Daily Digest - October 1: Welcome to the Shutdown

Oct 1, 2013Rachel Goldfarb

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Shutdown: The Last-Minute Tactics That Failed (MSNBC)

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Shutdown: The Last-Minute Tactics That Failed (MSNBC)

Suzy Khimm and Benjy Sarlin discuss how Congress failed to move their negotiations forward last night. Boehner has finally proposed a conference, something that Senate Democrats have called for almost as often as the House votes to repeal Obamacare.

The U.S. Government Has Shut Down: Does That Mean the Tea Party Won? (Quartz)

Tim Fernholz suggests that there is a win for the right here: the clean continuing resolution that is being discussed would maintain spending at current austerity levels, obscuring arguments on whether the budget should include more stimulus spending.

48 Ways a Government Shutdown Will Screw You Over (MoJo)

Tim Murphy's list includes everyone from furloughed Federal staffers and people on food assistance to ponies and trees. This comprehensive list shows just how much the federal government does that most Americans aren't paying attention to until a shutdown.

Here is Every Previous Government Shutdown, Why They Happened and How They Ended (WaPo)

Dylan Matthews lays out the history of government shutdowns since modern congressional budgeting began. Highlights include the 1977 "Abortion Shutdown III: Dark of the Moon," the 1982 "Let Them Eat Shutdown," and the 1987 "I Think You're a Contra."

How a Debt-Ceiling Crisis Could Become a Financial Crisis (NYT)

Annie Lowrey says that if the U.S. government goes into default, it could cause another financial crisis. The Treasury would be causing the crisis this time, so all the failsafe tools it developed with the Fed might not work properly.

Fixing Exorbitant CEO Pay: All is Not Lost (Fortune)

Eleanor Bloxham argues that today there is a better chance to change CEO compensation practices then there has been in a decade. Dodd-Frank provisions on CEO pay are starting to take effect, and other proposals would make even greater changes.

New on Next New Deal

President Obama's Best Move is to Force a Government Shutdown

Yesterday, Roosevelt Institute Senior Fellow Bo Cutter proposed that forcing a shutdown would be the most politically expedient option for the President. Today, we get to see if his predictions regarding how the shutdown will play out come true.

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President Obama's Best Move is to Force a Government Shutdown

Sep 30, 2013Bo Cutter

Bo Cutter witnessed the government shutdown of the mid-'90s firsthand as part of the Clinton budget team, and he argues that it's time to let it happen all over again.

This brief commentary is my first for a while. It's intended for President Obama's administration. The message is straightforward: accept the tooth fairy into your midst; welcome the gift that keeps on giving (a.k.a. the Republican House); do not seize defeat from the jaws of victory. Force a government shutdown.

Bo Cutter witnessed the government shutdown of the mid-'90s firsthand as part of the Clinton budget team, and he argues that it's time to let it happen all over again.

This brief commentary is my first for a while. It's intended for President Obama's administration. The message is straightforward: accept the tooth fairy into your midst; welcome the gift that keeps on giving (a.k.a. the Republican House); do not seize defeat from the jaws of victory. Force a government shutdown.

Very few presidents have ever been as lucky in their opponents as President Obama. Now is the perfect moment to leverage that luck and avoid a much harder fight (the debt ceiling) in a couple of weeks. It is the case that all political disputes have to end in negotiation, but when you can choose the terrain and terms for the negotiation, it is folly to pass up the chance.

We are deluged with news about the situation, so I won't belabor the back story. The House has passed a continuing resolution funding the government and defunding ObamaCare (I don't have a problem with the right's name). The Senate will pass a resolution funding the government and taking out the de-funding provision. This resolution will go back to the House, where Speaker Boehner will have to make a decision.

So what should the president do? I argue that now is the time to jam the House. The president ought to make it very clear that he would not regard it as a tragedy if the Senate sent its resolution back to the House at about 5 p.m. today. The Speaker had plenty of time this weekend to decide what he wants to do and could get something done by midnight if he acts. But the extremists in the House won't let the Speaker act sensibly, and they ought to be given the chance to pay a price.

What will happen? The government will begin to shut down. A lot of good, hard-working civil servants will be sent home. Travel will mostly stop, and programs will grind to a halt. Parks will close; bills won't be paid; decisions will be unmade and will pile up. Really essential activities won't stop. It will all be a mess, an enormous inconvenience, a vast waste of money. But it won’t be a catastrophe.

And the Congress - particularly the House, which already has approval levels somewhat less than my shoe size - will be blamed. It will then have to act very quickly, and it will turn around and fund the government with a plain vanilla resolution. More importantly, having made clear its disregard for the wellbeing of ordinary Americans, the House will be standing on very thin ice when it threatens to force default over the debt limit on precisely the same grounds, defunding ObamaCare.

