Lifestyles of the Rich and Frustrated: How Much is Enough to Make a Banker Happy?

Jan 4, 2013John Paul Rollert

Greg Smith's tale of exile from Wall Street shows that even the rich can feel inadequate compared to the super-rich.

Greg Smith's tale of exile from Wall Street shows that even the rich can feel inadequate compared to the super-rich.

Last winter, Bloomberg published a much-discussed account of belt-tightening in the brave new economy. Notable for featuring Wall Streeters, not Walmart greeters, the suffering depicted was sepia-toned. One poor soul described driving all the way to outer Brooklyn to buy discounted salmon, another the indignity of doing his own dishes, and a third dismissed his Porsche 911 Carrera 4S Cabriolet as “the Volkswagen of supercars.”

Among the lingering calamities of the financial crisis, the sorrows of young bankers don’t exactly cry out for remedy. This is not Les Miserables but the hardships of the haute bourgeoisie. Yet the afflictions of affluence are afflictions nonetheless, and this particular one can teach us an awkward but essential truth in the ongoing debate over income inequality—if we can only bear to listen.

Consider the inadvertent testimony of Greg Smith. Doubtless you have heard of Smith, who vaulted to fame last March with an op-ed in The New York Times published the day he parted ways with his long-time employer, Goldman Sachs. The piece reads like the précis for some revelatory work. During his 12 years at Goldman, Smith says he had seen the interests of the customer “sidelined” in favor of an approach that sees the bank “ripping their clients off.” Their trust is taken advantage of, their naïveté exploited, their ignorance scorned. Goldman is no longer the client-centered institution Smith joined after college, and blame is placed at the feet of the bank’s leadership, whom he accuses of having “lost hold of the firm’s culture on their watch.”

Given the anger directed at Goldman in the aftermath of the financial crisis, Smith knew that his op-ed would be greeted with some interest. Here was an insider who affirmed the bank’s bad behavior and promised to illustrate it, at length, if given the opportunity.

He was, of course—in the form of $1.5 million book deal. Published at the end of October, the attempted tell-all was widely panned for falling short of its promise. The criticism is not unfair, though the publisher shares blame for rushing to print a work that would have benefited from sharper focus and the self-criticism of sustained introspection. Why I Left Goldman Sachs is Greg Smith’s first book, and its 250+ pages were written in less than seven months. If it feels like a first draft, that’s almost certainly because it is, and all parties (except Goldman, perhaps) would have benefited from the careful editing that made the original op-ed an astonishing success.

But that does not mean the book doesn’t have an intriguing story to tell, if one that is also unintended. The chronicle form lends itself to the task of writing an inevitably personal book on extremely short notice, and while Smith might have done without the convenience, preferring instead to dwell on the conflicts of interests he spends too little time on in the book, he ends up presenting a timely self-portrait of a rich man in a much richer man’s world.

When he left Goldman Sachs, Greg Smith had been making in the ballpark of $500,000 for at least six years, and the book provides ample evidence of the consolations afforded the young bachelor by his considerable income. There are the fine restaurants Smith frequents (“we went to the Frisky Oyster in Greenport”), the premier sporting events he attends (“I was lucky to be courtside in Paris to see Rafael Nadal beat Roger Federer for his sixth French Open title”), and the fashionable neighborhood he moves into when he transfers to London (it “had become trendy because Gwyneth Paltrow and Chris Martin (of Coldplay) had moved there”). There is even the 30th birthday dinner he throws for himself and his then-girlfriend (“at Freeman’s, a place with a vintage speakeasy vibe”) for which Smith graciously picks up the tab (“[t]he bill came to over $3,000, but I was happy to do it—I like treating people”).

Smith never reveals how much he has salted away for hard times, but it is not enough to stave off a minor panic when the financial crisis hits. Faced with the possibility of post-Goldman penury, he describes not one but two instances of taking public transportation, noting as an aside that “[m]any Wall Streeters can spend north of $10,000 a year on taxis alone.” The accounts are rueful—“I saved sixty bucks”—but juxtaposed with his birthday largesse, which is subsequent to these accounts and conspicuously so, a central preoccupation of the book comes into relief. The problem is not having money, but not having nearly enough.

If you take a step back, this seems absurd. From the vantage point of most Americans, not to mention the broader world, Greg Smith is rich. Indeed, according to the U.S. Census Bureau, the median household income between 2006-2011 was in the range of $50,000, or roughly one tenth of what Smith was making during that time. But Smith is not most people, and he doesn’t have the luxury of stepping back without also stepping beyond his social world. That world includes people who are not only making double or triple what Smith made, but also individuals like Gary Cohn, the president of Goldman, who made just over $53 million in 2006, or more than 100 Greg Smiths.

As a financial matter, being rich in a much richer man’s world has a tendency to bury you in what Cornell economist Robert Frank calls an expenditure cascade. In a paper he co-authored with Adam Seth Levine, Frank starts from the curious fact that “aggregate savings rates have fallen even though income gains have been largely concentrated in the hands of consumers with the highest incomes.” He explains this by showing that that wealthy scale their consumption not by the expenditures of the broader public—a benchmark that would leave their bank accounts flush—but by the people at the very top of their social group. This is the time-honored tradition of keeping up with the Joneses, but when the Joneses can afford 100 times what you can, the race can lead you right of a cliff. 

