Rortybomb

Bubble Standards: Why the Poor Are on the Hook for the Housing Crash

Jul 23, 2012Mike Konczal

When it comes to assigning losses from an economic bubble, we apply one set of standards to elite investors and another to struggling homeowners.

When it comes to assigning losses from an economic bubble, we apply one set of standards to elite investors and another to struggling homeowners.

Many are discussing a potential collapse of a housing bubble in Canada and what could be done about it right now. Here are posts on that subject from Matt Yglesias, Dean Baker, and Worthwhile Canadian Initiative. As I read the literature being written on this crisis, the key issue to watch for is whether the rapid growth in housing prices is matched by a similar growth in household mortgage debt. To see why, it might be useful to contrast the aftermath of the United States' housing bubble with the stock market bubble.

The IMF recently studied a series of 25 OECD countries from 1980 to 2011. These countries experienced a total of 99 housing busts ("turning points (peaks) in nominal house prices"). It divided these housing busts into ones with a high run-up in household debt and ones with a low run-up, and found that "housing busts preceded by larger run-ups in household debt tend to be followed by more severe and longer-lasting declines in household consumption...real GDP typically falls more and unemployment rises more for the high-debt busts." This happens with or without a financial crisis occuring at the same time as the housing bust.

Why is this the case? Let's look at the allocation of losses that occur from the collapse of a bubble.

Within a short time after the internet dot-com bubble popped in 2000-2001, people had a sense of the size of the losses and who would take those losses. The equity holders of collapsing dot-com firms, the ones who held companies' stocks, would be wiped out, and the creditors would take huge hits, as there was very little property to be auctioned off or value to be retained. Trying to reorganize and resurrect the dot-com firms under Chapter 11 bankruptcy wouldn't have helped because they were new firms with no real revenues sources, their high-skill employees would flee, and there was little in terms of assets to use as collateral to secure future funding.

Since the firms were mostly webpages and had small-scale intellectual property, they were auctioned off very quickly under Chapter 7 bankruptcy rules. Even telecom firms that went bankrupt but had a large amount of assets and were eventually relaunched took less than two years. Global Crossing, for example, went bankrupt in January 2002 and relaunched in December 2003. These bankruptcies involved heavy losses for creditors. According to bankruptcy expert Edward Altman, "Default recoveries continued at persistently low average levels, weighed down by the enormous supply of new defaults and communication firms’ 16.6% average recovery." (h/t Greg Ip) But within a two-year span, the losses were understood and allocated.

It has been roughly five or six years since the United States' housing bubble popped. Have we finished assigning the losses yet? Robbie Whelan at the Wall Street Journal reports that we have a range of estimates from 23 percent of homes with a mortgage being underwater, owing a total of $715 billion more than their homes are worth (CoreLogic's estimates), to 31 percent of homes with a mortgage being underwater, owing a total of $1.2 trillion more than their homes are worth (Zillow's estimate). The evidence is clear that where households are most underwater on their mortgages, consumption is weakest, job losses are the worst, and income gains are struggling.

Mortgage debtors aren't shareholders, but it is fascinating to contrast their fates. In the dot-com bust, losses were assigned very quickly. In the housing bust, losses stick with the equivalent "equity" holder years and years out (and hang like an albatross around the neck of the economy as a whole). The losses that are allocated come about in large part through painful foreclosures, which create more losses by fire-selling assets into a weak marketplace. This system is designed to destroy all possible value and drag out the procedures in long, painful ways.

Crucially, in the dot-com bust there weren't the same moral and political arguments that we see in the current one. Economists who demand to know why U.S. mortgages don't stay with people who walk away from their homes didn't demand to know why the equity holders of Pets.com didn't have to dip into their personal savings to pay off the losses creditors took. Very Serious People wonder if debtors' prisons are necessary for homeowners who would walk away from a mortgage or view bankruptcy as an exit strategy, yet no Very Serious People called for the mass imprisonment of Webvan or Flooz shareholders after those firms declared bankruptcy as an exit strategy. Nobody argues that the shareholders of the dot-com era received a gigantic government bailout through the law when they were not personally on the hook for sticking creditors with an 83.4 percent average loss. Meanwhile, efforts to allow for a cleaner way of allocating the housing bubble losses, from retaining value of the household through bankruptcy reform to local municipalities taking action through eminent domain, face a minefield of political and financial industry opposition that gives the impression that the banks "own the place."

When it comes to assigning losses among elite financial institutions, like shareholders and creditors, there is a clean system in place to make sure that it runs efficiently without dragging the entire economy to a halt. When it comes to assigning losses between household mortgage debtors and elite financial creditors, we sit in a perpetual quasi-recession six years out. As the antropologist David Graber finds historically, "[d]ebts between the very wealthy or between governments can always be renegotiated and always have been throughout world history. They’re not anything set in stone... It’s, generally speaking, when you have debts owed by the poor to the rich that suddenly debts become a sacred obligation, more important than anything else. The idea of renegotiating them becomes unthinkable." This time isn't different.

