Millennial Pulse

Every Day is Student Debt Day for Millennials

Jun 5, 2013Joelle Gamble

Young Americans demand action on the student loan crisis, and they have a plan to solve it.

Young Americans demand action on the student loan crisis, and they have a plan to solve it.

“Work hard. Get good grades. Go to a good school and you will be successful.” Our generation has been told time and again that through hard work and dedication, we will be able to live happy lives, have secure jobs, and start families built on comfortable finances. But on this day of action around student debt, it’s clear we need more than these easy answers to help Millennials cope with the growing burden of education costs.

I come from a middle class family. Both of my parents served in the Marine Corps and got good jobs. My father works in law enforcement, and my mother is a teacher. They taught me that if I put in hard work, I would reap the results. So, I graduated at the top of my class in high school and went to a top (public) university. I worked all four years of college and graduated on time. Two days after graduation I started working at a good job.

By all measures, I did everything “by the book.” I even saved up some money to make early down payments on the student loans that I accrued during school. Over the past four months, I have paid off more than was required by law, and currently I am paying more on the principal than on the interest. One would think that I would be in pretty good shape.

But with $26,000 in debt, only slightly above average, I will still be making these payments for the next decade of my life. They will be as regular as my electric bill and rent. They will be considered before I think about how and when to start my family or buy a house.

I am one of the lucky ones: employed with enough spare cash to make student loan payments. So many other recent college graduates are not in the same position.

Student loan debt is one of the biggest economic and social justice issues this nation faces today. An entire generation of young, educated workers is being saddled with financial burdens that will follow them for the foreseeable future.

Recognizing this, the Roosevelt Institute | Campus Network joined with the United States Student Association to make proactive recommendations for addressing the student loan debt crisis. Our report, A New Deal for Students, offers policies by students and for students, past and present.

In this report, students outline their arguments for a better system for financing higher education. Policy recommendations range from tax incentives for students committed to staying in their home states to raising the federal minimum range to supporting new graduates to teach in rural areas.

What we want is a real debate and, above all else, action by our lawmakers on this critical financial issue affecting millions of young Americans.

Joelle Gamble is the Roosevelt Institute | Campus Network's National Field Strategist.

 

Graduation cap and money image via Shutterstock.com

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Daily Digest

Daily Digest - May 23: Fearing the Future

May 23, 2013Rachel Goldfarb

Click here to receive the Daily Digest via email.

What’s in millennials’ wallets? Fewer credit cards (LA Times)

Emily Alpert talks to Pipeline Fellow Nona Willis Aronowitz about why young households are carrying less and less credit card debt. According to Aronowitz, it’s all about fear of an uncertain future.

Click here to receive the Daily Digest via email.

What’s in millennials’ wallets? Fewer credit cards (LA Times)

Emily Alpert talks to Pipeline Fellow Nona Willis Aronowitz about why young households are carrying less and less credit card debt. According to Aronowitz, it’s all about fear of an uncertain future.

Why Suburban Poverty Is Less Visible and More Insidious (The Atlantic)

According to Emily Badger, suburban poverty is an incredibly isolating phenomenon. In areas where children play in back yards, not public playgrounds, and commuters drive instead of taking the subway, communal support for the poor all but disappears.

Elizabeth Warren Grills Treasury Secretary on Too Big to Fail (MoJo)

Erika Eichelberger characterizes Jack Lew’s response to Senator Warren’s questioning on breaking up the biggest banks as nothing but avoidance. In the linked video, Lew sticks to name, rank, and serial number while Warren pushes for a direct answer on capping bank size.

How Budget Cuts Could Lead To Higher Costs From Tornadoes (Think Progress)

Bryce Covert reminds us that sequestration is still happening and is causing furloughs at the National Weather Service. The NWS warned residents of Moore, OK about the tornado 16 minutes before it touched down, and we can’t afford to cut it much closer.

Fed Endorses Stimulus, but the Message Is Garbled (NYT)

Nelson D. Schwartz explains that it doesn’t look like the Fed will be cutting back its bond-buying program just yet. Bernanke’s testimony yesterday showed a sense of caution, despite the apparent signs of improvement in the job market.

Robert Kaiser on Dodd-Frank: ‘This example of Congress working also illuminated why it works so rarely.’ (WaPo)

Neil Irwin and Robert Kaiser discuss why no one would want to emulate the process required to pass Dodd-Frank, with months of negotiations for bipartisan support collapsing and the bill barely scraping by. Instead, we get no negotiation and no legislation, saving everyone time.

Why Obama’s Scandals Won’t Lead to Reform (Bloomberg View)

Ezra Klein points out the disconnect between who is upset about the policy problems raised by the IRS and AP scandals, and who wants to make a fuss about them. With those categories split, he doesn’t think we will see any changes in anonymous political spending through 501(c)(4)s or legislation to protect journalists and their sources.

U.S. Retailers See Big Risk in Safety Plan for Factories in Bangladesh (NYT)

Steven Greenhouse says major U.S. retailers are worried the accord that many European retailers have embraced will open them up to legal liability. Apparently the real risk isn’t sending workers into a death trap; it’s all the paperwork and billable hours that could result.

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Rortybomb

Are Student Loans Becoming a Macroeconomic Issue?

Apr 23, 2013Mike Konczal

What's the general economic consensus on the impact of student loans on the household finances of those who hold them? Here's "Student Loans: Do College Students Borrow Too Much—Or Not Enough?" (Christopher Avery and Sarah Turner, 2012), which argues, "[t]here is little evidence to suggest that the average burden of loan repayment relative to income has increased in recent years." Using data from 2004-2009, the authors find that "the mean ratio of monthly payments to income is 10.5 percent" for those in repayment six years after initial enrollment.

They boost that number with a 2006 study by Baum and Schwarz to conclude that two trends cancel each other out: there's rising debt but steady student debt-to-income ratios. How can this happen? It "can be attributed to a combination of rising earnings, declining interest rates, and increased use of extended repayment options." This is how, though average total undergraduate debt jumped 66 percent to a value of $18,900 from 1997 to 2002, "average monthly payments increased by only 13 percent over these five years. The mean ratio of payments to income actually declined from 11 percent to 9 percent because borrower.”

Let's put this a different way. If you asked economists looking at the data if student loans could be having a macroeconomic effect, especially through a financial burden on those that have them, they'd say that the actual percent of monthly income paying student loans hasn't changed all that much since the 1990s. They may be making larger lifetime payments, since they'll carry the debts longer, but that's a choice they are making, which could reflect positive or negative developments. Certaintly there's no short-term strain. So there aren't any economic consequences worth mentioning when it comes to student loans.

