John Deutch's Four Steps Toward a Functioning U.S. Energy Policy

Nov 21, 2011

Roosevelt Institute Senior Fellow Bo Cutter has brought a lot of top thinkers together to discuss what the Next American Economy should look like. But it's hard to imagine future economic policy without also figuring out energy policy. As Bo's latest guest points out, American energy policy has largely failed. John Deutch, professor at MIT and former Director of Central Intelligence, explains how "we have not had an energy policy for 40 years" and why "it is a hard slog to improve this." In this excerpt, he lays out four key steps to making real progress:

John Deutch :: [excerpt] from Roosevelt Institute on Vimeo.

Roosevelt Institute Senior Fellow Bo Cutter has brought a lot of top thinkers together to discuss what the Next American Economy should look like. But it's hard to imagine future economic policy without also figuring out energy policy. As Bo's latest guest points out, American energy policy has largely failed. John Deutch, professor at MIT and former Director of Central Intelligence, explains how "we have not had an energy policy for 40 years" and why "it is a hard slog to improve this." In this excerpt, he lays out four key steps to making real progress:

John Deutch :: [excerpt] from Roosevelt Institute on Vimeo.

His imperatives to get us on the right track:

1. Something must be done to "integrat[e] domestic and international policy in the White House." Energy issues can't be fixed solely within our own borders.

2. In order to have a "coherent voice following energy" at the federal level, we must "establish a single energy commission between the House and the Senate in the place of the dozens and dozens who fool around in it."

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3. "There should be a rule adopted both by Congress and the [OMB]... to say no proposal goes in unless you attach to it a serious analysis of its projected costs and benefits." Without this, he says, "you don't have the basis for a discussion with Congress."

4. "You have to do something about personnel to get good people" working on these policies, he concludes.

Above all, he says, "You have to make people understand that if we don't change this system, things are not going to get better." And that could be disastrous for the economy and the planet.

Watch the full discussion:

John Deutch :: lecture from Roosevelt Institute on Vimeo.

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Taking Back the Right to Vote

Nov 21, 2011Dante Barry

By passing voter ID laws, conservative legislatures are denying the franchise to those who have fought hardest for it.

By passing voter ID laws, conservative legislatures are denying the franchise to those who have fought hardest for it.

Last week, I participated in the New Organizing Institute BlackRoots NewMedia BootCamp. I had the privilege of joining 31 organizers representing communities of color from across the country to be trained in online organizing. As part of the training, each organizer was placed on a team to develop an online fictional campaign over the course of the week. For this boot camp, we developed a campaign around the issue of voter suppression.

My team took on a situation where the fictional "State X" legislature was considering a plan that would require the state's voters to present two forms of identification in order to protect against voter fraud. The state senator who represented my team's community was on the fence as he recognized that his rural constituency would have difficulty obtaining the additional identification.

Sadly, this scenario reflects a regressive trend that is all too real. Since 1920, the United States has expanded voting rights in three significant ways: the Nineteenth Amendment, which granted women the right to vote; the Voting Rights Act of 1965, which ended racial barriers to voting; and the Twenty-Sixth Amendment, which lowered the voting age to 18. Now, conservative legislatures throughout the U.S. are passing voter identification laws that disenfranchise women, young people, and communities of color. 

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FDR once said, "We are trying to construct a more inclusive society. We are going to make a country in which no one is left out." I am a Millennial and at least 24 percent of the voting age population in 2012 will be under 30 years old. Approximately 14 million adults between the ages of 18 and 29 will be enrolled in degree-granting institutions in 2012. But instead of trying to bring these potential young voters to the polls, legislators are making every effort to turn them away. In states such as Indiana, voters must present photo identification with an expiration date issued by the state or U.S. government. This prevents students who are attending private institutions from using their school identification. Legislators claim that such laws are intended to prevent voter fraud; however, there is little evidence that voter fraud is a problem in the United States.

Houses have been burned down; families have been torn apart; people have fought, gone to jail, and died for the right to vote. Voting provides the opportunity to decide, and that is powerful. Suppressing voters and denying them the power to decide excludes them from the political and policymaking process. We need to take back that power and make our voting system more inclusive.

I'd like to extend special thanks and recognition to the #blackroots11 team. You can follow the campaign on Facebook and Twitter.

Dante Barry is the Roosevelt Institute | Campus Network's Chapter Services Coordinator and Summer Academy Coordinator.

Image via Getty

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Why Atlas Shrugged

Nov 18, 2011Bruce Judson

ayn-randAyn Rand's Objectivism glorified wealth-creators over moochers, but Wall Street traders might be surprised to learn which category they're in.

ayn-randAyn Rand's Objectivism glorified wealth-creators over moochers, but Wall Street traders might be surprised to learn which category they're in.