Still, while Smith’s need to make more money occasionally announces itself by way of some pressing financial concern—on same day the stock market bottoms out, Smith splits with his long-time girlfriend who had been “adamant that she didn’t want to work when she had kids”—he is well aware that his frustration has less to do with how much he actually makes than what that number says about him. Reflecting on the significance of “bonus day,” the day in December on which bankers meet with their bosses to discover the full amount they will make for the year, Smith admits that there is “an absurd amount of emphasis placed on these meetings. For many people, the session determined a person’s entire self-worth.” And yet, he continues, “however arbitrary the number handed down by the partner might be, there was also a real poignancy to the bonus meeting. Many people had spent the year working eighty-five-hour weeks, killing themselves for the firm. They expected something in return.”

By late 2011, Smith had come to expect more from Goldman than Goldman was willing to give him. At his last bonus meeting, he requested a promotion to Managing Director and a million dollar payout. Both requests were denied.

Smith does not disclose these details in his book—they were leaked by Goldman to discredit him in advance of its release—but they come as no surprise to anyone who reads it. They merely underscore the salient psychological fact of Greg Smith’s experience and the essential lesson of income inequality among the economic elite. Namely, that beauty is in the eye of the beholder, but wealth is a matter of whom you behold.

John Paul Rollert teaches business ethics and leadership at the Harvard Extension School.

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To Reduce the Deficit, End Redistribution to the Rich

Jan 2, 2013Joe Landry

Instead of cutting aid to the poor, the president and Congress should focus on reforming costly tax expenditures.

Instead of cutting aid to the poor, the president and Congress should focus on reforming costly tax expenditures.

While we often hear critics decrying the redistributive effects of American social spending, government aid does not always benefit households of limited means. Often, aid looks more like a million-dollar vacation home or a luxury health insurance plan than housing vouchers and food stamps. American social spending is more complex than a simple redistribution from high- to low-income households. Over time, the country’s tax and transfer system has adopted provisions that reward specific high-income households. These programs contribute to deficit growth and detract from spending targeted at alleviating poverty among working families.

The most generous social welfare programs are currently administered through the tax code. A list of itemized deductions on households’ income tax returns serves as the only indication of these benefits. Income tax deductions, exclusions, deferrals, and credits, known collectively as “tax expenditures,” amount to more than $1 trillion of federal spending (according to estimates by the Tax Policy Center), not including lower tax rates on capital gains and dividends to encourage investment.

Tax expenditures are the functional equivalent of direct spending. Consider two households with identical incomes of $200,000. Household A purchases a home with a mortgage. Household B rents an apartment. Household A likely receives $5,000-10,000 (depending on mortgage size and APR) through the mortgage interest deduction when filing taxes. Household B receives $0. This, in effect, is a subsidy for homeownership. If the IRS collected taxes without any exclusions or deductions and then distributed payments to those who purchased mortgages, we would most likely categorize this disbursement as a form of direct spending.

Beyond simply diminishing revenues, tax expenditures disproportionately favor high-earning households, thereby reducing progressivity of federal income taxes. One reason for this imbalance is that high-income households have relatively high marginal income tax rates. Consider the exclusion of $10,000 of earned income for two individuals. Taxpayer A is taxed at a rate of 20 percent. Taxpayer B is taxed at a rate of 35 percent. Excluding $10,000 means removing this sum from taxable income. Decreasing taxable income by $10,000 for both of these individuals will yield $2,000 for Taxpayer A and  $3,500 for Taxpayer B. Thus, two taxpayers who engage in identical behavior receive disparate rewards because of income differences.

High-earning households are also more likely to engage in behaviors incentivized through the tax code. This means that, in addition to gaining more from each dollar deducted from tax obligations, high-earning households also deduct more than their middle- and low-income peers. Having more resources, the top 20 percent of households are more likely to purchase homes and contribute to retirement savings plans than households in the bottom 20 percent. They are more likely to hold jobs that offer employer-provided health insurance. Further magnifying the divide, high-income households on average possess more expensive employer-provided health insurance. In subsidizing purchases of homes, retirement plans, and health insurance for all households, tax expenditures disproportionately assist those originally more likely to engage in these behaviors. Consequently, high-income households are in better positions to take advantage of tax deductions.

So if tax expenditures waste essential potential revenues on affluent households, why are they so difficult to reform? General support for simplifying the tax code is not difficult to find. What is difficult, however, is reducing or eliminating particular benefits that households already possess. Tax expenditure reform would be tantamount to a tax hike on households that itemize deductions. For this reason, politicians enthusiastic about tax code simplification become reticent when faced with the task of eliminating specific loopholes.

The first step to simplifying the tax code successfully is treating tax expenditures as spending. This distinction demands that Congress scrutinize expenditures to the same degree that it scrutinizes antipoverty spending. Congress should consider whether particular deductions or exclusions successfully incentivize a desired behavior. Further, it should assess whether social rewards from altered behavior exceed revenue lost. For example, it would be difficult to argue that any social gain from deducting mortgage interest on second homes for families earning more than $250,000 exceeds revenues lost. By simultaneously reducing revenues for means-tested entitlements and subsidizing home purchases of wealthy taxpayers, such a provision merely exacerbates income and wealth inequality. This provision is not worth revenue losses that it engenders.