Mike Konczal is a Fellow at the Roosevelt Institute.

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The Conservative War on Single Mothers Like Jessica Schairer

Jul 19, 2012June CarboneNaomi Cahn

Conservatives want to have their cake and eat it too: decry the rise in nonmarital births but make life even harder for women facing single motherhood.

Conservatives want to have their cake and eat it too: decry the rise in nonmarital births but make life even harder for women facing single motherhood.

Ever wonder what the “war on women” is really about? An article in the New York Times, “Two Classes, Divided by ‘I Do’: For Richer Marriage, for Poorer, Single Motherhood,” provides some clues. The article documents the growing class divide in family form. College graduates like Chris and Kevin Faulkner, who were profiled in the article, postpone starting families, produce marriages with lower divorce rates than a generation ago, and reap the rewards in terms of greater time and resources to invest in children. In the meantime, women like Jessica Schairer who do not graduate from college, also profiled in the article, are increasingly raising children on their own. These women often give up on the men in their lives and struggle to balance the demands of low-paying jobs with the attention their children need.

The article presents a compelling portrait of the causes and the effects, but not of the partisan divide over the potential solutions. That divide can be summed up by a struggle over a simple question: are women like the single mother, Jessica Schairer, the victims of our economy or the problem? Those who see them as the problem are setting forth proposals to make their lives (and their children’s lives) worse. Those of us who see Jessica Schairer as a victim of increasing economic inequality recognize that supporting her ability to care for her children is critical to the strength of the country’s next generation. The political war for the future of Jessica Schairer is under way.

The change in family structure is a consequence of growing economic inequality that further increases inequality in the next generation of children. The most startling change is the increase in non-marital births. In 1990, just 10 percent of white women with some college education had a birth outside of marriage; today the figure is 30 percent, compared to 8 percent of whites with a college degree and 40 percent for the country as a whole. Meanwhile, 86 percent of black high school dropouts have children outside of marriage. The likelihood that a child will be raised in a two-parent family has become a marker of class.

The Times article documents the consequences of this change, as it describes the limited ability of single parents to pay for sports participation, attend school events, stay on top of homework, and provide adequate role models. Harvard’s Robert Putnam adds that the growing class gap in childrearing affects everything from the time parents spend playing patty-cake with their pre-schoolers to the likelihood that a high school senior will be the captain of a sports team.

In considering the causes of class divergence, the Times articles documents a negative spiral. It observes that economic woes speed marital decline “as women see fewer marriageable men.” Women do not commit to men without steady employment, and a shortage of “good men” encourages the employed to play the field. A long list of academic studies demonstrates that when marriageable women outnumber the men, everyone’s norms change and marriage rates decline. For single mom Jessica Schairer, as for many other women today, there was no point to marrying the father of her three children. Instead, for her the issue is “why she stayed so long with a man who she said earned so little, berated her often and did no parenting.” On the other hand, marriage also encourages men to shape up. Kevin Faulkner, the married father in the story, explained that he returned to college because he wanted to get married. Other studies show that not only has the premium for college graduates increased over the last generation, but the job stability of less educated men has fallen more than for other parts of the population and male layoffs often break up relationships and discourage marriage.

While the documentation of these differences is now well established, the solutions are not. Yet there are two obvious ones, rarely discussed in explicit terms. The first recreates the links between stable jobs and stable families. This requires greater economic equality, more opportunities for blue-collar men, more family-friendly workplaces, greater support for higher education and job training, and better access to contraception and other supports for delaying family formation. A growing literature suggests that greater equality itself creates virtuous cycles that deter teen births and encourage longer lasting family relationships.

The alternative? Bring back patriarchy. Conservatives like Charles Murray blame changing values, charging that the men have gotten lazy because women no longer depend on them or fail to sleep with them until they shape up. The secret to bringing back female dependence and male virtue? Make the women desperate. Murray has made a career of blaming government programs such as welfare for the destruction of the American family because such programs cushion the impact of single parenthood. For conservatives who see single mothers like Jessica Schairer as the problem and who refuse to see inequality itself as the explanation, the result is a war on women.

Virtually every conservative Republican, from Paul Ryan’s budget to Mitt Romney’s platform, would cut the benefits on which single mothers like Jessica Schairer currently depend. Indeed, shortly after Romney’s NAACP speech, he commented, “Remind them of this: If they want more free stuff from government, tell them to go vote for the other guy.” What could Romney have meant by “free stuff?”

First, start with food stamps. They are an important part of Jessica Schairer’s ability to feed three children on an income of $25,000 a year. Romney’s proposals would either force 13 million people off of food stamps entirely or cut benefits by $2000 per year per family.

Second, Romney’s budget would produce massive cuts in Medicaid programs that serve as the most important source of health care for working mothers without adequate benefits. 

Third, Romney’s tax proposals would raise Jessica Schairer’s taxes while providing for massive cuts for those with high incomes. 

Whether or not Romney specifically intends to make the lives of single mothers more perilous, his policies would do exactly that.