I always thought this approach had problems. First, they were only looking at the pre-crisis era, so we couldn't see the impact of student loans once we hit a serious problem. And they were just rough averages of short-term income aggregates, rather than looking at specific individuals with or without student-debt and seeing what kinds of spending, particularly on longer-term durable goods, they do. But since I had no data myself, I never pushed on this very hard. Part of the problem is that student loans have happened relatively quickly, so quantitatively it's hard for data agencies to adjust their techniques to "see" this data easily, and not just lump them in with "other debts."

That is starting to change. The Federal Reserve Bank of New York is doing some high-end analysis of student loans, and their economists Meta Brown and Sydnee Caldwell have a great post from last week, "Young Student Loan Borrowers Retreat from Housing and Auto Markets." They find that over the past decade, people with student loans were more likely to have a mortgage at age 30 and a car loan at age 25. In the crisis this edge has collapsed:

There's a similar dynamic for car loans.

The researchers argue that two obvious explanations stands out for this collapse. The first is that the actual future expected earnings have fallen for this group, so they are going to spend less. The second is that credit constraints are especially binding, as those with student loans have a worse credit score than those without.

Derek Thompson at The Altantic Business responds critically, arguing that: (1) cars and mortgages are falling out of favor with young people, so this is likely a secular trend; (2) young people are essentially doing a "debt swap," switching cars and mortgages for education to take advantage of an education premium, and the cars and mortgages will come later; and (3) though this is, at best, a short-term drag on the economy and reflecting short-term problems, it'll super-charge our economy come later.

What should we make of this?

(1) It's possible that there is a secular trend to it, with young people not wanting mortgages or cars. But why wouldn't the spread survive? "People with student loans" is a broad category of people, and it is difficult to assume that it's just people moving to become renters in urban cores driving the entire thing. The collapse of the spread between the two coinciding with the crisis makes it hard to believe it's just a coincidence.

(2) As discussed at the beginning, the overall idea in the student loan data literature is that student loans shouldn't have a negative impact on consumption, especially at the national level. The extra cost of servicing the debt is more than balanced out by the extra income earned, even if the length of the debt needs to adjust to meet that. Indeed, there's often a "best investment ever" or "leaving money on the table" aspect to the discussion of higher education and student loans. So if this data holds, it's a major change from the normal way economists understand this.

And the issue of student debt is where the problem with the "education premium" is going to hit a wall. The college premium is driven just as much by high school wages falling as it is by college-educated wages increasing, which has slowed in the past decade. So if you have to take on large debt to secure a stagnating college-level income, it suddenly isn't clear that it is such a great deal, even if there's a strictly defined "premium" over the alternative.

(3) It isn't clear that the upswing in people, particularly women, taking on additional education is involved with this collapse in borrowing, as the ages of 25 and 30 cut off many people in school. I think it would reflect the collapse in the housing market, but the auto loan market is there as well. It is true that the economy as a whole is deleveraging, but that is largely reflective of housing and foreclosures.

How much this reverts if we get back to full employment and whether there's a "swap" that could lead to a better long-term economy are good questions, but the fact that we even have to put the question these way shows a change in what economists believed about student loans. No matter what, this shows that education isn't enough of an insurance against the business cycle.

And I actually see it the other way - right now Ben Bernanke is working overtime to try and get interest rates to the lowest they've ever been, and he still can't induce borrowing by college-educated young people. Congress also lowered interest rates on new student loans, though too many student loans are out there at high rates given the disinflationary times. If the lower lending isn't the result of institutional issues with credit scores, that means college-educated young people are particularly battered in this economy. And there could be a low-level drag on the economy for the foreseeable future.

If the New York Fed is taking requests, the biggest question I have is how student loans are impacting household formations. Young people are living with their parents for longer at a point where getting an additional million homebuyers would supercharge the economy. Are they living at home because they are unemployed, or because they are un(der)employed and have student loans? If it is the second, then there's definitely a serious lag on the economy.

But the real issue revealed by this study is that this stuff is important. It is showing up in national data; the people arguing that student loans simply disappear under higher earnings now have a macroeconomic issue to deal with.

Follow or contact the Rortybomb blog:

  

 

What's the general economic consensus on the impact of student loans on the household finances of those who hold them? Here's "Student Loans: Do College Students Borrow Too Much—Or Not Enough?" (Christopher Avery and Sarah Turner, 2012), which argues, "[t]here is little evidence to suggest that the average burden of loan repayment relative to income has increased in recent years." Using data from 2004-2009, the authors find that "the mean ratio of monthly payments to income is 10.5 percent" for those in repayment six years after initial enrollment.

They boost that number with a 2006 study by Baum and Schwarz to conclude that two trends cancel each other out: there's rising debt but steady student debt-to-income ratios. How can this happen? It "can be attributed to a combination of rising earnings, declining interest rates, and increased use of extended repayment options." This is how, though average total undergraduate debt jumped 66 percent to a value of $18,900 from 1997 to 2002, "average monthly payments increased by only 13 percent over these five years. The mean ratio of payments to income actually declined from 11 percent to 9 percent because borrower.”

Let's put this a different way. If you asked economists looking at the data if student loans could be having a macroeconomic effect, especially through a financial burden on those that have them, they'd say that the actual percent of monthly income paying student loans hasn't changed all that much since the 1990s. They may be making larger lifetime payments, since they'll carry the debts longer, but that's a choice they are making, which could reflect positive or negative developments. Certaintly there's no short-term strain. So there aren't any economic consequences worth mentioning when it comes to student loans.

I always thought this approach had problems. First, they were only looking at the pre-crisis era, so we couldn't see the impact of student loans once we hit a serious problem. And they were just rough averages of short-term income aggregates, rather than looking at specific individuals with or without student-debt and seeing what kinds of spending, particularly on longer-term durable goods, they do. But since I had no data myself, I never pushed on this very hard. Part of the problem is that student loans have happened relatively quickly, so quantitatively it's hard for data agencies to adjust their techniques to "see" this data easily, and not just lump them in with "other debts."

That is starting to change. The Federal Reserve Bank of New York is doing some high-end analysis of student loans, and their economists Meta Brown and Sydnee Caldwell have a great post from last week, "Young Student Loan Borrowers Retreat from Housing and Auto Markets." They find that over the past decade, people with student loans were more likely to have a mortgage at age 30 and a car loan at age 25. In the crisis this edge has collapsed:

There's a similar dynamic for car loans.