As the dysfunctional nature of our economy becomes increasingly apparent, the media is appropriately focusing on whether the ideas of economic thinkers from earlier eras can help to solve today's problems. Recently, NPR devoted a segment to the thinking of Ayn Rand.

The NPR segment quoted from an extensive television interview with her conducted by Mike Wallace in 1959, now available on YouTube.  As the segment noted, Rand is a hero to many Washington  politicians who advocate free markets. In the Wallace interview, Rand said, "I am opposed to all forms of control. I am for an absolute, laissez-faire, free, unregulated economy."

The Washington establishment has, in fact, misinterpreted what Rand valued and what she would advocate today.

At this moment, what's relevant to our nation is not  the laissez-faire policies Ayn Rand advocated in the late 1950s as an outgrowth of the philosophical system she called "Objectivism," but what the philosophy itself considered important, how these principles should be applied to our modern economy, and whether we believe implementing these ideas would aid the economy.

The central statement Rand stressed repeatedly in her interview with Wallace is that entrepreneurs and businessmen are the producers who create the goods and services that make our economy run. They deserve their wealth, are her heroes, and no one including the government has the right to take their property. As NPR notes, "In Atlas Shrugged, which Rand considered her masterpiece, the wealthy corporate producers are the engines of the American economy." In this fictional tale, the economy starts to stagnate when these producers go into hiding, leaving behind what she calls "the moochers."

In effect, an important aspect of Rand's philosophy supports the central tenet of a functioning capitalist economy: Those who create the greatest societal wealth should be the most highly compensated.

This is a fundamental notion in any capitalist economy. It underlies one aspect of the American Dream and also explains the historic admiration of the American people for rich people. In general (and before the Occupy Wall Street movement), the prevailing ethos in America has been that rich people deserve their wealth because they have created societal value for all of us. Indeed, I suspect the vast majority of the American people do not begrudge the wealth earned by successful, risk-taking innovators like Michael Dell, Jeff Bezos, the late Steve Jobs, or Ross Perot.

This leads to the conclusion that Rand's philosophy is only anti-regulation because it is ultra-supportive of the capitalist ideal: The people who create the most societal wealth should receive the benefits of this contribution.

From this perspective, Rand's philosophy points out that real capitalism is no longer enforced in America; not because of welfare programs, taxes, the social safety net, or government regulations, but for a very different reason: The highest paid people in America today create no real wealth for the society.

The financial industry, comprised of traders, hedge funds who exploit arbitrage opportunities, and "quants" who develop mathematical models to take advantage of minute inefficiencies in trading markets (for stocks, derivative securities of all types, commodities, and more) are now earning seemingly inestimable sums. Hedge fund owners earn billions of dollars annually while traders who earn less than several million dollars a year are not, by Wall Street standards, real successes. Yet they are all gambling in "a heads I win, tails you lose" game. The outcome of all their efforts are high profits, but little, if any, new societal wealth.

Real societal wealth is anything that enhances the lives of those in our society, starting with basics such as food, shelter and medicine, but also including almost any property a person can own or anything a person can experience, such as entertainment or greater convenience. Real wealth can be eaten, used, shared. or experienced.

Profits cannot be eaten and they do not provide shelter. As a consequence, it's essential to recognize that the creation of profits is often confused with the creation of real societal wealth. They are different. Profits are an accounting proxy we use for indicating whether wealth is created. But like all proxies, this one sometimes falls short. With regard to the financial industry, this proxy has failed the nation spectacularly.

The current issue of Foreign Affairs describes how a Wall Street firm spent $300 million to construct a fiber-optic cable connecting the Chicago Mercantile Exchange and the New York Stock Exchange to shave "three milliseconds off high-speed, high-volume automated trades-a big competitive advantage." And huge sums are now being spent to use technology to earn these profits. High frequency (i.e. computer-driven) trading is now estimated to account for 75 percent of all buying and selling of U.S. equities. Does any of this add to our societal wealth?

Some economists openly wonder whether our financial services sector actually destroys, instead of creating, societal wealth. In December 2008, Paul Krugman wrote in The New York Times (emphasis added):

The financial services industry has claimed an ever-growing share of the nation's income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it's not just a matter of money: the vast riches achieved by those who managed other people's money have had a corrupting effect on our society as a whole....

We're talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America's G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing - and it probably was - we're talking about $400 billion a year in waste, fraud and abuse.

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By 2009, Krugman noted that this view was now widely shared.

