glorious late winter day in the South; sixty degrees and not a cloud in sky. Five thousand demonstrators -- some of whom had taken buses from as far away as Minnesota and Maine -- assembled at two points, each a half mile from the Ritz Carlton. One column met at the AFL-CIO headquarters, where they were led by the federation's president Rich Trumka, AFSCME President Gerald McEntee and American Federation of Teachers President Randi Weingarten. The other column gathered at DuPont Circle, across from the SEIU building, where I joined SEIU Secretary-Treasurer Anna Burger and Governor Howard Dean.

The marchers carried bright red stop signs that read, "Stop Big Insurance -- Tell Congress to Listen to Us." They also carried wanted posters, which brandished the names and mug shots of the CEO's of the big health insurance companies. The wanted poster listed the criminal record of the CEOs:


- deaths incurred in the process of pursuing insurance industry profit

Title 18 US Code § 1112


- denial of promised coverage paid for by working Americans

Title 25 US Code § 3116


- clandestinely transferred $10-20 million dollars to fund attacks designed to deny health coverage

Title 18 US Code § 1956


Title 18 US Code § 201

Above the crowd assembled in front of the hotel, long yellow banners read "Corporate Crime Scene." From an improvised stage on the top of an elevated flatbed truck, USAction President William McNary deputized the crowd, who together took the oath of office. They charged themselves to arrest the CEOs, "whose greed, corporate abuses, and craven lobbying pose a mortal threat to our democracy and the health and well-being of our people."

Marcus Grimes stood on the flatbed, waving his white cane, and told the crowd, "I'm mad as hell and I'm not going to take it any more." Marcus had a reason to be angry. The Virginia schoolteacher had lost his vision because he was uninsured and could not afford the $3,000 procedure that would have saved his eyesight. Marcus spoke as a representative of a group of twenty-six survivors of insurance company abuses.

The demonstrators filled the street in front of the Ritz Carlton, where mounted policemen tried to keep them away from the hotel entrance. A column of protestors filled the tunnel leading to the parking garage under the hotel until the police on horseback cleared them out. When several leaders tried to enter the Hilton, the police dragged them away.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute and a Senior Adviser to USAction. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform. Fighting For Our Health is available in bookstores February 1. You can also purchase a copy here. Follow the conversation on Twitter and Facebook.

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How Success Cost a Small Business Owner His Health Insurance

Jan 31, 2012Richard Kirsch

In an excerpt from his new book, Fighting for Our Health, Roosevelt Institute Senior Fellow Richard Kirsch notes that many small business owners support health care reform even if the organizations that claim to speak for them don't.

In an excerpt from his new book, Fighting for Our Health, Roosevelt Institute Senior Fellow Richard Kirsch notes that many small business owners support health care reform even if the organizations that claim to speak for them don't.

Small business is iconic in America. For years, big business has cleverly used small businesses to be messengers for campaigns financed by corporate America. And anti-government, free-market orthodoxy has dictated the policies of the leading small business associations, including the National Federation of Independent Businesses (NFIB). A powerful example of NFIB clout was the key role that the association played in defeating the Clinton health care plan. If we needed any reminder of that, President Obama asked the heads of just two lobbying groups, the NFIB and the health insurance industry, to speak at the White House health summit held shortly after his inauguration.

At Health Care for America Now, it was a lesson that we took to heart. As we planned our campaign to win comprehensive health reform, we knew that we had to be able to counter the attack from small businesses. Our strategy was to invest in a fledgling small business organization called the Main Street Alliance (MSA). MSA took traditional grassroots organizing and applied it to canvassing small businesses. Starting in 2008, MSA organizers went store-to-store in shopping districts of conservative Democrats in Congress who were likely to be swing votes once we got to the legislative fight in 2009.

The MSA organizers identified small business people who were angry at the health insurance industry for skyrocketing premiums and shrinking health benefits. As Rick Poore, the owner of a Nebraska business that designed custom T-shirts, told me, "Insurance companies are like potato chip manufacturers -- they put less in the bag and charge more."

MSA fulfilled its promise, with many of the small business owners it canvassed becoming powerful spokespeople and grassroots lobbyists. One of them, Dan Sherry, lived in the congressional district of Rep. Melissa Bean, a conservative Democrat from the Chicago suburbs. Sherry's daughter went to high school with Bean. As part of the Health Care for America Now coalition in Chicago, Sherry joined fellow activists in running an aggressive and ultimately successful campaign to win Bean's vote. Here is how Sherry's story begins.