While tax expenditures for high-income families would not survive this level of scrutiny, some expenditures for low-income families achieve desirable ends. This social value justifies revenues lost. For example, the Earned Income Tax Credit (EITC) supports low-wage workers with supplemental income, reducing the poverty rate for these workers and their families. EITC successfully incentivizes work, achieving a valuable social aim and warranting a degree of spending. Other existing expenditures might also be continued for lower- and middle-income households. For example, Congress might continue the mortgage interest deduction for low- and middle-income households on the margin of being able to afford homeownership. But Congress should only adopt such extensions if a clear argument can be made that social gains exceed revenues lost.

As President Obama and congressional leaders continue to negotiate long-term deficit reduction, the first programs that they trim should be those subsidizing high-income households. More than any other social spending category, tax expenditures for high-income households constitute frivolous spending. Both presidential candidates in 2012 supported reducing tax expenditures for high-income families. Governor Romney suggested setting a maximum deduction, while President Obama proposed setting deductions at lower tax rates. Each of these plans would limit tax expenditures for high-income households to some extent. In order to further decrease tax expenditures’ regressive effects, these proposals could be combined with reforms that target payments toward lower- and middle-income households. This would include restricting the mortgage interest deduction to primary residences and limiting exclusions for luxury health insurance beyond provisions already included in the Affordable Care Act.

Now it is time for the president and Congress to fulfill their promise to simplify the tax code, beginning with those at the top of the income scale. While tax expenditure reform for high-income households will not solve our fiscal problems single handedly, it represents an essential path forward for reducing the deficit without exacerbating the economic hardship of low-income Americans.

Joe Landry is a member of the Roosevelt Institute | Campus Network and a senior at Washington and Lee University in Lexington, VA, majoring in American History and minoring in Poverty and Human Capability Studies. This summer, he worked with Dr. Harlan Beckley, Director of the Shepherd Poverty Program at W&L, researching the historical and comparative context of current American social spending. Their research can be found here.

Money lighting cigar image via Shutterstock.com.

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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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FDR's 47 Percent: Will the Democrats Finally Heed Their Voices?

Dec 3, 2012David B. Woolner

President Obama should use the fiscal cliff to shift the debate away from deficits and take on the inequality that's undermining our democracy.

It has been well said that "the freest government, if it could exist, would not be long acceptable, if the tendency of the laws were to create a rapid accumulation of property in few hands, and to render the great mass of the population dependent and penniless…"

President Obama should use the fiscal cliff to shift the debate away from deficits and take on the inequality that's undermining our democracy.

It has been well said that "the freest government, if it could exist, would not be long acceptable, if the tendency of the laws were to create a rapid accumulation of property in few hands, and to render the great mass of the population dependent and penniless…"

We believe in a way of living in which political democracy and free private enterprise for profit should serve and protect each other—to ensure a maximum of human liberty not for a few but for all…

Today many Americans ask the uneasy question: Is the vociferation that our liberties are in danger justified by the facts?

...Their answer is that if there is that danger it comes from that concentrated private economic power which is struggling so hard to master our democratic government.—Franklin D. Roosevelt, 1938

In his remarks on the so-called “fiscal cliff,” and in numerous campaign speeches, President Obama has repeatedly remarked that “we can’t just cut our way to prosperity,” and that “if we’re serious about reducing the deficit, we have to combine spending cuts with revenue. And that means asking the wealthiest Americans to pay a little more in taxes.” The president has also said that he is “not wedded to every detail” of his current plan to reduce the deficit and that he is open to compromise. But he also has made it plain, as he did in his recent remarks at the White House, that he will refuse to accept any approach that isn’t balanced; that he is “not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me making over $250,000 aren’t asked to pay a dime more in taxes.”

For the millions of Americans who remain out of work, or are struggling with hourly wages that when adjusted for inflation stand where they were in 1978, this is welcome news. But the president’s focus on taxes and the deficit is only part of the story. What the country really needs, according to most economists, is more stimulus, for the best way to reduce the deficit is to expand the economy, which would of course result in more government revenue.

The president has certainly made reference to this, and he has included a modest $50 billion in stimulus spending in his recent budget proposal to Congress, but for the most part the public discourse on how to avoid the “fiscal cliff” and fix our economy has been centered not on jobs or the vast structural inequality that now separates the top 1-2 percent from the rest of us, but on the deficit. This is unfortunate, for it means, in essence, that the country’s economic agenda is still very much in the hands of the conservative right; that we are still focused not on the cause of our economic woes—a collapsed economy brought on by the worst financial crisis since the Great Depression—but on the by-product: the vast fall-off in federal, state, and local revenue that naturally came about as a result of this collapse.

A far better exercise would be to move away from the right’s obsession with the deficit and open up a conversation with the American people about a far more critical issue facing the nation: the ever-widening gulf between the rich and the rest of us and the very real consequences that this disparity in income has had on our economy and indeed on the very nature of our democracy.

Roughly three-quarters of a century ago, when faced with a similar set of circumstances—including a conservative right that was fond of labeling his policies socialist—Franklin Roosevelt did not shy away from addressing the conditions that led to the collapse of the world’s economy. He well understood—as did the millions of Americans who lived in or on the threshold of poverty—that “the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself.” He also understood that “the Federal debt, whether it be twenty-five billions or forty billions, can only be paid if the Nation obtains a vastly increased citizen income…The higher the national income goes the faster will we be able to reduce the total of Federal and state and local debts. Viewed from every angle, today's purchasing power—the citizens' income of today—is not at this time sufficient to drive the economic system of America at higher speed.”