Yes, many financial economists have concluded that high speed trading and hedge fund arbitrage add to the efficiency of these markets. But I wonder if they have quantified the value to our society of these benefits and compared them to the very real costs. As far as I know, they have not. It's my understanding that they have only looked at the isolated impact of these activities on markets -- not their overall impact on our society.

This system, with the highest rewards going to those who create nothing, is antithetical to a capitalist economy. We have turned the underlying premise behind our entire economic system on its head. Now, those who create little, if any, societal wealth receive the most wealth in return.

Moreover, the wealth now inappropriately channeled to Wall Street is harming our society in a myriad of ways: First, money inevitably leads to political power through donations, lobbying, access, and more. Inevitably, trading-related money is now further distorting our capitalist economy by influencing legislation for its own anti-capitalist benefits.

Second, in a society where success is often defined by income (for better or worse) the talent the nation desperately needs to create real wealth is instead sucked up by the financial system and dedicated to arbitrage and other zero-sum activities.

Third, the speculative investments of hedge funds and other trading entities can have a dangerous destabilizing impact on markets and the prices of essential commodities (such as food and energy), and create systematic risk for the economy as a whole. In February of this year, Bloomberg highlighted a federal government report that found that "[h]edge funds and insurers might threaten U.S. economic stability in a time of crisis."

Fourth, it's likely that billions of dollars of our nation's limited resources are spent each year on infrastructure with no real societal value, all of which could instead be spent for productive uses.

Fifth, pay scales throughout the society are thrown out of whack as other elites start to question whether they should be earning similar amounts.

Finally, the notion that all profits are good -- whether they create real societal wealth or not -- is consistently reinforced through the highly publicized example of Wall Street earnings and applied with the same harmful effects in other industries throughout the nation.

Ayn Rand would, I believe, argue that this absolute failure to enforce capitalist principles is exactly what she most feared: The emergence of a powerful group that produces nothing, yet manages to takes a large share of the societal wealth created by others. In her view, this inevitably leads a society to implode and self-destruct.

Yes, Rand did not believe in altruism or any type of social safety net, and I am not addressing this aspect of her "Objectivist" philosophy here. But it is worth noting that she opposed these programs for the same reason I am certain she would be horrified by the current channeling of wealth to financial firms: She believed that they were allocating the benefits of production away from the rightful beneficiaries. Whether we agree or not with these assertions, they are irrelevant to this discussion.

I do, however, feel comfortable asserting that if she returned today, Rand would consider eliminating the transfer of un-earned wealth to the financial sector to be a far greater and far more urgent priority than addressing her beliefs related to the social safety net.

Unless we address the destructive effects caused by making speculators and traders the highest earning class in our capitalist society, the economy will remain dysfunctional.  In effect, the nightmare that Rand's philosophy anticipated for our economy is increasingly real, but because of the financial industry, not the social safety net or taxes.

Here's a final thought: In Rand's Atlas Shrugged, the industrialists who create the real wealth of the society start to disappear as they go into hiding. The trains that make the society work, both literally and metaphorically, stop.

So I have developed what we can call the Ayn Rand test of value: If securities traders and quants at investment firms and hedge funds started to disappear in large numbers tomorrow, would the trains that comprise our economy and society run better or worse?

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

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Is Anemic Employment a Symptom of Hysteresis?

Nov 17, 2011Sander Tordoir

unemployed-150With unemployment at a sickly 9 percent, a renewed push for public service jobs may be just what the doctor ordered.

unemployed-150With unemployment at a sickly 9 percent, a renewed push for public service jobs may be just what the doctor ordered.

The Occupy movement has often been criticized for lacking an overarching political message. One of the roots of its discontentment is not so difficult to discern, though: the enduringly high level of under- and unemployment. While the popular debate on the level of unemployment is highly partisan, politicized, and unproductive, Occupy is telling us that we cannot lose sight of the personal cost of unemployment. It also merits a more serious study of why joblessness remains so high. While there are a wide variety of global macro-economic factors that are contributing to the sputtering economic recovery, one process that could be at play is often referred to as unemployment hysteresis. This term describes the way in which temporary shocks to employment levels can cause more long-lasting unemployment.

In 1986, Lawrence Summers and Olivier Blanchard wrote an influential paper in which they discussed some of the possible ways this process can occur. First and foremost, there can be a difference in bargaining power between the unemployed and the remaining workforce. Those who have retained their jobs can manage, through organized labor or simply through contractual stipulations, to prevent wages from declining in the bust cycle. As a result, the price of labor cannot decrease as aggregate demand is falling and therefore the demand for labor cannot increase. The employed can thereby effectively block the unemployed from the labor market. Furthermore, the remaining workforce may also bargain in such a way that when economic recovery sets in, their wages and productivity increase, and thus the recovery does not translate into increased employment but rather into increased payment for those already working.