"If I had not gone to the doctor for a checkup, you and I would never have met," Dan Sherry said as he shared his story on his 53rd birthday in August 2010. The doctor found nothing more than elevated cholesterol. Yet his insurance company's reaction would turn Dan from an armchair activist into a national leader in the fight for health care, taking him to the White House, where he met the president, and to the steps of the Capitol, where Speaker Pelosi invited him to tell his story to the national press corps. Most important, he would sway his own member of Congress, conservative Illinois Democrat Melissa Bean. The complement to HCAN's strategy of creating strong congressional champions was winning the support of "swing" members of Congress like Bean.

Sherry grew up south of Boston, and you can still hear a trace of a Boston accent in his voice. His wife Marcia's family had a small business in the Chicago suburb of Evanston, making pet tags. Dan and Marcia both wearied of working for big corporations that left them with little control over their lives and decided to go into the family business. With 120 million dogs and cats in the U.S., they recognized the huge potential for growing the business. Within a few years, their revenues had grown twenty-fold. When the advent of big chain stores like Petco and Petsmart threatened their business, Dan opened up a trophy and award business. He even invented a board game to play with a dog that became the rage in the dog obedience world, called "My Dog Can Do That!"

Ironically, the explosive growth of their pet tag business caused Dan Sherry to lose his health insurance. In the summer of 2003 he received an order for 100,000 pet tags. In the rush of trying to deliver such a huge order, Sherry missed one payment on the high-deductible health insurance plan that he had been purchasing for fifteen years. "With such a high deductible, we'd never used the insurance, even when our children were born. When I tried to make the missed payment, they said they first wanted to see our medical records. I hadn't been to a doctor in years. And I'd even run the Chicago Marathon two years earlier. But in spring of 2003, I had decided to get a checkup and sure enough, they found high cholesterol. Since then I've had an MRI and my pipes are clean as a whistle. But the insurance company refused to cover me. It agreed to take my wife and children but jacked up our rates. I was left uninsured. I looked for other coverage, but once you get rejected, the insurance companies share their data. I went years without insurance and was really angry. Until you've walked in the shoes of someone without insurance, you don't know what it means."

In 2008 Jamie Meerdink, the Main Street Alliance organizer in Illinois, walked into Dan's store and asked him to sign a petition to support health care reform. Sherry remembered, "Jamie asked if I had a story. His timing was perfect. I had just seen a lawyer who told me that the only way to protect my wife and kids from the medical costs that would result if I got seriously ill was to get divorced and give my wife the house, the car and all the savings." Jamie invited Sherry to MSA's first meeting in Illinois. "I had no idea of what I was getting involved in. I couldn't tell if they were well organized or not. But I was intrigued about getting involved in a grassroots organization. You literally took someone who was feeling angry, alone, impotent, frustrated and took me to the steps of the Capitol and I'm really appreciative of the entire journey."

Richard Kirsch is a Senior Fellow at the Roosevelt Institute and a Senior Adviser to USAction. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform. Fighting For Our Health is available in bookstores February 1. You can also purchase a copy here. Follow the conversation on Twitter and Facebook.

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Ensuring a Robust Marketplace of Ideas: Antitrust Policy in the Digital Age

Jan 19, 2012Bruce Judson

internet-idea-150Will antitrust laws of the past century threaten the capitalist incentives that encourage important ideas in ours?

internet-idea-150Will antitrust laws of the past century threaten the capitalist incentives that encourage important ideas in ours?

In early December, the Justice Department confirmed that it was investigating the pricing of e-books and the related activities of major publishers and online retailers, such as Amazon.com and Apple. As a print and digital author, participant in the publishing industry, and graduate of the Yale Law School, this naturally caught my eye. It also led me to start thinking about the assumptions that underlie existing antitrust laws.

Democracy is the basis of our form of government. Capitalism is the basis of our economic system. They are distinct systems, and (at least in theory) it's possible to have one without the other. But will the antitrust rules developed to foster capitalism in the previous century inadvertently weaken our democracy in this century? In addition, do pre-digital era antitrust doctrines hinder the development of a fair, robust capitalism in our age? The current Justice Department investigation is a case study for examining these issues.

Lengthy, reasoned arguments (i.e. books) have historically played a central role in the marketplace of ideas. Important books have changed the way we look at our society, altered our political beliefs, changed foreign policy, and moved the nation in myriad ways. In the digital era, we benefit from many new forms of disseminating information, such as blogs and online news sources, all of which add to the marketplace of ideas. Nonetheless, none of these new sources of information has replaced the essential nature of a book (in physical or digital form): a lengthy effort, researched and written over a long period of time, which reflects the author's most thoughtful analysis and reflections on the subject in question.