Taking note of this—and in a reference to the bottom half of the U.S. population that today sounds all too familiar—FDR observed in a speech on the perils of monopoly that:

47 per cent of all American families and single individuals living alone had incomes of less than $1,000 for the year; and at the other end of the ladder a little less than 1 1/2 per cent of the nation's families received incomes which in dollars and cents reached the same total as the incomes of the 47 per cent at the bottom…

This clearly was unacceptable, he went on, for:

No people, least of all a democratic people, will be content to go without work or to accept some standard of living which obviously and woefully falls short of their capacity to produce. No people, least of all a people with our traditions of personal liberty, will endure the slow erosion of opportunity for the common man, the oppressive sense of helplessness under the domination of a few, which are overshadowing our whole economic life.

Hence, for Roosevelt it was economic plight of the average American—not the deficit—that was the key not only to the restoration of our economy, but also to the health and well-being of our democratic system of government; even to our very way of life.

The debate over the so-called fiscal cliff and the showdown between President Obama and Congress over what to do about it has attracted a great deal of attention from the media. But rather than fall into another round of endless bickering with the budget hawks about the deficit, the president should use this opportunity to remind the American people—as FDR did all those years ago—that an economy and a political system built on fundamental inequality is simply not sustainable. If we really want to help the 47 percent our highest priority should be to adopt policies based on the fundamental idea that “political democracy and free private enterprise for profit should serve and protect each other,” not just the wealthy few at the top.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute. He is currently writing a book entitled Cordell Hull, Anthony Eden and the Search for Anglo-American Cooperation, 1933-1938.

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The Simpson-Bowles Consensus Isn't Common Sense. It's Nonsense.

Nov 28, 2012Jeff Madrick

Capping federal spending at 21 percent of GDP is arbitrary, short-sighted, and wrong for America.

Capping federal spending at 21 percent of GDP is arbitrary, short-sighted, and wrong for America.

The Simpson-Bowles budget balancing plan seems to have become the common-sense standard for dealing with America’s future budget deficits. I’d say this move toward the right is dangerous to the future of the nation and essentially cruel—far more dangerous than the level of the deficit over the next 15 years. The commission, formally known as the Commission on Fiscal Responsibility and Reform, appointed by President Obama, achieves its deficit reduction by reducing government spending to do two-thirds of the job and raising taxes to do only one-third of the job. Even 50-50 would not be fair in such a low-tax nation. The commission proposed cuts in Social Security benefits of 15 percent for medium earners, for example.

But easily the most short-sighted objective is to hold federal spending to 21 percent of Gross Domestic Product into the future. How did they get this number? It is roughly the average level of federal spending since 1970. This is not a reasonable standard—it is not even a way to think about the issue. So where did the idea originally come from? The answer: the right-wing Heritage Foundation.

Now our most respected elder statesmen of the economy, Paul Volcker and Warren Buffett, are endorsing the 21 percent level in recent editorials. It may have been missed in Buffett’s piece, which endorsed a 30 percent tax on the rich, and correctly so. But he said it plain as day: “Our government’s goal should be to…spend about 21 percent of G.D.P.”

Oh my. Did they do any analysis at all about what that level would mean for retired, sick, and middle-income-to-poor Americans? Did it occur to them how vastly the U.S. economy has changed over those years? There are many more retirees, health care is more expensive and more extensive, the U.S. has chosen to fight expensive wars, and its infrastructure and educational needs are dire.

The words of the wise oracles should not be taken seriously. One wonders whether Volcker would have run the Federal Reserve or Buffett picked stock on such skimpy analysis. They present no evidence, nor do I think they have done any research or even reading that shows that a 21 percent spending level will make the economy more efficient than, say, a 24 percent level of spending. 

And they beat their chests as the exemplars of responsibility in an otherwise irresponsible America. Moreover, Pete Peterson, of course, is now financing a road tour for Bowles and Simpson to fight their great moral battle to get America’s budget under control—as a reminder, not by raising taxes significantly but by cutting social entitlements significantly. America cannot be run by men like these. America’s great moral battle is for social justice and adequate federal investment.

The heroic and correct analysis of the Simpson-Bowles plan has been done by Paul Van de Water of the Center on Budget and Policy Priorities. Some think of the CBPP as left-wing, but it is only mildly so. It makes deficit reduction a top priority, and its analysis is typically excellent. 

Van de Water concludes that keeping federal spending at 21 percent of GDP would require deep cuts in Social Security, Medicare, and Medicaid over time, as well as virtually all other federal programs. He wrote this before the Budget Control Act and the sequester we now face, but its principles still apply.

Moreover, he reminds us that the Brookings Institution held panels on the future budget, and in general, centrists on those panels agreed that spending as a percent of GDP should be 23 to 25 percent 20 years from now. He thinks the Simpson-Bowles plan is simply wrong for America. In truth, Social Security is inadequate today, and Medicaid tragically so. The latter in particular needs building up.

And then the 21 percenters generally have the audacity to demand more investment in education and infrastructure. How?

Centrists had better get together and remind America, with analysis, pragmatism, and a keen sense of justice and America’s future, how deeply wrongheaded most of the basic principles of Simpson-Bowles are. This thinking has led to today’s fiscal cliff, and as a blueprint for the future it is both damaging to the economy and cruel for most Americans.