The researchers argue that two obvious explanations stands out for this collapse. The first is that the actual future expected earnings have fallen for this group, so they are going to spend less. The second is that credit constraints are especially binding, as those with student loans have a worse credit score than those without.

Derek Thompson at The Altantic Business responds critically, arguing that: (1) cars and mortgages are falling out of favor with young people, so this is likely a secular trend; (2) young people are essentially doing a "debt swap," switching cars and mortgages for education to take advantage of an education premium, and the cars and mortgages will come later; and (3) though this is, at best, a short-term drag on the economy and reflecting short-term problems, it'll super-charge our economy come later.

What should we make of this?

(1) It's possible that there is a secular trend to it, with young people not wanting mortgages or cars. But why wouldn't the spread survive? "People with student loans" is a broad category of people, and it is difficult to assume that it's just people moving to become renters in urban cores driving the entire thing. The collapse of the spread between the two coinciding with the crisis makes it hard to believe it's just a coincidence.

(2) As discussed at the beginning, the overall idea in the student loan data literature is that student loans shouldn't have a negative impact on consumption, especially at the national level. The extra cost of servicing the debt is more than balanced out by the extra income earned, even if the length of the debt needs to adjust to meet that. Indeed, there's often a "best investment ever" or "leaving money on the table" aspect to the discussion of higher education and student loans. So if this data holds, it's a major change from the normal way economists understand this.

And the issue of student debt is where the problem with the "education premium" is going to hit a wall. The college premium is driven just as much by high school wages falling as it is by college-educated wages increasing, which has slowed in the past decade. So if you have to take on large debt to secure a stagnating college-level income, it suddenly isn't clear that it is such a great deal, even if there's a strictly defined "premium" over the alternative.

(3) It isn't clear that the upswing in people, particularly women, taking on additional education is involved with this collapse in borrowing, as the ages of 25 and 30 cut off many people in school. I think it would reflect the collapse in the housing market, but the auto loan market is there as well. It is true that the economy as a whole is deleveraging, but that is largely reflective of housing and foreclosures.

How much this reverts if we get back to full employment and whether there's a "swap" that could lead to a better long-term economy are good questions, but the fact that we even have to put the question these way shows a change in what economists believed about student loans. No matter what, this shows that education isn't enough of an insurance against the business cycle.

And I actually see it the other way - right now Ben Bernanke is working overtime to try and get interest rates to the lowest they've ever been, and he still can't induce borrowing by college-educated young people. Congress also lowered interest rates on new student loans, though too many student loans are out there at high rates given the disinflationary times. If the lower lending isn't the result of institutional issues with credit scores, that means college-educated young people are particularly battered in this economy. And there could be a low-level drag on the economy for the foreseeable future.

If the New York Fed is taking requests, the biggest question I have is how student loans are impacting household formations. Young people are living with their parents for longer at a point where getting an additional million homebuyers would supercharge the economy. Are they living at home because they are unemployed, or because they are un(der)employed and have student loans? If it is the second, then there's definitely a serious lag on the economy.

But the real issue revealed by this study is that this stuff is important. It is showing up in national data; the people arguing that student loans simply disappear under higher earnings now have a macroeconomic issue to deal with.

Follow or contact the Rortybomb blog:

  

 

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Rortybomb

Mapping Out the Arguments Against Chained CPI

Apr 9, 2013Mike Konczal

Reports started coming in late last week that President Obama’s budget, to be released early tomorrow, will include a change to the cost-of-living adjustment (COLA) for Social Security. Specifically, it will adopt a “chained CPI” (consumer price index) measure.

Many people have been writing stories about why this is a bad idea. I want to generalize them into four major categories of critique of moving to a chained CPI (with one aside). As you read stories about the pros and cons of this change in the weeks ahead, hopefully this guide can provide some background.

Accuracy, or Lack Thereof

Economists like the idea of chained CPI because they think it’s more representative of how people behave when they substitute among goods. In this story, we have been over-correcting for inflation in the past decades.

However, as a letter from EPI, signed by 300 economists and social insurance experts, explains, it is just as likely as we are under-correcting. EPI notes "it is just as likely that the current COLA fails to keep up with rising costs confronting elderly and disabled beneficiaries." The current adjustment is based on an index of workers excluding retirees.

If you look into the data, the elderly spend a lot more of their limited money on housing, utilities, and medical care. Health care costs have been rising rapidly over the past several decades, and it is difficult to substitute on other necessary, fixed-price goods like utilities. With the notable exception of college costs, the things urban wage earners spend money on haven't increased in price as quickly as what the elderly purchase. As a result, the CPI-E (the index tailored to the elderly) has increased 3.3 percent a year from 1982 to 2007, while the CPI-W (tailored to wage earners) has only increased 3 percent a year. Definitionally, through the way it is calculated, chained CPI-W will always be lower than CPI-W. [Edit: This will almost certainly be lower, but it isn't definitionally true.]

As Dean Baker has noted, if accuracy were the only motive for changing COLA, it would be relatively easy to get a full, chained version of the index of prices faced by the elderly and use that. That has not been proposed.

Hedging Unexpected Longevity

Another argument is that this is a relatively small cut, or that a slower rate of growth shouldn’t really be thought of as a cut. But there’s a big problem with this.

There are many nice things about the design of Social Security, but one of them is that it is a form of insurance against the downsides of living longer than expected. Let’s say you retire at 65, believe you’ll live to 85, and save enough to make it to 88 just in case. And then you live to 92. Are those last five years absolutely miserable, with your savings completely depleted and an inability to earn market wages except through begging and charity? No, because my man Franklin Delano Roosevelt and Social Security got your back. Social Security helps hedge against two risks that are very difficult to manage: when you were born (and thus the years into which you’ll retire) and how long you’ll live.

Notice how chained CPI cuts, though. In the same way that compounding interest grows quickly over time because you get interest on what you’ve saved, a lower cost-of-living adjustment creates a lower baseline for future adjustments, so the cuts grow over time.

This means that the real cuts come from people who happen to live the longest. Which is precisely one of the risks Social Security is meant to combat. This is one reason why women, who live longer than men, are much more at risk from these chained CPI cuts.

Aside: Can’t We Balance the Downside?

You’ll notice liberals who support moving to chained CPI have complicated “swallow a bird to catch the spider who’s catching the fly” policy proposals to go along with it. If we swallow Obama’s chained CPI proposal, we’ll need to swallow an age “bump” to catch chained CPI from falling heavily on the very old. But after we swallow the age bump, we’ll need to swallow some sort of exemption for Supplemental Security Income to catch the fact that the change would still fall heavily on the initial benefit level for the poorest elderly and disabled people. And so on.