The research and creation of many significant, important works are funded by advances from book companies. The book company grants the money up front on the basis of a proposal, which allows the author to pursue the project while earning a living. Hypothetically, if publishers stopped offering advances, many important works would never be created. Authors (who are not always academics or paid foundation researchers with a guaranteed salary) simply could not afford to undertake the work. This capitalist, for-profit motive plays an important role in funding important contributions to the marketplace of ideas.

Today, the book industry is struggling to adapt to the digital transformation. At its core, digital information has a tough time establishing value in the eyes of the consumer. If the book industry declines, some authors will undoubtedly self-publish, and it's possible new financing vehicles, for the equivalent of today's advances, will evolve. In essence, a weaker book industry means our society loses a source of funding for important, time-consuming, and extensive research and analysis.

The Justice Department has not revealed the precise nature of the investigation. But it's my understanding that when the Kindle was first released, Amazon.com priced e-books at less than the wholesale cost it was paying publishers. In effect, to boost Kindle sales and the idea of e-reading in general, Amazon was often taking a loss on sales.

A long-held tenant of antitrust law is that vertical price fixing (an agreement between the manufacturer and the retailer to sell a product at a specific price) is often illegal. These restrictions are why manufacturers offer products with a "manufacturer's suggested retail price" ("the MSRP"). The manufacturer is not permitted to formally agree with retailers on the prices consumers pay for products. The retailer is free to set the price offered to consumers, thereby enabling discounts from the MSRP. (Note: In recent years, the Supreme Court has adopted a more flexible approach to the issue or vertical price fixing, adopting a "rule of reason" test, but it remains a central area of antitrust policy.) In addition, competitors cannot work together to restrain price competition in some way (horizontal price fixing).

As the e-book business started to develop, publishers were concerned that Amazon's pricing approach was devaluing their products and (I assume) threatening to destroy hardcover sales at bookstores. In response, publishers developed what is known in the industry as "the agency model." Under this model, the publisher sets the price the consumer pays. In this model the digital retailer is not buying the product at a wholesale price, but acting as a sort of sales agent for the publisher. As the sales agent, the retailer receives a commission on each sale. In effect, digital book purchases become like insurance policy purchases, with Amazon and Apple as the brokers. From the perspective of antitrust law, the actual seller is the publisher, which sells through an agent and no agreement in restraint of trade exists. My assumption is that the Justice Department is investigating whether this agency pricing model violates restrictions on vertical price fixing and whether the way it was deployed by multiple publishers reflects some form of horizontal price fixing.

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It's easy to have a knee-jerk negative reaction to the higher e-book prices that publishers have set under the agency model. But here's where this all gets interesting. As the (now barely existent) music industry and suffering newspaper industry have learned, it's incredibly hard to establish value for digital content. This reflects the competitive marketplace that may make content available for free, consumer perceptions of what they should pay for digital goods, the availability of other revenues streams (such as advertising), and a host of other factors.

One undeniable effect is that the Internet inherently drives the value of digital goods down. Instant price comparisons, easy access to lower-priced alternative options for digital information and entertainment, and illegal file sharing all contribute to this phenomenon. Traditional publishers also face challenges in making the digital transition. Importantly, a host of new competitors that help authors create digital books have arisen, and authors can also publish on their own. So the competitive dynamic for digital books, with far easier access to low-priced and free alternatives as well as all kinds of new types of publishers and distribution models, is very different than the dynamic that existed when vertical pricing restrictions were first developed.

There is a second, more fundamental issue at work here. The digital world makes the bundling (whether explicit or implicit) of intellectual property far easier than the physical world. Companies can make their profit in one place and break even or lose money on other products to support this activity. The problem is that this kind of activity destroys the perceived value among consumers of the bundled products. Amazon, for example, may be making money on the Kindle and not the e-books, but still profit in the long run.

The basic point here is that in the digital world it's possible to imagine instances where it's profitable for retailers to destroy the perceived consumer value of e-books and the associated hard copy titles.

Our society is best served by a robust e-book industry. As e-book prices declines, fewer and fewer authors are able to make a living expressing their ideas, whether they are political, socially insightful, or a form of entertainment.