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

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Following Walmart and Black Friday

Nov 21, 2012Mike Konczal

My colleague Dorian Warren describes what is going on with Walmart in the video above and here.

Here's a list of events and ways to particpate by standing with Walmart on Black Friday. I encourage you to check it out.

Josh Eidelson has been a must read on this topic. Read him at his new Nation blog here, and follow him on twitter here.

Also, I enjoyed reading Sarah Jaffe reporting at the Guardian, and Seth Ackerman talking about Walmart via Hostess here.

My colleague Dorian Warren describes what is going on with Walmart in the video above and here.

Here's a list of events and ways to particpate by standing with Walmart on Black Friday. I encourage you to check it out.

Josh Eidelson has been a must read on this topic. Read him at his new Nation blog here, and follow him on twitter here.

Also, I enjoyed reading Sarah Jaffe reporting at the Guardian, and Seth Ackerman talking about Walmart via Hostess here.

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Obama's Second Term Could Mark the Return of the Four Freedoms

Nov 21, 2012David B. Woolner

As part of our series "A Rooseveltian Second Term Agenda," a call to return to a foreign policy based in FDR's vision of shared peace and prosperity.

As part of our series "A Rooseveltian Second Term Agenda," a call to return to a foreign policy based in FDR's vision of shared peace and prosperity.

Even though we come from different places, we share common dreams: to choose our leaders; to live together in peace; to get an education and make a good living; to love our families and our communities. That’s why freedom is not an abstract idea; freedom is the very thing that makes human progress possible — not just at the ballot box, but in our daily lives.

One of our greatest Presidents in the United States, Franklin Delano Roosevelt, understood this truth. He defined America’s cause as more than the right to cast a ballot. He understood democracy was not just voting. He called upon the world to embrace four fundamental freedoms: freedom of speech, freedom of worship, freedom from want, and freedom from fear. These four freedoms reinforce one another, and you cannot fully realize one without realizing them all.—Barack H. Obama, University of Yangon, November 19, 2012

In his historic visit to Burma, also referred to as Myanmar, President Obama spoke at length about the journey Burma is taking from dictatorship to democracy, a transition he said has the potential to inspire people the world over as “a test of whether a country can transition to a better place.”

President Obama made it clear that his journey to Burma—the first by an American president—was inspired in part by his own desire to encourage the people and government of Burma to press ahead with their democratic reforms so that the “flickers of progress” that the world has seen will not be extinguished. The president’s visit was also notable for his repeated insistence that America was a “Pacific nation,” whose “future was bound to those nations and peoples to our West.” But perhaps the most significant aspect of his speech was his decision to frame his remarks around a concept first articulated by Franklin D. Roosevelt at one of the darkest moments of the Second World War—the need to build a world founded on four fundamental human freedoms.

At a moment when Adolf Hitler had proclaimed the onset of “a new order” in Nazi-occupied Europe, and when Japanese militarists had seized much of China and were poised to expand their grip on Southeast Asia, Franklin Roosevelt proposed “a greater conception,” a “moral order” that represented the very antithesis of the “tyranny which the dictators seek to create with the crash of a bomb.” FDR’s order was based on the idea that all people—“everywhere in the world”—deserved the right to enjoy freedom of speech and expression; freedom of worship; freedom from want; and freedom from fear.

He articulated this vision in part because of the critical need to gain the support of the American people and Congress for the passage of the Lend-Lease Bill that was pending on Capitol Hill. But the enunciation of the Four Freedoms and initiation of Lend-Lease—which would make it possible for the United States to provide arms and munitions to Great Britain free of charge—was also inspired by a much deeper conviction: that the security of the United States was tied directly to the health and well-being of other nations.

For many Americans today, World War II and the Great Depression are two separate events. But for the generation that lived through these unparalleled crises, nothing could be farther from the truth. In their minds, and in the mind of Franklin Roosevelt, the two were inextricably linked. The Great Depression, after all, was not confined to the United States, but represented a worldwide economic crisis that helped inspire anti-democratic forces in both Europe and Asia—anti-democratic forces that helped give rise to the fascist movements in Germany and in Japan that would initiate the most destructive war in human history.

In light of this, Franklin Roosevelt remained convinced that the Second World War had economic causes. Moreover, as the war progressed, he became more and more convinced that America’s security was tied to the security of the rest of the world. As such, it was not enough for the United States to rely solely on the strength of its armed forces to provide for the nation’s safety; we also had to concern ourselves with the political, social, and economic health of other regions of the world since, as FDR put it in 1944, “true individual freedom cannot exist without economic security and independence”…and “people who are hungry and out of a job are the stuff of which dictatorships are made.”

It was this basic idea that inspired not only the Four Freedoms, but also the many institutions and practices that were put in place during and after the war to foster international cooperation and a more prosperous, healthy, and peaceful world. Many of these institutions and practices—like the United Nations, International Monetary Fund, World Bank. and multilateral trading regime—are with us still, so that much of the world we live in today is the world shaped by the vision of Franklin Roosevelt.

In recent years, however, we seem to have moved further and further away from this vision to a foreign policy that is dominated largely by the use of military force—no doubt inspired in part by the advent of modern technology, such as drone aircraft. This is unfortunate, for even though President Obama has shown willingness to use other means to pursue America’s interests abroad, his foreign policy to date has remained highly militarized.