Social conservatives, in the meantime, have taken aim at the reproductive rights that make it possible for women to avoid inopportune births. The class divide in access to contraception and abortion is wide and growing. The Guttmacher Institute reports that between 1994 and 2006, the unintended pregnancy rate grew by 50 percent for women below the poverty line. During the same period, it fell by 29 percent for higher income women. Yet those who share Charles Murray’s sentiments about single mothers have done their best to make it worse.

For many of us, this is the most perplexing part of the war on Jessica Schairer, and it rests on conservatives’ analysis that the key to reforming the family is to deny men sex rather than prevent births. Indeed, Republican candidate Rick Santorum linked the increase in non-marital births to the “dangers of contraception,” which he categorized as "a license to do things in a sexual realm that is counter to how things are supposed to be."

We noted in Red Families v. Blue Families that most conservatives do not oppose contraception per se, but they remain resolutely against the implied approval of non-marital sex that would accompany explicit support and the government subsidies necessary to make access more universal. In the name of religious liberty, they accordingly raised a furor over President Obama’s recent proposal to mandate employer coverage of contraception as preventive health care. With less publicity, they blocked inclusion of proposals to increase contraceptive access in the stimulus bill. And they defeated efforts to include contraception in any form as part of the health care package. Yet poor women’s lack of health care coverage is a major factor in the unplanned pregnancy rate.

If contraceptive access is controversial, abortion is off the table. Ms. Schairer considered one in response to the unplanned pregnancy that derailed her college education, but the father of her children opposed it. The Guttmacher Institute notes that the women most likely to end an unintended pregnancy by abortion are those who, like Ms. Schairer, are in college at the time of the pregnancy. Had Ms. Schairer not given birth when she did, she would have been much more likely to graduate, to avoid a non-marital birth, and to be able to secure a better job. But at the same time conservatives work to make life more difficult for mothers like Jessica Schairer, they argue that having the child is the only acceptable moral option.

For a generation now, Murray, the editorial pages of the Wall Street Journal, and many other conservatives have denied that inequality has anything to do with the changing family. Romney has joined the chorus, dismissing any discussion of inequality as “envy” and “class warfare.” It is time to recognize the truth. The policies they have championed are responsible for the class-based division in family form. The war on Jessica Schairer is claiming an increasing number of victims. 

June Carbone is the Edward A. Smith/Missouri Chair of Law, the Constitution and Society at the University of Missouri-Kansas City.

Naomi Cahn is the John Theodore Fey Research Professor of Law at George Washington University Law School. She is the author of numerous books and law review articles on gender and family law.

Cahn and Carbone are the co-authors of Red Families v. Blue Families.

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The Opposite of Obama's "You Didn't Build That" Comment: Mythological Job Creators

Jul 18, 2012Mike Konczal

Conservatives are in a rage after Obama suggested we add value to the economy together. In their version, only the rich do.

Conservatives are in a rage after Obama suggested we add value to the economy together. In their version, only the rich do.

"If you’ve been successful, you didn’t get there on your own... If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive... If you’ve got a business -- you didn’t build that... The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together."

- President Barack Obama, Roanoke Fire Station #1, Roanoke, Virginia, July 13th, 2012

"The man at the top of the intellectual pyramid contributes the most to all those below him, but gets nothing except his material payment, receiving no intellectual bonus from others to add to the value of his time. The man at the bottom who, left to himself, would starve in his hopeless ineptitude, contribute nothing to those above him, but receives the bonus of all their brains.”

- Ayn Rand, Atlas Shrugged, required reading for Representative Paul Ryan's (R-WI) staff.

"The Zambrellis scoffed at attempts by the Democrats...to wage class warfare... 'It's not helping the economy to pit the people who are the engine of the economy against the people who rely on that engine.'"

- Michael Zambrelli, Mitt Romney fundraiser, East Hampton, New York, July 8th, 2012, Quoted in the LA Times

What's the opposite of President Obama's view that the rich have become rich thanks to the American system that we've created together? President Obama's speech has sent the right into a furor, with Rush Limbaugh telling his audience, "I think it can now be said, without equivocation—without equivocation—that this man hates this country." But if expressing the opinion that the value of the economy is something that is created together is enough to hate America, what would it mean to have a vision of wealth creation that loves America?

Some political commentators have treated this comment and its reaction either as part of the presidential noise machine or as the dreamscape projections of the conservative id. Will Wilkinson at Democracy in America has written a post, "Taxes and the rich," addressing this. There are some problematic issues with the post [1] [2], but he describes Rush Limbaugh's reaction as being bound up in an absurd myth. He says, "Mr Obama's in-it-together point is mildly offensive in context because it is used to imply that top-earners who resist paying an even larger portion of America's tab do so only because they are in the grip of an absurd myth of self-reliance."