Alongside the difference in bargaining power there is a second, though not mutually exclusive, reason for sustained unemployment. This has to do with the loss in skills of those who have become unemployed. Their knowledge and skills, especially if they are on the sideline for a fairly long period, become outdated, rendering them less appealing to employers.

A possible diagnosis of hysteresis has crucial policy implications. We may very well be dealing with an increase in unemployment that cannot be attributed to an increase in the natural rate of unemployment, but rather to a shock-induced structural increase. After all, it is unlikely that the natural unemployment of the United States, determined by its total production capacity including factors such as its population size, has changed dramatically in the course of the last three years. If this is so, then expansionary demand policy, on the condition that it is implemented well, may bring the unemployment level back down.

Indeed, there is some interesting tentative evidence that seems to point to hysteresis in the United States today. While it is hard to measure a loss in skill sets, it is possible to take a look at the development of wages versus the growth in GDP.

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tordoirgraph1

tordoirgraph2

Here, it seems that some of the high unemployment in the United States could potentially be attributed to the build-up of a wage differential. While output declined significantly in the recession of 2008-2009, wage levels did not decline accordingly, but stayed high.

So what we are seeing is a slightly dualistic labor market from which the large pool of unemployed people is excluded. With our political system incapable of providing the stimulus the economy needs, this calls for a grassroots public service employment plan across the country, with each community organizing its public service jobs according to its needs and goals. This would greatly benefit those who are locked out of the private labor market and the economy at large. Working in public service jobs tailored to their talents, knowledge, and interests, they can keep their skill sets up to date. We cannot afford to leave 9 percent of the labor force behind. The increase in employment from such a plan would stimulate demand in the private sector, reopening the labor market and paving the way for public workers to move into the private sector.

Furthermore, an embedded public service plan would constitute a form of an automatic stabilizer in boom and bust cycles -- absorbing labor in bad times and releasing labor in good times.

Governments traditionally face a nasty tradeoff when it comes to unemployment benefits. Paul Krugman argued that the reason Europe experienced high unemployment throughout the 1980s and early 1990s was that European states were providing compensation for the unemployed that was too high. With technological changes decreasing the wages of low-skilled jobs, they came too close to unemployment benefits, taking away the incentive to hold a job. In response, a government can decide to stop providing these benefits, thereby keeping employment levels high but increasing inequality in the process.

However, there is also a middle road that blunts some of the sharp edges of this tradeoff. If the benefits are connected to a public service job, and only to a public service job, then we can take care of the unemployed, reducing inequality, while simultaneously incentivizing them to work. With almost 10 percent of the American workforce ready, willing, and able to hold a job but unable to find one, public service employment would undoubtedly appeal to many.

Hysteresis is a disease with a cure. Despite earlier attempts to remedy this disease, with unemployment still at 9 percent, we cannot give up on public service employment. Perhaps we can learn from Occupy in that sense as well: do not give up too easily.

Sander Tordoir is a former Summer Academy Fellow for the Roosevelt Institute | Campus Network and remains involved with the Campus Network from Istanbul.

Reese Neader is the Roosevelt Institute | Campus Network's Policy Director.

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The Budget Chronicles: The Super Committee's Predestined Failure

Nov 16, 2011Bo Cutter

All signs point to empty political posturing without real solutions. And that was always the expected outcome.

All signs point to empty political posturing without real solutions. And that was always the expected outcome.

The super committee, set up after the debt limit debacle in early August, is due to report on November 23. This report is supposed to tell us how Congress will meet its self-inflicted requirement to reduce future deficits and the growth of the country's debt by at least $1.1 trillion over the next 10 years. If this goal is not met, then automatic cuts -- called sequestrations -- will go into effect, divided equally between domestic and defense expenditures. This report was actually due to the Congressional Budget Office well before now so that the CBO could score the proposals. But if you knew anything about congressional negotiating, you knew that would never happen; it was always doomed to be strung out until the last minute.

So what's the report going to propose?  Here is my handicapping of possible outcomes with commentary to follow:

1) Chances of a breakthrough and a major deal: 0 percent. There was never any chance of this. No member of the committee has anything close to the clout needed to move his or her party toward any kind of real deal.

2) Chances of a failure and the ensuing sequestration: 10 percent. This would be an awful result for the committee members and for Congress as a whole. I know that there is great pressure on the committee to avoid a failure. Embedded in my 10 percent estimate is some small chance of a modified failure, such as a decision to delay the report. But I cannot imagine the committee wants to prolong this agony.