His eloquent speech in Burma may indicate that he has decided to pursue a more progressive foreign policy agenda in his second term, one based on the recognition that the best means to keep America safe in the long term is to ensure that the hopes and aspirations of people the world over to enjoy freedom of speech and expression, freedom of worship, freedom from want, and freedom from fear stand not, as Roosevelt said, as some “vision of a distant millennium,” but as “a definite basis for a kind of world attainable in our own time and generation.”

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute. He is currently writing a book entitled Cordell Hull, Anthony Eden and the Search for Anglo-American Cooperation, 1933-1938.

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The GOP's Holiday Gift Guide: Pain for the Poor, Ponies for the Rich

Nov 21, 2012Tim Price

Republicans are using the fiscal cliff to extract payback for all the "gifts" President Obama has given to Americans.

Republicans are using the fiscal cliff to extract payback for all the "gifts" President Obama has given to Americans.

Before Americans have even finished digesting their Thanksgiving turkey, the holiday shopping season will have officially begun. But according to Mitt Romney, Christmas came early for those who voted for Barack Obama. The failed Republican presidential nominee and latter-day Scrooge told donors last week that President Obama had won reelection by “giving targeted groups a big gift.” And what generous stocking-stuffers they were! For the young and the poor, health coverage under the Affordable Care Act. For Hispanics, an executive order halting deportation of the children of undocumented immigrants. For women, free contraception for use in all their filthy lady activities. If Malia and Sasha don’t find a pair of baby unicorns under the White House Christmas tree this year, they have a right to feel jealous.

Romney’s comments met with disapproval from fellow Republicans who hope to have a future in elective office, but the truth is that they reflect an understanding of the American public and its relationship with government that is widely shared among conservatives. Paul Waldman argues that it fits right in with their “makers vs. takers” ideology, the notion that the country is divided between “the brave individualists needing nothing from anyone, and the blood-sucking parasites who rely on government.” But Republicans don’t just want to reset policy to some sort of neutral state where everyone gives and receives his or her fair share (slow down there, Karl Marx). Instead, they seem to view the fiscal cliff as an opportunity to impose austerity measures that would redistribute the gifts to their Nice List and punish those who have been spoiled by Obama’s socialist Santa. 

The fiscal cliff is in fact better described as an “austerity bomb,” a term coined by TPM’s Brian Beutler and echoed by Paul Krugman. Despite what the cliff terminology might suggest, the problem isn’t that the federal deficit is about to explode, but that conservatives who have spent years demanding swift and substantial deficit reduction are about to get exactly what they wanted. If this mix of scheduled tax increases and spending cuts is allowed to take effect, it will carve $560 billion out of the budget next year – so why are deficit scolds suddenly terrified of the consequences? Krugman argues that they’re implicitly conceding that “Keynesians were right all along, that slashing spending and raising taxes on ordinary workers is destructive in a depressed economy, and that we should actually be doing the opposite.”

But are Republicans really worried about the plight of the working man? You wouldn’t know it based on the alternatives they’ve proposed, which involve swapping one set of austerity measures for a slightly different set of austerity measures. Their real concern is what the fiscal cliff will mean for their friends and supporters, not what it will mean for the broader economy. Sure, the poor will take the hit first, as is their lot in life, but taxes will go up on rich people, too! That’s money coming straight out of the 2014 campaign coffers. And what about those poor defense contractors who will suffer from cuts to the Pentagon’s budget? They have mouths to feed, too.

The terms that Republicans have set for the fiscal cliff negotiations provide clear evidence of this favoritism. Chastened by President Obama’s reelection, they keep claiming they’re open to compromise, but they steadfastly refuse to raise tax rates on the rich. Instead, they insist any new revenue must come from “closing loopholes,” a hoary Beltway cliché that means nothing in particular, and they’ll only concede that much if Democrats agree to “reform entitlements,” which is even less specific but more ominous. Oh, and they also want “changes” to the Affordable Care Act to be on the table. In fact, if Barack Obama would just go ahead and resign from office, it would be a real show of good faith and bipartisan spirit.

Proposing to cut Social Security benefits or raise the retirement age as part of a fiscal cliff deal is a non sequitur at best. With all due respect to financial masterminds like Lloyd Blankfein, it’s hard to believe that anyone could be told that Congress is about to pull the rug out from under the fragile recovery and honestly conclude that the solution is to make old people work longer. It’s the equivalent of the president being told that we’re on the verge of nuclear war and replying, “I’ll have the soup.” As Jeff Madrick has explained at length, Social Security is not in crisis, and there are plenty of easy fixes available for its future financial shortfall. (Medicare is a thornier problem, but one that probably shouldn’t be dealt with on a timer.) Senator Mark Begich, for instance, has proposed to cover the gap and pay for more generous benefits by eliminating the payroll tax cap. But don’t expect that plan to be taken very seriously by the Very Serious People, because it asks the rich to sacrifice more instead of inflicting some character-building pain on everyone else.

Aside from being unnecessary, such cuts would have a disproportionate impact on the poor. The right’s claim that Social Security wasn’t designed to handle increased life expectancies is based on a serious misunderstanding of history and human biology, but it is true that life expectancy has risen dramatically – for the rich. Workers on the lower rungs of the economic ladder haven’t been so lucky, so a higher retirement age is just a massive benefit cut for them. Of course, any such changes would only be phased in for younger workers, who (purely coincidentally) don’t vote Republican, not current retirees who do. That will teach those spoiled little punks. Er, I mean, preserve the promise of Social Security for future generations.