I'd argue that instead of self-reliance, the real idea the right is appealing to here is the idea of the "job creator." It goes beyond the person who gets by on his own without any help from the government or the public at large. It's the idea that the rich create all the value of the economy. They are, as John Paul Rollert put it in a great post wondering what Adam Smith would think of "job creators," the visible hand of the economy. The rich are, as people at the Mitt Romney fundraiser put it, "the engine of the economy" who all the other people "rely" on for their survival. (I'm assuming. I would have meant it the other way around, but I wasn't at that fundraiser.) The economy isn't something we create together. It is something the rich create for everyone else.

And, crucially, rather than being a myth or a fairy tale conservatives tell themselves, this idea of the "job creator" is the basis for current policy-making on the right. As Texas Governor Rick Perry put it during the primary, “America is not going to move forward until we remove restrictions of over-taxation, over-regulation and over-litigation on the job creators and free them so the jobs can be created.” Charles Krauthammer argues on TV that we have a capital strike that's holding back the economy. John Boehner gives speeches where he argues "private-sector job creators in particular — are rattled by what they’ve seen out of this town over the last few years. My worry is that for American job creators, all the uncertainty is turning to fear that this toxic environment for job creation is a permanent state. Job creators in America are essentially on strike."

Speeches like these diagnose the problem, and then it turns into policy. Presidential candidate Mitt Romney's policy plans for job creation operate under the assumption that those at the top of the economic pyramid are being held in check. His Day One proposals include “the elimination of Obama-era regulations that unduly burden the economy or job creation," “revers[ing] the executive orders issued by President Obama that tilt the playing field in favor of organized labor," cutting corporate taxes, eliminating the estate tax, and a variety of other policy designed to give the "job creators" a firmer hand in controlling the economy. His education policy includes putting private actors in charge of everything, especially putting commercial banks back into the sweet spot of collecting government-insured money and expanding how easy it is for for-profit colleges to qualify for federal money. Presumably he does this because the private is always superior to the public, regardless of how much the business model appears to be a vacuum for subsidies. His tax and social safety net policy focus on boosting the earnings of those at the top of the pyramid on the backs of those at the bottom.

These policies include no hint that the economy is stuck due to inadequate demand or the weak purchasing power of the middle and working classes and the delinking of wages and productivity. There's no mention of the need to expand education and infrastructure to create the economy of the 21st century. There's absolutely no sense that the economy encourages the most innovative or entrepreneurial when there is full employment and a portable social safety net that provides economic security. And it is light-years away from the observation that society is a system of cooperation in which the value in the economy is created together.

 

[1] Wilkinson doesn't say it outright, but it seems that he is in favor of a flat, proportional tax on fairness grounds: "the facts about the portion of tax revenue contributed by the rich plausibly suggest that they pay more than their fair share for the infrastructure of capitalism..the class of people Mr Obama wants to 'give back' has already paid most of the tab, and continues to pay most of the tab, for the tax-financed public goods upon which they, and the rest of us, so crucially depend."

Why do we assume that a flat tax is fair? Given that Wilkinson's theory is about how public goods benefit society, presumably he thinks taxes should be the shadow price of purchasing those goods if they were available in a market. A flat tax would be the philosophically coherent answer for how to raise funds to pay for these benefits if and only if benefits consumed rise proportionately to income. If someone is 10^4 times as rich as I am, they need 10^4 times more garbage collected, breathe 10^4 times more clean air, require 10^4 more police protection and functioning courts, etc. That strikes me as dubious.

The best Milton Friedman could do was "proportional flat-rate-tax would involve higher absolute payments by persons with higher incomes for governmental services, which is not clearly inappropriate on grounds of benefit conferred." Not clearly inappropriate indeed. Taxes should be highly regressive in Wilkinsons' view, converging to a head tax, unless we are talking about utility gained from society, or unless we believe tax policy is a function of making the basic structures of society serve goals like benefitting the worse off, under which the progressive taxation case makes much more sense. See Barbara Fried's fantastic "The Puzzling Case for Proportionate Taxation" for more.

[2] Wilkinson: "[I]n 2008...[t]he top 5 percent earned 31.7 percent of the nation's adjusted gross income, but paid approximately 58.7 percent of federal individual income taxes. If that's not giving something back, what is?" These numbers are juked in part due to the Earned Income Tax Credit (EITC), which is kind of like a negative tax with a work requirement. Given that all the rage in Bleeding Heart Libertarian circles is a universal basic income (UBI) delivered through a negative tax, wouldn't that number be significantly higher under such a system? This is why some people think that libertarians wouldn't really pull the trigger on a UBI...

Mike Konczal is a Fellow at the Roosevelt Institute.

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After "Citizens United II," Time for Campaign Finance Reformers to Focus Away from the Court

Jun 26, 2012Mark Schmitt

The huge role of money in politics can be addressed in ways that don't rely completely on the nine Supremes.

The huge role of money in politics can be addressed in ways that don't rely completely on the nine Supremes.