3) Chances of a "kick the can down the road" minimum proposal filled to the brim with fake cuts, empty allocations, and meaningless two-step processes: 90 percent. The report will propose approximately $1 more than the absolute minimum combined with a maximum degree of fakery.

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To describe the "kick the can" option more completely: it will include a) a very small total of real deficit or debt reduction; b) maximum possible use of fake changes -- for example, counting currently planned troop reductions as defense cuts; c) broad, empty allocations -- other committees will be instructed to make cuts in very broadly specified areas (so no one is guilty of any actual reduction); d) I hear there is some chance of the return of an oldie but goodie -- the general fraud, waste, and abuse reduction; and e) a new maneuver -- the revenue increase two-step, by which a (small) revenue increase is stated with the actual tax changes assigned to the tax committees to decide upon next year.

One can be disappointed, but certainly not surprised. This super committee was, from its beginning, intended to produce this result. It is the Congressional version of the joke about the train car load of 10-year-old canned sardines: intended for trading, not for eating. Creating this committee was solely the way to get out of the debt limit/deficit debacle Congress created for itself. Yes, lots of people played their expected roles and presented to the committee. But no one who knows the town ever thought we would be any where else but right here.

The committee's report will then immediately become the vehicle for a much more satisfactory game of finger pointing, which will set an appropriate tone for the presidential campaign we are headed into. Some of the truest words ever spoken about pro football also apply to politics: Blain Francis Nye, Stanford graduate and tackle for the Dallas Cowboys, is credited with observing, "It's not who wins or loses, but who gets the blame."

But, to end on a positive note, there is some modest chance that events might force both sides toward a grand bargain immediately after the presidential elections in the period between November and Inauguration Day in January. No matter who wins, there is going to be a high sense of urgency to get this issue at least partially out of the way.

Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic presidents.

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The City's Attack on Information

Nov 15, 2011Bryce Covert

Books dumped in the garbage. Press intimidated and shut out. These are not the signs of a functioning democracy.

Books dumped in the garbage. Press intimidated and shut out. These are not the signs of a functioning democracy.

In recent weeks, one of Occupy Wall Street's perhaps greatest victories became crystal clear: since the protests took off, the number of news stories talking about inequality has skyrocketed. This is perhaps one of the movement's greatest strengths: the spreading of information about issues that were previously ignored, if felt viscerally by most Americans. Growing income inequality has been no secret, but few were talking about it on a national scale until the movement put it on the radar.

The discussion and dissemination of information is a hallmark of the movement. On any given trip down to Zuccotti Park, by far the most common activities I observed were teach-ins on various issues surrounded by smaller, informal conversations ranging from crony capitalism to bank bailouts to student debt. The way most illustrious thinkers got involved with the movement was to visit the encampment and share their wisdom. This love of information was also embodied in Occupy's call for transparency. Protesters seek a government whose operations are open to the public and not just to lobbyists, one that is accountable and accessible to its citizens. Signs like this said it simply:

transparency

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But perhaps no greater embodiment of this love of information and knowledge was the People's Library. The first time I went to donate books it consisted of a dozen or so bins neatly arranged by category and title; the last time I was there it had grown to become one of the largest pieces of infrastructure in the park, insanely well organized and beautifully displayed:

library

It's perhaps most chilling to me, then, that when I awoke to news of the evacuation it quickly became clear that police simply threw all of those carefully donated and organized books in the trash. The symbolism of a militarized police force piling thousands of incarnations of our country's knowledge and history into dumpsters is hard to escape today.

To top it off, the press was barred from entry and the few who snuck their way in were treated terribly. Those who tried to reason with the police that they had media credentials and therefore should be allowed access to cover events in a public space were rebuffed. As Rosie Gray of the Village Voice tweeted, "Me: 'I'm press!' Lady cop: 'not tonight.'" Those who were able to find their way past the barricades were purportedly arrested and roughed up. Freedom of the press is ingrained in the DNA of our country. Why? Because without it, citizens remain in the dark. Opacity reigns. Corruption can fester and citizens become less engaged.

Mayor Bloomberg claims the raid was to protect people, including the protesters, from supposed dirtiness and violence. But who is protected when information is blocked or destroyed? Only those doing deeds that can't stand up to the scrutiny of transparency. Information is one of the most powerful tools of a functioning democracy. It suffered a blow last night.

Bryce Covert is Editor of New Deal 2.0.

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Dredging Up the Submerged State: How Democrats Lost Their Nerve

Nov 14, 2011Mark Schmitt

The greatest obstacle to a New Deal-worthy response to our current economic crisis is Americans' distrust of government. But what causes that distrust? Is it just bred in the American spirit, from the Founding Fathers? If so, how were FDR and his successors able to overcome the distrust and bring newfound powers of government to bear against an economic crisis? Is it just propaganda carried over from the Reagan era?