Doing all these fixes, of course, eliminates much of the savings that people are hoping to get. And it is unlikely that these clever ways of balancing the worst effects of the change will get even a single Republican vote. And of course, in spite of all this effort, Republicans could still call out the president for proposing to cut Social Security.

Neither Grand nor a Bargain

You’ll hear arguments that a Grand Bargain is necessary, so it’s better to bring Social Security into long-term balance now, with Democrats at the helm, than in the future, when there will be less time and an uncertain governance coalition. You can get fewer cuts and more revenue than you would otherwise and take the issue off the table for the foreseeable future to concentrate on other priorities.

But if that’s your idea, then this is a terrible deal and sets a terrible precedent, because this deal would accomplish none of your goals. You'd cut Social Security without putting in any new revenue. And it wouldn't be sufficient to close the long-term gap, so the issue would stay on the table. Indeed, the deficit hawks would probably be emboldened, viewing this as a "downpayment" on future cuts, and require any future attempts to get more revenue for Social Security, say by raising the payroll tax cap, to involve significant additional cuts.

We Need to Expand Social Security

As Michael Lind, Joshua Freedman, and Steven Hill of the New America Foundation, along with Robert Hiltonsmith of Demos, expertly document, Social Security should be expanded in the years ahead, not cut.

Retirement security is meant to be a three-legged stool of Social Security, private savings, and employer pensions. The last two legs of that stool have been collapsing in the past few decades, and there is no reason to believe that this will change in the near future. 401(k)s have been a boon for the rich to avoid taxes and save money that they’d be saving anyway, while it isn’t clear that average Americans have saved enough to offset declining pensions. Median wages have dropped in the recession and are likely to show little growth in the years ahead, which makes building private savings harder. There isn't a ton to cut - even the middle income quintile of retirees, making only around $20,000 a year, get 62 percent of their income from Social Security.

There are many ways to boost Social Security, and the New America paper introduces one. But as the authors note, “[a]ny strategy that expands the reliable and efficient public share of retirement security in America would be an improvement over today’s system, which is biased toward the affluent and skewed toward private savings.” And the best way to do programs is to build out programs that already work well.

Any other stories out there that require a new category?

Follow or contact the Rortybomb blog:

  

 

Reports started coming in late last week that President Obama’s budget, to be released early tomorrow, will include a change to the cost-of-living adjustment (COLA) for Social Security. Specifically, it will adopt a “chained CPI” (consumer price index) measure.

Many people have been writing stories about why this is a bad idea. I want to generalize them into four major categories of critique of moving to a chained CPI (with one aside). As you read stories about the pros and cons of this change in the weeks ahead, hopefully this guide can provide some background.

Accuracy, or Lack Thereof

Economists like the idea of chained CPI because they think it’s more representative of how people behave when they substitute among goods. In this story, we have been over-correcting for inflation in the past decades.

However, as a letter from EPI, signed by 300 economists and social insurance experts, explains, it is just as likely as we are under-correcting. EPI notes "it is just as likely that the current COLA fails to keep up with rising costs confronting elderly and disabled beneficiaries." The current adjustment is based on an index of workers excluding retirees.

If you look into the data, the elderly spend a lot more of their limited money on housing, utilities, and medical care. Health care costs have been rising rapidly over the past several decades, and it is difficult to substitute on other necessary, fixed-price goods like utilities. With the notable exception of college costs, the things urban wage earners spend money on haven't increased in price as quickly as what the elderly purchase. As a result, the CPI-E (the index tailored to the elderly) has increased 3.3 percent a year from 1982 to 2007, while the CPI-W (tailored to wage earners) has only increased 3 percent a year. Definitionally, through the way it is calculated, chained CPI-W will always be lower than CPI-W. [Edit: This will almost certainly be lower, but it isn't definitionally true.]

As Dean Baker has noted, if accuracy were the only motive for changing COLA, it would be relatively easy to get a full, chained version of the index of prices faced by the elderly and use that. That has not been proposed.

Hedging Unexpected Longevity

Another argument is that this is a relatively small cut, or that a slower rate of growth shouldn’t really be thought of as a cut. But there’s a big problem with this.

There are many nice things about the design of Social Security, but one of them is that it is a form of insurance against the downsides of living longer than expected. Let’s say you retire at 65, believe you’ll live to 85, and save enough to make it to 88 just in case. And then you live to 92. Are those last five years absolutely miserable, with your savings completely depleted and an inability to earn market wages except through begging and charity? No, because my man Franklin Delano Roosevelt and Social Security got your back. Social Security helps hedge against two risks that are very difficult to manage: when you were born (and thus the years into which you’ll retire) and how long you’ll live.

Notice how chained CPI cuts, though. In the same way that compounding interest grows quickly over time because you get interest on what you’ve saved, a lower cost-of-living adjustment creates a lower baseline for future adjustments, so the cuts grow over time.

This means that the real cuts come from people who happen to live the longest. Which is precisely one of the risks Social Security is meant to combat. This is one reason why women, who live longer than men, are much more at risk from these chained CPI cuts.

Aside: Can’t We Balance the Downside?

You’ll notice liberals who support moving to chained CPI have complicated “swallow a bird to catch the spider who’s catching the fly” policy proposals to go along with it. If we swallow Obama’s chained CPI proposal, we’ll need to swallow an age “bump” to catch chained CPI from falling heavily on the very old. But after we swallow the age bump, we’ll need to swallow some sort of exemption for Supplemental Security Income to catch the fact that the change would still fall heavily on the initial benefit level for the poorest elderly and disabled people. And so on.

Doing all these fixes, of course, eliminates much of the savings that people are hoping to get. And it is unlikely that these clever ways of balancing the worst effects of the change will get even a single Republican vote. And of course, in spite of all this effort, Republicans could still call out the president for proposing to cut Social Security.

Neither Grand nor a Bargain

You’ll hear arguments that a Grand Bargain is necessary, so it’s better to bring Social Security into long-term balance now, with Democrats at the helm, than in the future, when there will be less time and an uncertain governance coalition. You can get fewer cuts and more revenue than you would otherwise and take the issue off the table for the foreseeable future to concentrate on other priorities.