I know that doing all this requires the administration do some things that - to put it gently - have not been their strong suits: thinking strategically, recognizing opportunities, understanding risk, and bargaining at least as well as a good used car salesman. But this all happened before with President Clinton in 1995; it came out pretty well for him then, and the opposition to President Obama today is nowhere near as good as Newt Gingrich was then.

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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Daily Digest - September 30: A Bad Policy News Moment

Sep 30, 2013Rachel Goldfarb

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The House’s Food Stamps Cuts Aren’t Just Cruel. They’re Dumb. (WaPo)

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The House’s Food Stamps Cuts Aren’t Just Cruel. They’re Dumb. (WaPo)

Roosevelt Institute Fellow Mike Konczal explains why the GOP's plan to require states to follow a $2,000 assets test for SNAP eligibility is bad policy. Assets tests create poverty traps, forcing families to avoid saving in order to stay afloat.

Countdown to Shutdown: A Primer on Where Budget Wrangling Stands (The Atlantic)

David A. Graham writes an update on what's happened in Congress over the weekend. So far, Republicans have been unwilling to pass a clean continuing resolution in the House, and the schedule for today allows only ten hours of legislative work time.

Who Will Notice a US Government Shut Down? Public Workers, Foreign Governments and People With the Flu (Quartz)

Tim Fernholz lays out who will feel the immediate effects of a government shutdown on October 1, which looks exceedingly likely. The less obvious groups include sick people, since the CDC will stop tracking epidemics, and anyone who planned to buy a house in October.

This Week in Poverty: Five Things You Might Have Missed on 'Poverty Day' (The Nation)

Greg Kaufmann looks at five points from the U.S. Census poverty data that weren't covered by mainstream media. Most strikingly, instituting a monthly benefit for every child as is common in other developed countries could nearly eliminate child poverty in the U.S.

I Worked All Week for Free?!: The Horrifying, True Story of $0 Paychecks (Salon)

Josh Eidelson explains why a group of guest workers on H-2B visas are striking and putting pressure on Florida politicians to reform labor laws. After putting in a full week, these workers are charged rent that is greater then their earnings - and the boss is also the landlord.

Viewpoint: The Decline of Unions Is Your Problem Too (TIME)

Eric Liu explains why every American is harmed by the lowest rate of union membership in 97 years. Organized labor used to keep the economy healthier; today, the people setting the rules are only focused on shareholder profits.

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"Inequality for All" is "The Progressive Economic Narrative: The Movie"

Roosevelt Institute Senior Fellow Richard Kirsch reviews the new film starring Robert Reich, which articulates the narrative that progressive economists have been pushing through Reich's humor and passion, as well as profiles of families scarred by the new economy.

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Daily Digest - September 26: Watch Out for Default

Sep 26, 2013Rachel Goldfarb

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Default Notes (NYT)

Paul Krugman is concerned by the seeming non-response from markets to the possibility of a government default in mid-October. Shouldn't big business be worrying about the possibility of another recession, cuts to Federal spending, and a plunging dollar?

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Default Notes (NYT)

Paul Krugman is concerned by the seeming non-response from markets to the possibility of a government default in mid-October. Shouldn't big business be worrying about the possibility of another recession, cuts to Federal spending, and a plunging dollar?

You Really Ought to Be More Terrified of the Debt Ceiling (The Atlantic)

Derek Thompson points out that while a shutdown would have predictable effects, we have no idea what will happen if Congress fails to raise the debt ceiling. It's unclear if there's even a way for the government to prioritize payments in such a situation.

How One Stroke of the Pen Could Lift Wages for Millions (MSNBC)

Ned Resnikoff presents two possible executive orders that would raise the low wages of two million federally contracted workers. Many of these workers in DC are striking again, this time rallying outside the White House.

Thousands of Grocery Workers Vote on Strike Authorization (The Nation)

Allison Kilkenny reports on a United Food and Commercial Workers vote this week that could lead to strikes if contract negotiations with major grocery chains break down. The biggest concern is health insurance for part-time workers who are union members.

Some Public Companies are Divulging More Details About Their Political Contributions (WaPo)

Dina ElBoghdady reports that due to mounting pressure from shareholders and threats of lawsuits, some large publicly traded companies are starting to disclose more of their political donations. The SEC is deciding whether to step in and mandate such disclosures.

Insight: Wal-Mart 'Made in America' drive follows suppliers' lead (Reuters)

Jessica Wohl and James B. Kelleher argue that for all the stars-and-stripes PR, Walmart's decision to buy more American-made goods is all business. U.S. made products have lower shipping costs and no tariffs, which improves the mega-retailer's bottom line.