The greatest obstacle to a New Deal-worthy response to our current economic crisis is Americans' distrust of government. But what causes that distrust? Is it just bred in the American spirit, from the Founding Fathers? If so, how were FDR and his successors able to overcome the distrust and bring newfound powers of government to bear against an economic crisis? Is it just propaganda carried over from the Reagan era?

Last year, a fresh answer emerged in a couple of articles and now an important book, The Submerged State, from Cornell political scientist Suzanne Mettler. Mettler showed that Americans distrusted government in part because, unlike in the New Deal era, they don't see or feel what government does. We've created programs that are so complicated, vague, and nuanced -- tax credits and public-private partnerships -- that many of their beneficiaries don't know that they are benefiting from government at all. Mettler's analysis has multiple implications: We have to call attention to the purpose of government and how programs like student loans help to achieve it, but we also need a new approach to the structure of government and a willingness to move decisively and visibly on big public missions.

I reviewed The Submerged State in The New Republic in October, and have subsequently had the pleasure of asking Suzanne some questions about her new book. The answers will appear in a question-and-answer format, expanding on points in the book, over the next few weeks.

Mark Schmitt: In your wonderful book, you show how the "submerged state" programs of the current era, like the tax credit for education savings, are invisible to their beneficiaries, thus fostering their feeling that government does nothing for them. You draw a contrast to older programs like Social Security and the GI Bill that recipients knew about and could feel. Most of the New Deal and Great Society programs were much more visible. How do you explain that? Was it that FDR, Harry Truman, and Lyndon B. Johnson were smarter about creating programs that people would appreciate? Or were those just simpler times?

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Suzanne Mettler: Social welfare policies created as part of the New Deal and Great Society did tend to feature a more visible role for government, for various reasons. Presidents Franklin D. Roosevelt and Lyndon B. Johnson benefitted from large majorities of Democrats in Congress, so they more often had the political clout to enact policies with designs they favored. The policies of the submerged state, some of which date back to the early and mid-twentieth century, were typically promoted by Republicans or by conservative Democrats who favored arrangements that worked through market mechanisms rather than government bureaucracies. In addition, submerged policies often emerged as the fruit of compromises with powerful interests -- groups who would only support reform if it channeled funds in their direction. This is exemplified by the creation of bank-based student lending in 1965.

In the period of conservative governance that the United States has experienced since 1980, creating and building the submerged state has become a bipartisan affair. Such designs appear, at least at first blush, to embrace the market-based priorities of this period, the view that the private sector does things more effectively and efficiently than government. In reality, submerged policies are antithetical to genuine laissez faire principles, because they actually intervene in the market and channel government resources to promote particular industries at the expense of others.

In addition, as partisan polarization has escalated, submerged policies have grown more attractive to Democrats because they offer a more politically feasible manner of channeling resources to low- and moderate-income people than the creation or expansion of direct policies. This is the case not only because conservatives are more willing to support them, but also because they encounter fewer procedural hurdles in Congress. They are not subject to the public glare and multiple veto points of normal budget items, and once enacted, they can grow automatically and are not subject to annual appropriations.

Mainstream Democrats have increasingly come to recognize that such policies poll well. This point is explored in fascinating new research by Jake Haselswerdt and Brandon Bartels, discussed recently at The Monkey Cage, and by Kevin Drum at Mother Jones. But contrary to Drum's conclusion that these policies show "how to fool conservatives into spending money," in the longer run it is liberals and moderates who are shown to be the fools for embracing such policies. As I show in The Submerged State, government's role in such policies eludes Americans, including even the beneficiaries. This makes it possible for people to become increasingly indifferent or even hostile to government, not recognizing that it is the source of policies they depend on. In turn, it prevents people from mobilizing to support reforms to address the major social problems that concern them.

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A Ticking Time Bomb: The Arab Spring and America's Lost Generation

Nov 14, 2011Mike Konczal

High unemployment pushed young people in the Middle East and North Africa to revolt. Why wouldn't it happen here?

Is it useful to think of the Occupy movement more as a "left" movement or a "youth" movement? To answer that question, it's worth looking into data on the young, particularly as it relates to unemployment.

High unemployment pushed young people in the Middle East and North Africa to revolt. Why wouldn't it happen here?

Is it useful to think of the Occupy movement more as a "left" movement or a "youth" movement? To answer that question, it's worth looking into data on the young, particularly as it relates to unemployment.

To leave the United States for a minute, one way people are trying to understand the Arab Spring is through the lens of massive youth unemployment and inequality. Given how high unemployment has been in these MENA (Middle-East and North African) countries, what else could we expect besides revolution?