The same logic, if you can call it that, applies to demanding changes to the Affordable Care Act. The current law will save $109 billion over the next 10 years, so in theory, the deficit hawks should love it, right? Well, there are two problems with that theory. The first is that those cost savings are based on CBO projections, which, like Nate Silver’s electoral analysis, fall into that category of “liberal math” that Republicans find inherently suspect. The other is that the ACA achieves those savings while helping poor people -- that’s what makes it a gift, according to Romney. But deficit reduction isn’t supposed to make life easier; it’s supposed to be tough love that forces people to fend for themselves in a harsh and unforgiving world. Like exercise, the pain means it’s working. Or maybe you just tore a tendon. You should probably check with your doctor, assuming you can afford health insurance.

This barely concealed impulse to punish the undeserving is the source of Republicans’ internal conflict over the fiscal cliff and the biggest hurdle they must overcome in their efforts to become viable contenders for the White House again. They may not see it as punishment; to them, it’s just a teaspoon of unpleasant medicine that will eventually make the country much healthier. But things like government-funded health care, education, and retirement security only look like gifts from the perspective of the man who has everything. What Republicans see as unaffordable luxuries, the rest of us see as essential to a basic standard of living. Until they realize that, we might be able to reach a compromise on the fiscal cliff, but we’ll never really find common ground.

Tim Price is Deputy Editor of Next New Deal. Follow him on Twitter @txprice.

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The Missing Living Wage Agenda

Nov 20, 2012Annette BernhardtDorian Warren

As part of our series "A Rooseveltian Second Term Agenda," a long-term plan to provide justice on the job for all workers.

As part of our series "A Rooseveltian Second Term Agenda," a long-term plan to provide justice on the job for all workers.

Now that the election is over, our hope is that we can finally move beyond the vacuous invocations of an imaginary middle class where everyone is in the same boat. It’s time to get real about the concrete policies needed to take on the multiple inequalities that run deep through the U.S. labor market. And we’re not talking about the “skills mismatch,” another red herring routinely flung into this debate by both sides (including by President Obama as recently as the last week of the campaign).

What we’re talking about is a broad, multi-year agenda to give America’s workers a living wage and voice on the job and to take on the continuing exclusion of workers of color, immigrants, and women from good jobs. The media may have discovered inequality last year with the surprise emergence of Occupy Wall Street, but in truth, there is a 30-year backlog of policies to fix the extreme maldistribution of wages and opportunity in the labor market.

First, we have to make our core workplace standards much stronger – whether it’s in terms of wages, health and safety, or voice on the job. That means raising the minimum wage so that it’s a meaningful floor again (some good news: voters in Albuquerque, San Jose, and Long Beach raised theirs last week). It means updating health and safety regulations written in the 1970s. And it means restoring the right to organize, because at this point, virulent employer opposition and retaliation has rendered U.S. labor law obsolete. Fifty-eight percent of U.S. workers say they would like to be represented by a union, but only 11.8 percent actually are. This is what happens when one out of four workers is fired illegally for attempting to organize a union while employers face minimal penalties.

Second, we have to take on the profound reorganization of the American workplace. The poster child for precarious work is temp jobs – but subcontracting has had a much broader impact, as janitors, laundry workers, warehouse workers, security guards, food service workers, and millions of others have been outsourced to low-wage firms. A good model for a solution is California’s recent law making companies liable for minimum wage and overtime violations by their subcontractors, recognizing that end-user firms such as Walmart exert considerable control over working conditions down their supply chains.   

Third, we have to double down on enforcement. A 2008 study of Chicago, Los Angeles, and New York found that 26 percent of low-wage workers were paid less than the minimum wage and 76 percent were underpaid or not paid at all for their overtime hours. Yet the number of federal wage and hour inspectors is still below 1980 levels, and it would take 131 years for OSHA investigators to inspect each workplace just once. Until employers face substantial costs to their bottom line (as is true in other bodies of law, such as environmental regulation and employment discrimination law), practices like wage theft, retaliation against workers trying to organize a union, and independent contractor misclassification will continue unabated.

Fourth, we have to do a better job of leveraging the government’s capital. Public money touches millions of private-sector jobs, whether by purchasing goods and services for the government or by funding everything from schools and bridges to health care and social services. There are plenty of innovative models to ensure that this money results in good jobs, whether it’s responsible contracting policies (in California, Massachusetts, Connecticut, and Illinois), living wage laws (in more than 140 cities and counties), or accountable economic development policies (in Los Angeles, Pittsburgh, and New York City, among others).

Fifth, we have to explicitly break down systemic labor market exclusions of people of color, immigrants, women, the unemployed, and people with criminal records. For example, advocates are pushing the U.S. Department of Labor to finally end the exemption of home care workers from minimum wage and overtime protection, and cities across the country are passing “ban the box” policies to reduce hiring barriers for people with arrest or conviction records.  

But we also have to challenge de facto exclusions. A good example is targeted hiring and training programs on publicly funded projects, which in our mind will be crucial to solving the escalating (and chronically under-reported) economic crisis in communities of color. A great example is Portland’s 2009 residential retrofitting program, which mandated living wages and local hiring from designated training programs. As of last year, the program’s workers earned median wages of $18 per hour; fully 84 percent were local residents, nearly half of them people of color. While unemployment is still at Depression-era levels in many black communities, we know what works to employ those still excluded from access to the labor market.