SEC Wins Big Fine From JPMorgan but Execs Skate Free (ProPublica)

Jesse Eisinger argues that even though JPMorgan is paying a large settlement for its wrongdoing in the London Whale case, the public still loses. Unless the Volcker Rule is written with serious disclosure requirements, executives will continue to be in the clear.

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Daily Digest - September 25: Listening to Shareholders on CEO Pay

Sep 25, 2013Rachel Goldfarb

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Can Say-on-Pay Curb Executive Compensation? (Roosevelt Institute)

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Can Say-on-Pay Curb Executive Compensation? (Roosevelt Institute)

In her new policy note, Roosevelt Institute Director of Research Susan Holmberg argues that Say-on-Pay, which allows shareholders to vote on executive pay packages, is working, because even when shareholders approve CEO pay, boards are paying attention to the dissenters.

How a Churchgoing Urban Planner Became Compton’s Millennial Mayor (Next City)

Roosevelt Institute | Pipeline Fellow Nona Willis Aronowitz profiles Aja Brown, the new mayor of Compton who is focusing her administration on growth. Her work on basic quality of life issues is increasing her popularity in the old guard of Compton politics.

Washington Dysfunction Threatens U.S. Economy (MSNBC)

Suzy Khimm looks at just how badly a government shutdown would hurt the economy, from federal workers to B&B owners near national parks. Experts say that a shutdown longer than a few days could wipe out an entire quarter's economic growth.

The Path to Dysfunction (NYT)

Jared Bernstein looks at what got us to the point where a government shutdown seems possible next week. There are plenty of reasons, but he's most concerned by the lack of facts in any of these debates, since each side of the aisle has its own set.

Why Obama Can’t Pay a Debt-Ceiling Ransom This Time (NY Mag)

Jonathan Chait thinks that Republicans need to realize that the President is serious when he says he won't negotiate on the debt ceiling this time around. The GOP seems convinced they can get concessions, but they're more likely to drive us into a default.

GOP Launches Race War to Boost the 1 Percent (Salon)

Brittney Cooper writes that Republicans are using racial stereotypes to stir up support for their food stamp cuts. By invoking the "welfare queen," they can get support for cuts that primarily effect poor whites in red states, while keeping those voters on their side.

Mortgages are Easier to Get These Days … Watch Out, it Could be a Trap! (The Guardian)

Heidi Moore thinks people should be cautious before celebrating the fact that banks are giving more mortgages to people with lower credit scores. These lowered standards could be an early red flag, since similar patterns led up to the housing crisis.

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War-Weary Millennials See Few Good Options in Syria

Roosevelt Institute | Campus Network Senior Fellow for Defense and Diplomacy Jacqueline Van de Velde argues that Millennials would be happiest with a diplomatic solution to Syria's chemical weapons, but she's not sure it's doable.

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Daily Digest - September 24: The Financial Reform Slowdown

Sep 24, 2013Rachel Goldfarb

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How Washington Caved to Wall Street (TIME)

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How Washington Caved to Wall Street (TIME)

Roosevelt Institute Chief Economist Joseph Stiglitz argues that Wall Street lobbyists have managed to essentially halt financial reform in the U.S. Banks and the administration are working side-by-side to convince Americans that the financial sector is working safely, but that's just not true.

Shutdown vs. Default: The Relative Impact (NYT)

Annie Lowrey compares the possible impending results of government inaction. There's already a plan in place for a shutdown, which would keep things orderly; with no plans for public default, the impact would be messier and far more expensive.

The Day after Shutdown (TAP)

Jonathan Bernstein explains how the bargaining table changes if we hit a government shutdown on September 30. He thinks that if it comes to that, the Democrats will come out on top - but the far right will maintain that they could have won if the GOP had just held out longer.

The House Republicans’ Dangerous New Constitutional Doctrine: Repealing Laws by De-Funding Them (Robert Reich)

Robert Reich points out the unconstitutionality of the current Republican strategy. The Affordable Care Act passed both houses of Congress and was signed into law; if the GOP wants to repeal it, they need to pass a repeal, not refuse to fund it.

How Walmart Got Government Support, Despite Union Pleas (Salon)

Josh Eidelson reports that unions used every connection they had to try to stop White House events promoting Walmart, to no avail. Hiring veterans doesn't make Walmart a good employer, and selling healthy food doesn't make it good for communities.

The Idiocy of Crowds (Reuters)

Felix Salmon argues that under new laws that allow for equity crowdfunding, which just went into effect, start-ups that failed to get investors in traditional ways will seek "dumb money" that doesn't know better. He sees a future full of lawsuits.

Does the Fed Have a Communication Problem, Or Do Markets Have a Listening Problem? (WaPo)

Neil Irwin suggests that monetary policy is communications, and today we get more information from the Fed then ever before. That view of the inner workings of the Fed means that markets are more aware of how difficult it is to make long-term plans.