It should have come as no surprise that the Supreme Court would strike down the lower court decision to uphold Montana's ban on corporate political spending. Even if Justice Kennedy, say, had been taken aback by the public reaction to his flawed opinion in Citizens United, it is extremely rare for the Court to directly reverse itself. The more likely outcome, if the Court had taken the case rather than simply reversed the lower court's decision, would have been that it might move even further in the direction of Citizens United – for example, by indicating that it would reconsider prohibitions on direct contributions from candidates. As Rick Hasen of the Election Law Blog commented yesterday, “The best way to win before the Roberts Court if you are a campaign reformer (aside from on disclosure issues) is not to play.”

What does it mean “not to play”? It doesn't mean giving up on everything. And it shouldn't mean pursuing the even more futile path of a constitutional amendment to reverse Citizens United. Rather, it means getting over the obsession with corporate money, which plays a small role in federal elections and Super PACs, and getting refocused instead on the broader question of the ways in which political inequality reinforces economic inequality. To put CU in perspective, corporate money (mostly from privately held companies) represents only 17 percent of contributions to Super PACs, and Super PACs represent, so far, only about 10 percent of the total money in federal politics. That's not to dismiss the issue or the cases, but corporate political spending is only one part of the story of how money distorts democracy.

While Citizens United and the somewhat more important SpeechNow case have certainly brought in a new atmosphere of “anything goes” to money in politics, there are answers that don't involve waiting around for one of the five conservative justices on the Court to retire. One, of course, is generous public financing, such as New York City's system, which provides a six-to-one match on small contributions. State legislators and Governor Cuomo have been pushing to extend the city system to the state level. Everywhere that similar public financing systems have been put in place (Arizona, Connecticut, Maine) they have been popular, resilient, constitutionally sound, and have broadened the role of small contributors and brought new candidates into the process.

The recent court decisions have also opened new opportunities for Congress and state legislatures to require the disclosure of donors to outside groups as well as to candidates. Law professor Ciara Torres-Spelicy recently described this move as a “dramatic 180 degree turn...on the issue of the constitutionality of disclosure.” Disclosure doesn't solve all problems, but a big part of the story of money in politics post-Citizens United is the creation of political entities, such as Karl Rove's Crossroads GPS, that are not Super PACs but instead use a section of the tax code for non-profits to avoid limits and also maintain anonymity for donors. This could be fixed by the IRS (these non-profits are not supposed to have election activity as their primary purpose) or by Congress, without the slightest constitutional problem.

While Hasen is right that it would be futile to keep knocking on the door of the Supreme Court, hoping that they've changed their mind, there's a lot of work to be done, and a lot of progress that can be made, without involving the Court at all.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

 

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Mike Konczal and Chris Hayes: How Meritocracy Produces Inequality

Jun 26, 2012Danielle Bella Ellison

In the most recent installment of “Fireside Chats,” the Roosevelt Institute’s Bloggingheads series, Fellow Mike Konczal talks with MSNBC host Chris Hayes, discussing the distortion of meritocracy and the problems of self-perpetuating elitism. As Konczal explains, the culture of “anxiety about the person who’s one step up from you” creates an environment where everyone knows everyone else is cheating, but "the rewards are so high, and conversely, the penalty for being left behind...

In the most recent installment of “Fireside Chats,” the Roosevelt Institute’s Bloggingheads series, Fellow Mike Konczal talks with MSNBC host Chris Hayes, discussing the distortion of meritocracy and the problems of self-perpetuating elitism. As Konczal explains, the culture of “anxiety about the person who’s one step up from you” creates an environment where everyone knows everyone else is cheating, but "the rewards are so high, and conversely, the penalty for being left behind... [is] so severe, then even the most unethical things become a no brainer that you’re just compelled to take part of.”

“There’s the depth of failure but also the breadth of failure,” Konczal says. In a myriad of areas, from Washington and Wall Street to the test prep industry and steroids in baseball, the system we have now is a “meritocratic competitive arms race.” This has lead to extraordinary corruption and crisis in every sphere of American life, and with it a collapse of trust in our institutions that are increasingly run by distant elites. 

To add insult to injury, this elitism is self-perpetuating. Any organization, even if it begins as completely egalitarian and democratic, will have to utilize the mechanisms of meritocracy to determine some sort of leadership. However, Hayes explains that those who end up with this power will “inevitably use that disproportionate power to subvert whatever mechanisms of accountability, turnover, mobility,” that were initially in place. Konczal laments that things have gotten so bad that failures such as WorldCom and Enron “just feel like historical footnotes now compared to Lehman Brothers." He concludes that “People need to understand that the game is rigged.”

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Mike Konczal and Chris Hayes: How Meritocracy Produces Inequality

Jun 25, 2012

In the most recent installment of “Fireside Chats,” the Roosevelt Institute’s Bloggingheads series, Fellow Mike Konczal talks with MSNBC host Chris Hayes, discussing the distortion of meritocracy and the problems of self-perpetuating e

In the most recent installment of “Fireside Chats,” the Roosevelt Institute’s Bloggingheads series, Fellow Mike Konczal talks with MSNBC host Chris Hayes, discussing the distortion of meritocracy and the problems of self-perpetuating elitism. As Konczal explains, the culture of “anxiety about the person who’s one step up from you” creates an environment where everyone knows everyone else is cheating, but "the rewards are so high, and conversely, the penalty for being left behind... [is] so severe, then even the most unethical things become a no brainer that you’re just compelled to take part of.”