For instance, in early February then-IMF chief Dominique Strauss-Kahn told a conference, "this summer I made a speech in Morocco about the question of youth employment including Egypt, Tunisia, saying it is a kind of time bomb" and "such a high level of unemployment, especially youth unemployment, and such a high level of inequality in the country create a social situation that may end in unrest." Here is the "youth unemployment" blog tag at the IMF to give you a sense of what people there have been saying about it. In particular, they point out that it should be a major concern for the MENA and African regions.

Interestingly enough, it was even a concern before the mass protests broke out. Regional IMF officials Ratna Sahay and Alan MacArthur gave a presentation on January 23rd, "Challenges for Egypt in the Post Crisis World," at the Egyptian Center for Economic Studies in Cairo (h/t WSJ). Protests would begin a few days later. Here's a key slide from that presentation:

Part of you may want to immediately start pointing out differences between this country and those. Maybe you are furious at terrible, unresponsive, corrupt governments ignoring the plight of their populations. Maybe you think that if these countries only had neoliberal, "flexible" wage contracts and a leakier safety net like we have in the United States, then unemployment would be much better.

You may then head over to our monthly unemployment numbers and note that American youth unemployment is in the same ballpark as these MENA countries.

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I've taken numbers from the IMF presentation slide above and compared them to the United States' youth unemployment averages from October 2010-October 2011 from the BLS's CPS data:

I can't find what constitutes "youth" for "youth unemployment" in the IMF's definition, and I'm not even sure if it is consistent across the different countries they estimated. As such, I'm including ages 16-19 and ages 16-24, though I believe they are looking at 16-24. For the 16-19 age group, we are at the same level of unemployment as Egypt and well above the region as a whole. At the broader 16-24 range, we are above Syria and Morocco, which both saw large-scale movements in the Arab Spring.

One potential explanation for the high level of youth unemployment in MENA countries is that they have huge demographic issues to deal with -- they have a massive wave of people under 35 years of age to assimilate into their economies. What's our excuse, other than confidence fairy terror spells and a desire to go after public sector workers? And given this, how could we ever say youth unemployment in the United States' Lesser Depression isn't a "time bomb"?

I have to admit I'm a bit hardened to the various charts I'm able to put together from the Bureau of Labor Statistics' data, but this graph of the employment-to-population ratio for 16-24-year-olds going back to 1948 floored me:

Remember that the increase from the 1950s onward reflects women entering the labor force. And notice how it doesn't improve after the early 2000s recession. Every age group has seen a substantial drop in the employment-population ratio, but no other group I've seen comes close to this plummet. For the first time in half a century, a majority of young people aren't working.

Mike Konczal is a Fellow at the Roosevelt Institute.

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The Veterans of the 99%

Nov 11, 2011Reese Neader

Our veterans fight for our country overseas. They shouldn't have to fight for a job when they come home.

It's Veterans Day 2011, and the Great Recession continues. Just as in years past, American veterans from the wars in Iraq and Afghanistan are coming home to a country that cannot provide them the basic dignity of having a job or a place to live. But this year something is different: they are marching for justice.

Our veterans fight for our country overseas. They shouldn't have to fight for a job when they come home.

It's Veterans Day 2011, and the Great Recession continues. Just as in years past, American veterans from the wars in Iraq and Afghanistan are coming home to a country that cannot provide them the basic dignity of having a job or a place to live. But this year something is different: they are marching for justice.

The status quo is grim. The unemployment rate among veterans of Iraq and Afghanistan is 12 percent, even higher than the unacceptable national average of 9 percent. In 2009, over 130,000 U.S. vets spent at least one night in a homeless shelter. Our veterans should be coming home to a country that honors and respects their sacrifice. Instead, our country's largest banks, including JP Morgan, Bank of America, and Wells Fargo, have been accused of overcharging them on their mortgages.

Now veterans across the country are joining the Occupy movement to protest economic inequality, denounce corporate greed, and demand jobs. Many of these brave heroes have also challenged law enforcement in their local communities for attacking unarmed civilians. But some of these veterans have also been attacked by police for exercising their own freedom of speech.

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When Scott Olsen, an Iraq War veteran and Marine, demonstrated at an Occupy rally in Oakland, he was shot with a tear gas canister and sustained severe head injuries. In response, hundreds of veterans marched silently through lower Manhattan (from Vietnam Veterans Park to Zuccotti Park) to protest his mistreatment and show solidarity for the Occupy movement. Since then, another veteran has been hospitalized in Oakland, this time with a ruptured spleen from being beaten by the police. Despite this backlash, the Occupy Veterans movement is growing as men and women who have served in our armed forces continue their fight on behalf of American citizens and their constitutional rights.