But if that’s your idea, then this is a terrible deal and sets a terrible precedent, because this deal would accomplish none of your goals. You'd cut Social Security without putting in any new revenue. And it wouldn't be sufficient to close the long-term gap, so the issue would stay on the table. Indeed, the deficit hawks would probably be emboldened, viewing this as a "downpayment" on future cuts, and require any future attempts to get more revenue for Social Security, say by raising the payroll tax cap, to involve significant additional cuts.

We Need to Expand Social Security

As Michael Lind, Joshua Freedman, and Steven Hill of the New America Foundation, along with Robert Hiltonsmith of Demos, expertly document, Social Security should be expanded in the years ahead, not cut.

Retirement security is meant to be a three-legged stool of Social Security, private savings, and employer pensions. The last two legs of that stool have been collapsing in the past few decades, and there is no reason to believe that this will change in the near future. 401(k)s have been a boon for the rich to avoid taxes and save money that they’d be saving anyway, while it isn’t clear that average Americans have saved enough to offset declining pensions. Median wages have dropped in the recession and are likely to show little growth in the years ahead, which makes building private savings harder. There isn't a ton to cut - even the middle income quintile of retirees, making only around $20,000 a year, get 62 percent of their income from Social Security.

There are many ways to boost Social Security, and the New America paper introduces one. But as the authors note, “[a]ny strategy that expands the reliable and efficient public share of retirement security in America would be an improvement over today’s system, which is biased toward the affluent and skewed toward private savings.” And the best way to do programs is to build out programs that already work well.

Any other stories out there that require a new category?

Follow or contact the Rortybomb blog:

  

 

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Banks Are Reluctant to Give Women Home Loans

Mar 14, 2013

It's no secret to anyone that lending has been tight after the bubble popped. But it turns out the impact of that problem hasn't been felt equally. A new fact sheet from the Woodstock Institute reports that women are having a harder time getting home loans than men and that the picture is even worse for women of color.

It's no secret to anyone that lending has been tight after the bubble popped. But it turns out the impact of that problem hasn't been felt equally. A new fact sheet from the Woodstock Institute reports that women are having a harder time getting home loans than men and that the picture is even worse for women of color. The institute looked at people living in the Chicago area and found that joint home purchase mortgage applications headed by women were 24 percent less likely to actually get a loan than male counterparts. For African American women, that number jumps to 34 percent. Worse, women are far less likely to be able to refinance their current mortgages. Female-headed joint refinance applications were 39 percent less likely to succeed, and that number is 44 percent for African-American women.

We might think that the days when women can't get a loan without their husband's signature is far behind us, but clearly the legacy lives on. Read more of the fact sheet here.

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Putting a Check on Using Credit Reports Against Job Seekers

Mar 12, 2013

The economy plummets. You lose your job. Soon, you start to find it hard to make ends meet. You start putting things on your credit card. Then you fall behind in your card payments. All the while you’ve been desperately looking for a new job. Little do you know that being behind on credit card payments may stand between you and a job – the very thing that could get you back on the road to financial health.

The economy plummets. You lose your job. Soon, you start to find it hard to make ends meet. You start putting things on your credit card. Then you fall behind in your card payments. All the while you’ve been desperately looking for a new job. Little do you know that being behind on credit card payments may stand between you and a job – the very thing that could get you back on the road to financial health.

If it sounds like a Catch-22, well, it is. Yet running a credit check on a potential employee is not only legal – it’s common practice, as a new survey and report from our friends at Demos found out. Demos spoke with nearly 1,000 low and middle-income households who carry credit card debt and found that one in four had a prospective employer run a credit check on them. One in ten had been told they wouldn’t be hired because of what the employer found there.

So what’s to be done? The report urges city and state governments to pass bans on using credit checks for hiring purposes, following in the footsteps of eight states that have done just that. Our government should also stop using this practice itself to set a good example. The report also urges regulators at the CFPB, FTC, and EEOC to crack down on credit reporting agencies and better protect consumers.

Read the full report here.

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On Bookshelves Now: Two New Books From Roosevelt Fellows

Jan 9, 2013

With the new year have come new releases: Roosevelt Institute Fellows Susan Crawford and Georgia Levenson Keohane both have books that just hit the shelves.

With the new year have come new releases: Roosevelt Institute Fellows Susan Crawford and Georgia Levenson Keohane both have books that just hit the shelves. Get your copy now of Crawford's Captive Audience and Keohane's Social Entrepreneurship for the 21st Century.

Captive Audience explores why Americans are now paying much more but getting much less when it comes to high-speed Internet access. It explores how telecommunications monopolies have affected the daily lives of consumers and America's global economic standing. Check out some excerpts: 

Merger Made Comcast Strong, U.S. Web Users Weak

How AT&T and Verizon Manipulate Your Smartphone

U.S. Internet Users Pay More for Slower Service

Social Entrepreneurship for the 21st Century charts the social entrepreneurship revolution across the nonprofit, private, and public sectors, examining how innovative change makers are testing new solutions to entrenched social, economic, and environmental problems. Click here to get a sneak peek!

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Caught in a Credit Catch-22: Obstacles and Opacity in an Industry We All Rely On

Jan 2, 2013Bryce Covert

One person's story shows how the credit system is still rigged and boobytrapped.

One person's story shows how the credit system is still rigged and boobytrapped.

My (early) New Year’s resolution was to get a credit card. You may remember that I have never had a credit card. And thus if I were on the dating market, my OKCupid inquiries would be flatly rejected. It’s not that I have a bad score. I just don’t have one. I had a good score when I was dutifully paying off my student loan after I graduated, but then through paying dirt-cheap rent in Harlem and never paying for cable I was able to pay off the loan. Since then I haven’t owned any credit products. I’ve paid my rent on time every month and paid every bill before the due date. But those things don’t make their way over to FICO. I’ve thus landed myself in quite the Catch-22 that speaks volumes about the lending industry and our reliance on it.

When I moved into a new apartment three years ago, I still had a score, so when the broker ran a credit check on me, she handed me the keys without a complaint. In the intervening years, however, the student loan must have fallen off my history, leaving a gaping void in its place. This is so unusual that when I was applying for a new apartment this summer, the broker told me there must be something wrong with my account. It turned out nothing was wrong – I just literally don’t have a score.

Because I was dealing with humans in both the broker and the landlord, I was able to explain to them that I don’t have a score because I don’t like being in debt. At all. On top of that, I can show steady income because I have the good fortune of being employed at a well-paying job. They agreed that made sense and gave me the keys. But the ordeal made me realize that if I were to deal with an institution instead of a human – a bank from which I want a mortgage, say, or even a real estate management company instead of a landlord – I would probably be screwed. So I decided to suck it up, sell out, and finally get my first credit card.