“There’s the depth of failure but also the breadth of failure,” Konczal says. In a myriad of areas, from Washington and Wall Street to the test prep industry and steroids in baseball, the system we have now is a “meritocratic competitive arms race.” This has lead to extraordinary corruption and crisis in every sphere of American life, and with it a collapse of trust in our institutions that are increasingly run by distant elites. 

To add insult to injury, this elitism is self-perpetuating. Any organization, even if it begins as completely egalitarian and democratic, will have to utilize the mechanisms of meritocracy to determine some sort of leadership. However, Hayes explains that those who end up with this power will “inevitably use that disproportionate power to subvert whatever mechanisms of accountability, turnover, mobility,” that were initially in place. Konczal laments that things have gotten so bad that failures such as WorldCom and Enron “just feel like historical footnotes now compared to Lehman Brothers." He concludes that “People need to understand that the game is rigged.”

Watch the full video below:

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Why Obama’s New Immigration Policy is Good for the Economy

Jun 21, 2012Tim Price

Protecting undocumented workers doesn't mean they'll "steal" American jobs. Quite the opposite.

Protecting undocumented workers doesn't mean they'll "steal" American jobs. Quite the opposite.

Last Friday, the Obama administration announced that it would halt the deportation of young undocumented immigrants who would qualify for the DREAM Act and grant them work permits. The usual suspects leaped into action with shouts of “amnesty!” and charges that President Obama was once again selling out his country to serve his cosmopolitan principles. One reporter from the right-wing Daily Caller was so irate that he started heckling Obama during the statement announcing the new policy, asking whether it was “good for the American people.” But this move will in fact benefit Americans, and anyone concerned about America’s workers and the health of its economy should be pushing the administration and Congress to go even farther.

In the ongoing battle between the 1 percent and the 99 percent, undocumented immigrants undoubtedly fall into the latter category. According to Pew research, 62 percent of undocumented workers are employed in construction, hospitality, manufacturing, or wholesale and retail trade, and “in specific occupations like cooking, painting, washing cars, packaging by hand and installation of carpets and floors, they may make up 20 percent or more” of the total workforce. Although the same study finds that many of these workers make at least minimum wage, the Urban Institute reports, “About two-thirds of undocumented workers earn less than twice the minimum wage, compared with only one-third of all workers.” Moreover, research from the Dallas Fed notes that although they are covered by minimum wage laws, “undocumented workers paid less than the minimum wage are probably unlikely to seek legal redress for fear of revealing their undocumented status.”

In short, these workers perform lousy jobs for lousy pay, with little bargaining power, limited legal recourse if they’re mistreated by their employers, and no safety net to catch them if they get sick or lose their jobs. Dirt cheap, easily exploited, and readily disposable, they represent the model American worker for elites who rail against organized labor, social programs, and business regulations.

Bringing undocumented immigrants out of the shadows and acknowledging them as full and active participants in the workforce is essential, not just to improve their own economic standing but to increase economic justice for all workers. Conservatives often cast this as an us-versus-them conflict, warning that undocumented workers are out to “steal” our jobs and that granting them legal status will only create more competition for low-income Americans. But they're already here whether we choose to acknowledge them or not, and as Cristina Jimenez writes at The American Prospect (h/t Travis Waldron), “As long as a cheap, compliant pool of undocumented labor is available, employers have every reason to take advantage of the situation, keeping wages as low as possible.” No one’s out picking fruit under the hot California sun because of the great dental benefits; they’re doing what they need to get by, and their employers have them over a barrel. To put it another way, Terence O’Sullivan of the Laborers’ International Union of North America says, “Workers don’t depress wages. Unscrupulous employers do.”

The alternative to granting undocumented workers the legal protection they need to combat this exploitation is mass deportation, but rounding up and expelling 11 million people at a cost of $23,480 a head would be both inhumane and totally unaffordable. On the other hand, allowing them to stay and granting them legal status would actually help to reduce the deficit. According to a report from the National Council of La Raza, undocumented workers already contribute about $8.5 billion into Social Security and Medicare each year in addition to paying sales and property taxes. Far from being freeloaders, they pay $80,000 more in taxes per capita during their working lives than they take in from government services. But even if some of these workers were to achieve legal status through the DREAM Act and begin receiving the full benefits they deserve, the CBO and the Joint Committee on Taxation estimate that factors including their newly reportable income and decreased Homeland Security costs would generate $1.7 billion in new revenue and reduce the deficit by $2.2 billion over the next 10 years. The question of “Which do I loathe more, deficits or immigrants?” may represent a real Sophie’s Choice for some on the right, but it’s clear that deficit hawkery is incompatible with opposition to immigration reform.