Some progress has already been made. The Move Your Money campaign is taking money away from the multinational corporations that are putting our veterans out in the street and redirecting it to credit unions that will invest in our communities. A proposed Veterans Jobs Bill would provide tax breaks for companies that hire jobless veterans and veterans with service-oriented disabilities. But there is much more to be done. While we take today to honor veterans' service, we must remember that we cannot tolerate a financial and economic system that leaves them broke, homeless, and in debt.

Reese Neader is the Roosevelt Institute | Campus Network’s Policy Director.

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Arizona Puts Profit Over Prisoners' Progress With New Fee

Nov 10, 2011May Mgbolu

prison-wall-150Families already struggle to visit incarcerated loved ones, but a new charge will make it harder and further isolate inmates.

prison-wall-150Families already struggle to visit incarcerated loved ones, but a new charge will make it harder and further isolate inmates.

Imprisonment has always generated invisible inequalities. But new legislation in Arizona now forces families and friends of inmates to bear an extra burden and will end up creating more barriers to reentry for inmates after they leave the system.

As of July 20th, Arizona became the first state to pass a "background check fee" that charges adults a one-time fee of $25 to visit any of the 15 prison complexes that house state prisoners. While the legislation was instituted under the pretext that the profit would be used to support the administration of background checks, Wendy Baldo, chief of staff for the Arizona Senate, has explained that the earnings will fund prison maintenance and repairs. However, prison maintenance and repairs is the least of concerns among prisoners and visitors.

Instead, the legislation imposes unusual punishment on the prisoners' family and friends. This fee directly penalizes the family of inmates for the simple reason that their loved ones are in prison and they want to visit them while incarcerated.

While $25 may not seem like a huge amount for many Americans, there is a vast economic disparity between the families of inmates and an average two-parent household. Although specific figures on household income of incarcerated parents are not available, a single parent home that loses one parent to the prison system is expected to experience an income drop of an average 41 percent in the first year. Although the majority of families affected by incarceration are often already low-income households, there is evidence that the men within these families are the key contributors to household income. For instance, 54 percent of the men incarcerated reported being the primary financial support in their household, with an average of 61 percent of fathers employed full-time and 12 percent of employed part-time.

The magnitude of the destabilization of a family struggling financially before an incarceration only demonstrates the declining probability of a family being able to make ends meet in a single household. Arizona's fee simply adds another cost for the family. It comes on top of acquiring the funds necessary to maintain contact with their loved ones such as having to take time off of work and travel to the desolate areas where prisons are often located. It should come as no surprise, then, that this fee is likely to reduce the frequency of visits and cut off inmates' connection to their loved ones and the outside world.

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While prison maintenance is important to the functions of Arizona's Department of Correction, prisoners, their families, and the law has the potential for long-lasting negative effects on prisoners. Importantly, the new law may put a key goal of our criminal justice system in jeopardy: rehabilitating and integrating formerly incarcerated people back into society.

With this fee forcing families to shoulder greater expenses, the Arizona Department of Correction undermines their mission of "successful community reintegration." It discourages visits from wives, husbands, children, and many loved ones that play a vital part in keeping prisoners on a straight and narrow path. While others programs, such as Florida's Department of Correction, create strategies to decrease recidivism through visitation programs, Arizona's Department of Correction chooses to discount the importance of visitation. The PEW Center and the National Prison Project of the American Civil Liberties Union have stated that prison visitation has a positive impact on inmates socially and psychologically, deterring them from potentially bad influences that could lead to reincarceration. Adding a price tag to an important factor in an inmate's ability to avert reincarceration defeats the purpose of the prison system.

This fee may be the first of many to be seen among state correction departments looking to join the national trend of "prisons for profits" and decrease the state's cost of incarceration. While the politics of prisons for profit are anything but new, such policies continue to be a strong determinant of the future of the impoverished communities victimized by the hardships related to incarceration. We need to reconsider the goals and values of our criminal justice system so they are not just about how they save money and make profits.

Barrett Marson, the spokesman for the state Department of Correction, explained that Arizona receives over 30,000 applications to visit prison inmates each year and expect to generate at least $750,000 a year with this fee. But it will undeniably challenge families' of inmates access to visitation, reduce prisoners' chances of adequate rehabilitation and reintegration, and instead encourage the revolving door of prison's release and reentry in order to generate less then 1% of Arizona's Department of Correction's $1 billion budget. As a nation we need to understand the destructive implications of such policies. Is this income worth the greater price tag?

May Mgbolu is the Senior Fellow for Equal Justice at the Roosevelt Institute | Campus Network and a senior at the University of Arizona.

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