It turns out I was screwed earlier than I thought. Back when I had a fantastic credit score, I would get credit card offers in the mail by the dozens. So I decided to do the responsible thing and do some research on a good rewards card (might as well get something out of my sell-outery) that doesn’t have an annual fee and has a decent APR. Having found one, I filled out the online application and waited to hear that my soul had been sold. Not so fast: I was rejected on the spot. It turns out that not having a credit score is just as bad as having a damaged one in the short-term. The bank has no reason to trust that I can handle credit, so it won’t give me any. Which means I will continue to be denied credit and continue to have zero credit history.

There was a big part of me that wanted to continue my protest of the financial system that demands you borrow money and go into debt (even if only a month at a time) to participate. But this problem will only get worse. What if the next time I move the landlord isn’t understanding? Worse, what if the next job I apply to runs a credit check on me and decides having no history is too suspicious? (Six out of ten employers vet employees via a credit report.) Despite the fact that I have steady income and pay all my bills on time, I could still be left homeless and unemployed because of my refusal to get a credit card.

The point of this story is not my particular case. I am incredibly privileged to have a job, a steady paycheck I can comfortably live off of, and a landlord who was willing to let me move in and pay her ridiculous New York rent. One point is that if things are this difficult for middle class me, they are 10 times worse for low-income people. Nearly 10 million households in the U.S., or one in 12, are unbanked, meaning they have no relationship with a formal banking institution. Half of them don’t have a bank account because they don’t think they have enough to make the minimum balance. This isn’t surprising, given that over 70 percent of this population makes less than $30,000.

I have the benefit of a bank account with enough money to keep the required minimum balance. Given that, I will likely be able to coerce a credit card out of my banking institution (even if I have to pay an annual fee to do so and put down a security deposit). The unbanked community, however, must usually turn to “alternative” products such as pre-paid debit cards, payday lenders, and check cashers. These are all relatively predatory products that come loaded with fees and high interest. Interest rates on payday loans, for example, can reach 450 percent when annualized. When you’re already pulling in just enough – or not enough – to get by, losing even more money simply to access your own income is a huge problem. Beyond that, if someone who is unbanked tries to return to the traditional banking industry, he or she will probably encounter far more obstacles than I’ve run into. It could become impossible, shutting these people out of the entire traditional lending industry and all that comes with it.

The other point is the infuriating opacity of the whole credit industry. I had no idea that I don’t have a score until a hard inquiry was run on me – something that in and of itself can harm your score or at the very least ward off potential lenders. Perhaps more frustrating, the hard inquiry that’s generated by applying for a credit card looks pretty fishy when you don’t get accepted for a card – because then I have to apply for another, which is another inquiry, and if I get rejected I have to do another, and on, making it look (rightfully, I suppose) like I’m going door to door and being turned away by everyone. That makes a lending institution wary of taking me on. But I have no way to know ahead of time whether I’ll qualify for a particular card. Even my bank, which I’ve been with for over 10 years, couldn’t tell me whether my loyalty or good explanation for my blank credit history would help me out. I was flatly told that the only way to know if I’ll be accepted for a particular card is to apply and find out. Bank employees are barred, I was told, from telling me the criteria used so that they won’t “discriminate” against me by pushing me toward the credit product I’m more likely to qualify for.

Yet this lack of transparency on the bank’s part is nothing compared to the credit reporting companies themselves. The methodologies these private companies use to calculate scores are a closely guarded secret. Even though an estimated 20 percent of scores contain errors, attempts to resolve them often end in frustration and inaction. The score you buy from the agencies often isn’t the one a lender would see. And until the Consumer Financial Protection Bureau came along, they were barely regulated – although the bureau is already overseeing the largest ones and is currently fielding consumer complaints.

I’m glad that the CFPB now exists and should bring more regulation and transparency to the whole ordeal by cracking down on non-bank lenders, overseeing credit reporting agencies, and demanding better practices from credit card lenders. But one thing it won’t do is sever the ironclad link between taking on debt and participation in the finance industry. Even if these products improve, I’ll still have to convince someone to give me a credit card – a product I have never wanted – so that I can be sure of housing and employment. 

Bryce Covert is Editor of Next New Deal.

Credit card swipe image via Shutterstock.com.

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What Does the New Community Reinvestment Act (CRA) Paper Tell Us?

Dec 11, 2012Mike Konczal

There are two major, critical questions that show up in the literature surrounding the 1977 Community Reinvestment Act (CRA).

The first question is how much compliance with the CRA changes the portfolio of lending institutions. Do they lend more often and to riskier people, or do they lend the same but put more effort into finding candidates? The second question is how much did the CRA lead to the expansion of subprime lending during the housing bubble. Did the CRA have a significant role in the financial crisis?
 
There's a new paper on the CRA, Did the Community Reinvestment Act (CRA) Lead to Risky Lending?, by Agarwal, Benmelech, Bergman and Seru, h/t Tyler Cowen, with smart commentary already from Noah Smith. (This blog post will use the ungated October 2012 paper for quotes and analysis.) This is already being used as the basis for an "I told you so!" by the conservative press, which has tried to argue that the second question is most relevant. However, it is important to understand that this paper answers the first question, while, if anything, providing evidence against the conservative case for the second.
 
Where is the literature on these two questions? One starting point is the early 2009 research of two Federal Reserve economists, Neil Bhutta and Glenn B. Canner, also summarized in this Randy Kroszner speech. On the first question Kroszner summarizes research by the Federal Reserve, the latest being from 2000, arguing that "lending to lower-income individuals and communities has been nearly as profitable and performed similarly to other types of lending done by CRA-covered institutions." The CRA didn't cause changes to banks' portfolios, but instead required them to find better opportunities. More on this in a minute.
 
What about the second question? Here the Bhutta/Canner research notes that only six percent of higher-priced loans (their proxy for subprime loans) were extended by CRA-covered lenders to lower-income borrowers or CRA neighborhoods. 94 percent of these loans were either made by non-traditional banks not covered by the CRA (the "shadow banking system"), or not counted towards CRA credits. As Kroszner noted, "the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis."
 
How did those loans do? Here the research compared the performance of subprime and alt-A loans in neighborhoods right above and right below the CRA's income threshold, and found that there was no difference in how the loans performed. Hence the idea that a CRA-driven subprime bubble isn't found in the data. (The FCIC's final report, starting at page 219, has more on this and other research.)
 