Even if you’re not one of those people who wakes up in a cold sweat thinking about the debt-to-GDP ratio, there’s reason to believe the American economy has holes these undocumented immigrants could fill. (Not literally, though they do that too.) As President Obama has emphasized, the U.S. is falling behind other developed countries in college completion rates, which could soon lead to a shortfall in high-skilled workers. Luckily for us, among the undocumented immigrant population there are millions of young men and women who grew up in America, identify as American, and want to go to college and pursue their careers here. We just need to stop giving them reasons to be afraid to do so.

The DREAM Act, if it were ever passed, would give undocumented immigrants who arrived in the U.S. before age 16 a path to citizenship if they meet certain criteria, including the completion of a college degree or military service. It’s been introduced several times in Congress (originally by Republican Orrin Hatch) but blocked by the GOP on the grounds that it would grant amnesty to those who entered the country illegally – an idea so radical only a bleeding heart liberal like Ronald Reagan could support it. President Obama’s new plan doesn’t even go that far. It will allow some undocumented immigrants to work here legally, but it provides no clear path to citizenship or the rights and privileges that come with it. They won’t be able to vote, for instance, although taxation without representation has been something of a sore spot in American history.

As the president himself admitted in his Rose Garden address on Friday, this new policy is only “a temporary stopgap measure” until Congress can pass a comprehensive immigration reform plan. And while the politics of setting the age limit for the policy at 30 are clear, since the “crime” of immigrating here as children is harder to hold against them, it’s cold comfort for the millions of older undocumented workers who need and deserve some relief. But it’s still an important step forward, and not just on the moral grounds that, as the president stated, “We are a better nation than one that expels innocent young kids.”

Instead of blaming undocumented workers for taking American jobs (and casually referring to them as “illegal aliens,” which criminalizes their existence and makes them sound like something that’s going to abduct and probe us in the middle of the night), we should recognize them as victims of the same exploitative system that Occupy protesters have been grappling with since last fall. Is giving legal recognition to undocumented workers good for the American people? It’s a step toward acknowledging that there’s no such thing as a second-class citizen and that all working men and women deserve fair compensation. What could be more American than that?

Tim Price is Deputy Editor of Next New Deal.

Immigration services image via Shutterstock.com.



 

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Mike Konczal and Sarah Leonard on the Myth of American Meritocracy

Jun 11, 2012

On the latest episode of "Fireside Chats," Roosevelt Institute Fellow Mike Konczal brings in Sarah Leonard, editor at Dissent and The New Inquiry, to discuss the ways that student debt and unpaid internships have completely skewed the labor market.

On the latest episode of "Fireside Chats," Roosevelt Institute Fellow Mike Konczal brings in Sarah Leonard, editor at Dissent and The New Inquiry, to discuss the ways that student debt and unpaid internships have completely skewed the labor market. Mike used to think of internships as an equal opportunity mechanism, but then realized "you have to be able to feed yourself, you have to be able to survive," something that's hard to pull off when you're deep in debt and not making any money.

As Sarah bluntly puts it, "American meritocracy has always been a myth," but now these two forces have conspired even more to allow "people who make it to the top" to consolidate power there and "consolidate it for their children." Not only does a young person need money to take an unpaid position, but those who go into debt to get through college have an even harder time doing so if they need to work to pay off those loans. "Internships are absolutely a reinforcer of privilege," she concludes.

Mike compares student debt to the indenture system that brought Europeans to America's shores: it was set up "to solve an economic problem, a problem of travel," and now we have a similar problem in which we need to "get people who have significant talents to grow the economy to the spaces where they have their talents fully developed and they’re capable of exercising those talents." The biggest question? "How do we pay for it?" In other words, how do we make it affordable for everyone to have people get the education they need to best contribute to the economy?

Compounding this, Sarah notes that the language around student debt is about "investing in yourself," but in reality the need to take on massive amounts of debt to get an education isn't a way to open up opportunities at all. "It restricts your freedom after college," she says.

Watch the full segment below for their discussion of precarious work, the future of organized labor, and "Sex in the City" feminism:

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Mark Schmitt: Are Romney and the GOP All Talk on Spending Cuts?

May 21, 2012

In the latest episode of our weekly Bloggingheads series, "Fireside Chats", Roosevelt Institute Senior Fellow Mark Schmitt and Jamelle Bouie, writing fellow at The American Prospect, discuss whether Mitt Romney is conservative enough to actually go through with the cuts to social welfare programs that Republicans have long demanded. In the clip below, Mark points out that Republicans love talking about spending cuts, but they're not so big on implementing them.

In the latest episode of our weekly Bloggingheads series, "Fireside Chats", Roosevelt Institute Senior Fellow Mark Schmitt and Jamelle Bouie, writing fellow at The American Prospect, discuss whether Mitt Romney is conservative enough to actually go through with the cuts to social welfare programs that Republicans have long demanded. In the clip below, Mark points out that Republicans love talking about spending cuts, but they're not so big on implementing them. In the clip below, he notes, "We’ve all the seen the game where the Republicans talk of budgets and cuts, but in fact they don’t really want to pay the price of having those things becoming a reality" and that "actually making the cuts and particularly making the cuts that affect the middle class is a huge political risk."