A final word on why we think these policies (and many others; see the long-form version here) are politically viable. In communities across the country, there is an undeniable thirst for justice on the job and investment in local communities. This is true not just for raising the minimum wage, which consistently polls in the 70-80 percent range, but also policies such as paid sick days, increased funding for elder care and child care, cracking down on wage theft, using taxpayer money to create living wage jobs, and restoring the right to organize.

(If you doubt support for organizing, consider the recent wave of strikes by Walmart workers, or New York’s taxi workers organizing for better pay even though they are independent contractors, or Palermo’s pizza workers in Wisconsin staying out on strike for three months and now pressuring Costco to boycott their employer.)

The real question is whether President Obama and Democrats in Congress understand that raising taxes on the top 2 percent is only the first step on a long road toward building a sustainable living wage economy in the U.S. Our hope lies in the growing recognition among progressives that it will take the pressure and power of social movements to convince him to walk that road with us.

Annette Bernhardt and Dorian Warren are Fellows at the Roosevelt Institute.

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Obama Can Thank Women Voters By Supporting Real Economic Equality

Nov 15, 2012Bryce Covert

As part of our series "A Rooseveltian Second Term Agenda," a way to recognize the economic needs of the women who helped re-elect President Obama.

As part of our series "A Rooseveltian Second Term Agenda," a way to recognize the economic needs of the women who helped re-elect President Obama.

Both candidates spent a lot of time and energy courting women’s votes this cycle. But as predicted, the gender gap yawned on Election Day and pushed Obama to victory with a 10-point gender gap between him and Romney. How can President Obama thank the women who voted for him as he starts shaping the agenda for his second term? There are a variety of general economic policies that will benefit everyone, including women, such as spending federal stimulus money to kick-start a sluggish economy, ensuring the jobs being created in the recovery pay enough to support workers and their families, and bolstering a failing safety net to support the most vulnerable among us.

But while women hold down half of the jobs in our economy, they still face unique challenges and obstacles to full economic equality. If President Obama cares about women’s economic welfare as much Candidate Obama indicated, there are some important issues he can take on in the next four years.

  1. Truly equal pay for equal work: President Obama often talks about the fact that the first bill he signed into law was the Lilly Ledbetter Fair Pay Act, which helps address the gender wage gap. The act gives women more time to file a claim alleging discrimination since the truth may take a long time to surface. But while the act gets talked about like a panacea, it’s far from it. The number of pay discrimination complaints filed with the EEOC fell since the signing of the act while the pay gap widened. This is because the gap is caused by a complex array of factors: occupational segregation, hostile courts, and plain old discrimination. A first step to supplement the Lilly Ledbetter Act would be prohibiting salary secrecy, forcing employers to allow employees to talk about their pay with each other, something half of all workers cannot currently do. It will be next to impossible for women to address discrimination if they don’t even know it’s happening. But we also have to talk about how to move women into nontraditional fields, appoint judges to the courts that will stand by women when they sue for discrimination, and raise pay for the service sector jobs that women already dominate. These are large issues, but without putting them on the agenda they’ll continue to hamper women’s equality.
  1. Paid time off to care for family: We are one of just three countries among 178 that doesn’t guarantee any paid maternity leave benefits. Fifty countries go further to offer leave for fathers. Among the 15 most competitive nations, we’re the only one that doesn’t have a paid sick days policy. The reality is that the work of caring for children – when they’re very young, sick, or not in school – still falls mostly to women. Yet they can still lose their jobs when they need to miss work for this important caretaking. And without offering paid benefits, we force many women to take on debt or go hat in hand to loved ones and friends to get through. Not only will paid family leave benefit women, it will benefit men and help to change the care work equation. Men are more likely to take time off to be with a new child if the leave is paid – unsurprisingly, since families have such a hard time financing the lost income. And when men do take leave, they become more involved in their children’s lives. Universal, paid leave policies improve quality of life for all workers while leveling the playing field for women.
  1. Significant support for child care: There are two sides to child care. On one are those who need help caring for family and as mentioned above, they are almost entirely women. On the other are the caregivers, also almost entirely women. Our support for child care is pretty dismal and getting worse. The cost of putting two children in center care exceeds median rent in all 50 states. At the same time, the majority of states have pulled back on child care assistance for two years in a row. The Child and Dependent Care Tax Credit that gives parents who are paying for child care a tax break has only increased once in the last 28 years. The government needs to invest heavily in supporting working parents, men and women alike, with skyrocketing child care costs, allowing all who can and want to go to work to leave their children with quality caretakers. This is also a way to begin ensuring that these caretakers are well paid. In a national survey of in-home child care providers, the most common answer to how much they make in a week is $500, or $26,000 a year – a pitiful amount, not to mention that many don’t receive any benefits. Given how much families struggle with the cost and how many domestic workers don’t make enough to live on, the government must step in.

American women have flooded the labor market in the last half-century. But our economy and society haven’t changed enough to meet them halfway. President Obama won’t be able to fix all of these problems in his second term. But he can begin to address them and put a spotlight on these societal problems that we still think of as private concerns. I’m sure women voters would be grateful.

Bryce Covert is Editor of Next New Deal.

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