So what does this new research do? It takes banks that were undergoing a normal examination to see if they were in compliance with the CRA, and thus under heightened regulatory scrunity, and compares their loan portfolios with banks that were not undergoing a CRA examination. It finds that the CRA exam increases loans 5 percent every quarter surrounding the event and those loans default 15 percent more often, under the idea that those banks were ramping up their loans to pass the CRA exam.
 
But this is question 1 territory. 94 percent of higher priced loans came outside CRA firms and outside CRA loans, and this research doesn't really change that. Since we are talking about regular mortgages - more on that in a second - that higher default isn't that scary. To put that in perspective, loans made in the quarter following the initiation of a CRA exam in a non-CRA tract are 8.3 percent more likely to be 90 days delinquent. That sounds scary, but it is an increase of 0.1, from 1.2 percent to 1.3 percent. In the CRA tract it is 33 percent more likely to default, going from 1.2 percent to 1.6 percent. FICO scores drop 7 points from 713.9 to 706.9. That's an increase I wouldn't want in my portfolio, but it is light-years away from 25%+ default rates, and very low FICO scores, on actual subprime.
 

This research, if anything, pushes against movement conservative CRA arguments. In light of the evidence in question 2, many conservatives argue that regulators used CRA to push down lending standards, which then impacted other firms. But this paper finds that extra loans aren't more likely to have higher interest rates, lower loan-to-value, or be balloon/interest-only/jumbo/buy-down mortgages, although there is a slight increase in undocumented loans. And their borrowers aren't more likely to have risky characteristics themselves. The authors conclude that "this pattern is consistent with banks’ strategic attempts to convince regulators that the loans they extend that meet CRA criteria are not overtly risky."

Read that again. The authors argue, from their empirical evidence, that regulators were trying to make sure these loans had high standards, and CRA banks tried to comply with that as best they could on the major, visible risks of their loans. This is the opposite argument made by people like John Carney, who believes the CRA "encourag[ed] lenders to adopt loose standards for mortgages." It also pushes against people like Peter Wallison, who, in his FCIC dissent, argued that CRA loans were more likely to have subprime characteristics or riskier borrowers in ways not captured by a higher-price variable. Not the case.

It also finds that loan volume and risk increases the most during 2004-2006, and points to the private securitization market as an important channel. This, along with characteristics above, pushes back against the idea that the CRA primed a subprime pump in the late 1990s and early 2000s, another favorite of movement conservative finance writers. If anything, banks undergoing CRA exams were caught up in the same mechanisms that were causing the housing bubble itself.

I'm not sure I buy all of the research. If CRA banks take on too many loans during examination, why wouldn't they just loan less afterwards, balancing out? The paper jumps to argue the opposite, as it is worried that "adjustment costs may cause banks to keep elevated lending rates even after the CRA exam is formally completed." This is meant to establish their results as a lower-bound, rather than an upper-bound. But really? They managed to ramp up their lending in enough time during this time. Either way it would throw a very different set of interpretations on their research. I'm interested in seeing how other researchers react to these problems. But for now these results don't change the way we approach the financial crisis.

 

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There are two major, critical questions that show up in the literature surrounding the 1977 Community Reinvestment Act (CRA).

The first question is how much compliance with the CRA changes the portfolio of lending institutions. Do they lend more often and to riskier people, or do they lend the same but put more effort into finding candidates? The second question is how much did the CRA lead to the expansion of subprime lending during the housing bubble. Did the CRA have a significant role in the financial crisis?
 
There's a new paper on the CRA, Did the Community Reinvestment Act (CRA) Lead to Risky Lending?, by Agarwal, Benmelech, Bergman and Seru, h/t Tyler Cowen, with smart commentary already from Noah Smith. (This blog post will use the ungated October 2012 paper for quotes and analysis.) This is already being used as the basis for an "I told you so!" by the conservative press, which has tried to argue that the second question is most relevant. However, it is important to understand that this paper answers the first question, while, if anything, providing evidence against the conservative case for the second.
 
Where is the literature on these two questions? One starting point is the early 2009 research of two Federal Reserve economists, Neil Bhutta and Glenn B. Canner, also summarized in this Randy Kroszner speech. On the first question Kroszner summarizes research by the Federal Reserve, the latest being from 2000, arguing that "lending to lower-income individuals and communities has been nearly as profitable and performed similarly to other types of lending done by CRA-covered institutions." The CRA didn't cause changes to banks' portfolios, but instead required them to find better opportunities. More on this in a minute.
 
What about the second question? Here the Bhutta/Canner research notes that only six percent of higher-priced loans (their proxy for subprime loans) were extended by CRA-covered lenders to lower-income borrowers or CRA neighborhoods. 94 percent of these loans were either made by non-traditional banks not covered by the CRA (the "shadow banking system"), or not counted towards CRA credits. As Kroszner noted, "the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis."
 
How did those loans do? Here the research compared the performance of subprime and alt-A loans in neighborhoods right above and right below the CRA's income threshold, and found that there was no difference in how the loans performed. Hence the idea that a CRA-driven subprime bubble isn't found in the data. (The FCIC's final report, starting at page 219, has more on this and other research.)
 
So what does this new research do? It takes banks that were undergoing a normal examination to see if they were in compliance with the CRA, and thus under heightened regulatory scrunity, and compares their loan portfolios with banks that were not undergoing a CRA examination. It finds that the CRA exam increases loans 5 percent every quarter surrounding the event and those loans default 15 percent more often, under the idea that those banks were ramping up their loans to pass the CRA exam.
 
But this is question 1 territory. 94 percent of higher priced loans came outside CRA firms and outside CRA loans, and this research doesn't really change that. Since we are talking about regular mortgages - more on that in a second - that higher default isn't that scary. To put that in perspective, loans made in the quarter following the initiation of a CRA exam in a non-CRA tract are 8.3 percent more likely to be 90 days delinquent. That sounds scary, but it is an increase of 0.1, from 1.2 percent to 1.3 percent. In the CRA tract it is 33 percent more likely to default, going from 1.2 percent to 1.6 percent. FICO scores drop 7 points from 713.9 to 706.9. That's an increase I wouldn't want in my portfolio, but it is light-years away from 25%+ default rates, and very low FICO scores, on actual subprime.
 

This research, if anything, pushes against movement conservative CRA arguments. In light of the evidence in question 2, many conservatives argue that regulators used CRA to push down lending standards, which then impacted other firms. But this paper finds that extra loans aren't more likely to have higher interest rates, lower loan-to-value, or be balloon/interest-only/jumbo/buy-down mortgages, although there is a slight increase in undocumented loans. And their borrowers aren't more likely to have risky characteristics themselves. The authors conclude that "this pattern is consistent with banks’ strategic attempts to convince regulators that the loans they extend that meet CRA criteria are not overtly risky."