With so much new competition emerging, and so many unknowns for the publishing industry itself, my strong bias is not to stretch interpretations of antitrust laws developed for a different era-and to allow the industry to do what it feels is best for its long-term survival. If the violations of the laws are clear-cut, then perhaps the Justice Department should seek to have the laws changed before beginning an enforcement action. If no violations are clear cut, then the Justice Department should have the wisdom to leave well enough alone. The worst possible outcome would be for the Department to attempt to extend the doctrines of the antitrust laws to cover the agency model, working from the mistaken belief that this would benefit our society.

Here are two takeaways:

First, the creation of information in our society has always been recognized as playing a central role in building a healthy democracy, with the attendant benefits of the best aspects of capitalism. This recognition is embodied in the first amendment. As we move to a digital era, there is increasingly less ability for information creators to profitably fund the creation of "expensive" information (i.e. books requiring extensive research and interviews, investigative journalism, and the like). Our democracy, and ultimately the operations of a robust, fair capitalist system -- based on the best possible information -- are poorer for this loss. To the extent that any of our existing laws inadvertently destroy the remaining infrastructure that profitably supports the creation of such information, they must be reexamined.

Second, the ability for retailers to make money on one product (such as the Kindle or the iPad), while cutting prices on digital products, is something new to our era. We need to stop and think about how the distribution of products that spread ideas may be affected by antitrust laws. We must ensure that our laws are not furthering the destruction of a robust marketplace for ideas.

Full Disclosure: I have published books with several publishing houses and worked as a paid consultant to several book and magazine companies.

Bruce Judson is Entrepreneur-in-Residence at the Yale Entrepreneurial Institute and a former Senior Faculty Fellow at the Yale School of Management.

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The Most Popular Post of 2011: Who are the 1% and What Do They Do for a Living?

Dec 23, 2011Mike Konczal

Editor's note: As the year comes to a close, New Deal 2.0 is highlighting our most read post from the year. Our regular posting schedule will resume in January. See you in 2012!

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 tenets of liberals:

Or not.

Editor's note: As the year comes to a close, New Deal 2.0 is highlighting our most read post from the year. Our regular posting schedule will resume in January. See you in 2012!

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 tenets 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%:


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

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

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

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

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

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

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

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

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

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

Mike Konczal is a Fellow at the Roosevelt Institute.

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The Paternalism of the Holiday Car Ad

Dec 19, 2011Bryce Covert

Husband buys wife a car with their combined income, without her permission. Happy holidays!

Husband buys wife a car with their combined income, without her permission. Happy holidays!

Ah, the holiday car commercial. You know the one. What did dad get mom? Just a little box… with a key in it to a new car! The family rushes to the yard, where a shiny new car waits with a big red bow on it. Apparently the tradition was started by Lexus in 1998, when it began its yearly “December to Remember” campaign that promotes a new car as the perfect gift. And it’s been successful: December Lexus sales are traditionally better than any other month. Other car companies have followed suit.

Some of these ads now feature girlfriends buying boyfriends cars for the holidays, but the most traditional form seems to be a husband buying one for his wife. There’s something wrong with this picture. As Annie Lowrey tweets in parody of these ads, “Husband buys wife a car! Wife expresses horror that he made a major financial decision unilaterally, on impulse!” It is strange to think that a man would up and buy his wife a car without consulting her, particularly as most married couples combine their earnings. But it hearkens back to a time when women didn’t have their own earnings, couldn’t buy their own cars, and actually did have to rely on husbands to buy them a new set of wheels.

Take a look at this vintage holiday car ad:

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Look familiar? Or take this non-holiday ad:

Why do these women have to beg their men for cars? Because many can't afford to buy cars outright, but before the 1970s, women, minorities, and low-income families were excluded from credit products. Women in particular were denied loans based on social biases such as the idea that their salaries weren’t dependable because they would become pregnant and stop working. Not to mention that many women didn’t even have their own incomes; in 1950, only 34 percent of women were in the workforce.

These days, women make up almost half of the workforce. Thanks to the Equal Credit Opportunity Act, they can take out as many car loans as any man. And while only four percent of husbands made less than their wives in 1970, by 2007 that percentage had risen to 22. A quarter of households are headed by women. Yet even with women having made such strides in income and the ability to make purchases equally with their husbands, this ad celebrates a man who buys his wife a car without permission as if she is helpless to do so.

Nothing says "happy holidays" like some old timey sexism that assumes women can't buy themselves a car when they want one.

Bryce Covert is Editor of New Deal 2.0.

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