While there are a lot of Tea Party conservatives who have been successful in moving the Republican Party farther to the right in the past few years, Mark and Jamelle argue that there is a difference between them and more mainstream conservatives, like John Boehner, who just want to have their tax cuts. Referring to the latter group, Mark says that "if they have the low taxes they don’t really care about the rest." However, he argues that there are now a significant number of conservatives in power who adamantly believe that there is a difference between Social Security and Medicare, which people have paid into, and other programs, which are "just giveaways."  If Romney is elected, Jamelle believes that these members of the GOP will seize the opportunity to push for cuts.

Mark also points out that the rhetoric from the Republican Party and Mitt Romney keeps changing, so it's hard to know exactly what they will ultimately do. Regardless, Mark notes that Republicans are focusing on a limited group of people. He says "we’ve never really seen a party that actually draws such a sharp generational line." Since older folks are more affected by Medicare and Social Security, "It also puts yourself on the side of people who are less likely to be around in the future." He concludes that "it’s a big gamble politically."

Check out the rest of the video to listen to Mark and Jamelle talk about the changing rhetoric of the Republican Party, the demise of Americans Elect, and a crazy new Republican Super PAC.

 

Romney image via Shutterstock.

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Why a Strong Middle Class Is Necessary For Growth

May 18, 2012Mike Konczal

A new paper maps out the best progressive arguments about how inequality is hurting our economy.

It's great to get to watch the arguments against inequality in the United States being built in real time. On issues ranging from political corruption to a lack of a serious, sustained response to the economic crisis, people are telling sharper and more critical stories about why inequality should be a concern for the country. Which is important, as inequality is not going away.

A new paper maps out the best progressive arguments about how inequality is hurting our economy.

It's great to get to watch the arguments against inequality in the United States being built in real time. On issues ranging from political corruption to a lack of a serious, sustained response to the economic crisis, people are telling sharper and more critical stories about why inequality should be a concern for the country. Which is important, as inequality is not going away.

One of the issue areas where this has been lacking is long-term economic growth. The research has been substantial, but few have collected and curated it into a set of arguments for why inequality is bad for the health of our economy. This is one of the more important battles. The normal assumption is that inequality helps everyone by allowing the economic pie to grow as big and as quickly as it possibly can. The background thought animating this is that there's a serious tension between efficiency and equality -- to support equality is to necessarily sacrifice economic efficiency.

Heather Boushey and Adam S. Hersh from the Center for American Progress have a new paper out, "The American Middle Class, Income Inequality, and the Strength of Our Economy: New Evidence in Economics," that summarizes the case for why inequality can damage the economy. They start by reviewing the literature trying to link income inequality and growth, and find that the link is, if anything, in the other direction. "Roland Benabou of Princeton University surveyed 23 studies analyzing the relationship between inequality and growth. Benabou found that about half (11) of the studies showed inequality has a significant and strongly negative effect on growth; the other half (12) showed either a negative but inconsistently significant relationship or no relationship at all. None of the studies surveyed found a positive relationship between inequality and growth."

But why should this be? If the long-term health of the economy is driven by human capital, savings, and technology, what does inequality have to do with anything? Here is where they create a map of the arguments through which a strong middle class and a more egalitarian distribution of income can build long-term growth:

We have identified four areas where literature points to ways that the strength of the middle class and the level of inequality affect economic growth and stability:
 
• A strong middle class promotes the development of human capital and a well educated population.
• A strong middle class creates a stable source of demand for goods and services.
• A strong middle class incubates the next generation of entrepreneurs.
• A strong middle class supports inclusive political and economic institutions, which underpin economic growth.
They pull together the current research, as well as the range of supporting evidence, for each point. They focus on how educational attainment is becoming more tied to parents' income, the instability of growth and macroeconomic risks to weak middle-class demand, the fact that the Kauffman Foundation found that less than 1 percent of entrepreneurs come from extremely poor or extremely rich backgrounds, and the way inequality is involved with our polarized politics. All of these have consequences for our economy.
 
The research will continue to move forward here. There's a lot of fascinating work done on the relationship between inequality, balance-sheet recessions, and slow recoveries right now. I'm interested in the way the government creates and enforces property changes under massive, entrenched inequality. Do exclusive, 1%-dominated political and economic institutions produce property regimes -- high rents from patents, repressive creditor/debtor relationships, all labor income from finance viewed as capital income for tax/regulatory purposes, privatization of public goods, corporation structures predisposed for financialization -- that are terrible for growth?
 
This paper gives us the best up-to-date arguments that progressives discussing inequality should understand inside out. I thought I was fairly versed in these arguments, and I learned a ton from it. As they say, read the whole thing.
 

Mike Konczal is a Fellow at the Roosevelt Institute.

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