Read that again. The authors argue, from their empirical evidence, that regulators were trying to make sure these loans had high standards, and CRA banks tried to comply with that as best they could on the major, visible risks of their loans. This is the opposite argument made by people like John Carney, who believes the CRA "encourag[ed] lenders to adopt loose standards for mortgages." It also pushes against people like Peter Wallison, who, in his FCIC dissent, argued that CRA loans were more likely to have subprime characteristics or riskier borrowers in ways not captured by a higher-price variable. Not the case.

It also finds that loan volume and risk increases the most during 2004-2006, and points to the private securitization market as an important channel. This, along with characteristics above, pushes back against the idea that the CRA primed a subprime pump in the late 1990s and early 2000s, another favorite of movement conservative finance writers. If anything, banks undergoing CRA exams were caught up in the same mechanisms that were causing the housing bubble itself.

I'm not sure I buy all of the research. If CRA banks take on too many loans during examination, why wouldn't they just loan less afterwards, balancing out? The paper jumps to argue the opposite, as it is worried that "adjustment costs may cause banks to keep elevated lending rates even after the CRA exam is formally completed." This is meant to establish their results as a lower-bound, rather than an upper-bound. But really? They managed to ramp up their lending in enough time during this time. Either way it would throw a very different set of interpretations on their research. I'm interested in seeing how other researchers react to these problems. But for now these results don't change the way we approach the financial crisis.

 

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What Are Conservatives Getting Wrong About the Economy? (Douthat Reply Edition)

Nov 19, 2012Mike Konczal

Ross Douthat argues in his recent New York Times editorial, The Liberal Gloat, that the coalition that elected President Obama was "created by social disintegration and unified by economic fear." Douthat argues that "single life is generally more insecure and chaotic than married life, and single life with children." The implicit argument is that marriage is an important part of handling the economic fears of the business cycle, and if there were more married couples there'd be

Ross Douthat argues in his recent New York Times editorial, The Liberal Gloat, that the coalition that elected President Obama was "created by social disintegration and unified by economic fear." Douthat argues that "single life is generally more insecure and chaotic than married life, and single life with children." The implicit argument is that marriage is an important part of handling the economic fears of the business cycle, and if there were more married couples there'd be less call for economic policy. Krugman notes that "insecurity is on the rise for everyone, driven by changes in the economy" and that "[y]our church and your traditional marriage won’t guarantee the value of your 401(k)."

For fun, how well has the income of couples with children held up in the Great Recession when compared to single households with children? Let's look at the Federal Reserve's recent Survey of Consumer Finance. This comes out every three years, with the last version covering 2010. Here's net income for single households with a child versus couple households ("families in which the family head was either married or living with a partner") with a child:

In the Great Recession, single households with a child lost 2.3 percent of their income, while couple households with a child lost 9.4 percent of their income. Now obviously having $67K is better than having $29K. And the 2.3 percent loss of income for people with less could sting a lot harder than the 9.4 percent loss for those with more.

But what is important to emphasize is that having a couple raising kids, whatever its other virtues, is not a good form of insurance against the business cycle. The Great Recession has hit married households with larger drops in income. This is probably driven by having two people working in the household, which, as Senator (!) Elizabeth Warren emphasized years ago, doubles the chance that someone might lose their job. So even if the number of children being raised in single households dropped suddenly, that's no replacement for an aggressively liberal, Keynesian welfare-state approach to driving the macroeconomy to full employment.

This isn't just conservatives, as education-obsessed centrists and liberals have a blind-spot here as well. I recently wrote a piece for The American Prospect about young people graduating into the recession. The focus was how the average college graduate is likely to have a permanent loss to their income, compared to the more temporary income loss for those who attend elite colleges or don't go to college at all. I mentioned it in passing at the end, but this technically means that the college premium, especially at the margins, drops in a recession. Therefore getting more education is a poor form of insurance from the business cycle compared to, once again, Keynesian welfare-state full employment.

Paradigm Down

I have no interest in seeing a resurgent conservative movement in this country. One reason I was worried about Romney winning the 2012 election and passing the Ryan Plan in January 2013 and Lochnerizing the Supreme Court is because an animal is most dangerous when it is dying and knows it. But it might be helpful for those on the right to get an outsider's perspective.

Douthat argues that conservatives focused too much on those getting "gifts" and other free-loader metaphors. But the most sustained conservative economic arguments of the Great Recession have been reviving the liquidationist, Mellonite approach to the business cycle. I think that's one important reason Romney and conservatives were unable to put real pressure to President Obama's vulnerability on the economy. They believe the recession is purging the weakness in the economy, doing healthy work, and to the extent the recovery is sluggish it is the fault of activist government and policy attempting to address unemployment.

The House GOP, in particular, has pushed the Mellon-wing, calling for austerity to promote growth, while also pulling back on monetary policy to stimulate the economy. Understanding the "47 percent" and "free stuff" comments benefit from the context of conservative arguments that government policy is the primary reason that unemployment remains high, as all the free stuff allows the unemployed to stay on vacation. If conservatives want to build a new economic paradigm that works for working people, they should probably have some idea on getting unemployment down sometime in the next decade.

Another important conservative focus is running everything the government does through private hands. The conservative movement is not about small government, it is about privatized government. From Bush and Ryan's attempts to privatize Social Security, to turning Medicare into a Groupon, to bringing private industry into the military, every step involves introducing market agents into government processes and pushing market risk to individuals. This continued under Mitt Romney's big policy ideas. He had an idea for taking our system of unemployment insurance and turning it into a system of private unemployment savings accounts. He wanted to fix higher education costs by expanding the for-profit industry, which would "hold down the cost of education," even though they are far more expensive than their non-profit equivalents.

The conservative idea that citizens don't have enough undiversifiable exposure to the risks of the new economy - long-term unemployment, low wages, risks of a large drop in income, globalization, automation etc. - is not one that is going to work going forward. The economic voters Douthat wants to win over see the cronyism of funneling money through private agents, and they think of the market with far more dread and anxiety than entrepreneurial glee. Though they may be ambivalent about more liberal solutions, they certainly don't like the perpetual conservative project of making all of government's functions look more and more like their empty 401(k)s. That might be another place to start for conservatives who want to rebuild their economic ideas.

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