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The Next Real Fight for Obamacare Will Be in 2014

Roosevelt Institute Senior Fellow Richard Kirsch argues that leading up to the 2014 elections, Democrats must organize the beneficiaries of the Affordable Care Act to be its spokespeople. Those stories will sell Obamacare - and Democrats - to the voters.

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Daily Digest - September 19: All Eyes on Worker Centers

Sep 19, 2013Rachel Goldfarb

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Industry Groups Vow to Expose Union-Backed Worker Centers (The Hill)

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Industry Groups Vow to Expose Union-Backed Worker Centers (The Hill)

Kevin Bogardus spoke to Roosevelt Institute Fellow Dorian Warren, who says that newly tightened partnerships between unions and worker centers will result in heightened scrutiny. As nonprofits instead of unions, worker centers fall under different laws, and some industry groups don't like it.

Middle-Class Decline Mirrors The Fall Of Unions In One Chart (HuffPo)

Caroline Fairchild pulls a graph from a recent Center for American Progress report that shows the middle-class share of income decreasing right along with union membership. Correlation is not causation, but that doesn't make the image less striking.

Congress and the Budget: Holding Middle-Class America Hostage (The Guardian)

Jana Kasperkevic looks at a Congressional Budget Office report that proves that Congress's recent actions, like sequestration, have been hurting the economy. Their current inaction has the potential to be just as harmful as the economy continues to lose ground.

Two Charts That Show Why Another Debt Ceiling Fight Is A Very Bad Idea (Business Insider)

Josh Barro reminds us why Congress should just authorize raising the debt ceiling without a fight. Last time, American debt was downgraded, the stock market plunged, and consumer confidence fell, all things we really don't need again.

The Fed Decides the Economy Still Sucks (NY Mag)

Kevin Roose reports on the Federal Reserve announcement that there will be no tapering just yet. He says this shows how strongly doves like Janet Yellen are reorienting Fed priorities towards creating new jobs.

Fed Favorite Janet Yellen Is No Dove—and That's a Good Thing (The Atlantic)

Matthew O'Brien points out that while Yellen is called dovish today for her focus on unemployment over inflation, in the Clinton years she was a staunch hawk. Her willingness to shift strategies based on facts only confirms her strengths as a central banker.

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The Digital Divide is Holding Young New Yorkers Back

Nell Abernathy looks at a study commissioned by the Manhattan Borough President and the New York City Comptroller on Internet access in public schools. 75 percent of NYC public schools only have access at 10 mbps or less, and the slower access is concentrated in poorer neighborhoods.

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Daily Digest - September 12: Reducing Inequality Isn't Impossible

Sep 12, 2013Rachel Goldfarb

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The Richest Nab The Greatest Share of Income Recovered (All In With Chris Hayes)

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The Richest Nab The Greatest Share of Income Recovered (All In With Chris Hayes)

Roosevelt Institute Chief Economist Joseph Stiglitz discusses the ways that the labor market and financial systems have contributed to income inequality's growth. He talks about short-term solutions, like appointing a Fed chair who will focus on full employment.

Report: The Rich Are Now Richer Than Ever (MoJo)

Erika Eichelberger reports on a study showing that the vast bulk of the recovery has gone to the wealthiest Americans. Rising corporate profits and stock prices don't help the middle and lower classes.

Moving Past the Low-Wage Social Contract (Reuters)

Josh Freedman argues that for decades our social contract has used tax credits and subsidies to help low wage workers and encourage lower prices, and it isn't working. Tax credits don't reduce income inequality or increase income mobility.

Top California Lawmakers Back Raising Minimum Wage (NYT)

With the leaders of the legislature and the governor backing the bill, Ian Lovett reports that California is almost certain to pass the nation's highest minimum wage by Friday. The bill will raise the minimum wage to $9 on July 1, 2013, and to $10 on January 1, 2016.

The Real Reason the Poor Go Without Bank Accounts (Atlantic Cities)

Lisa Servon discusses her research on why some people prefer check cashers, despite the fees involved. She finds that check cashers may serve people living on the edge better, because there's no risk of cascading fees for overdrawn accounts.

Government-Shutdown Crisis Proceeding on Schedule (TAP)

Paul Waldman reports that if Tea Party Republicans have their way, we'll be headed for a shutdown in October. Of course, that isn't going to help the GOP's reputation with voters, but defunding Obamacare is more important then keeping government programs funded.

Five Years After the Crisis, These 13 Charts Show What’s Fixed and What Isn’t. (WaPo)

Neil Irwin presents data on what has and hasn't changed in the five years since Lehman Brothers declared bankruptcy. He claims that this data makes a persuasive argument that today's financial system is more stable then before.

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Three Graphs That Show Why Inequality Matters in the New York City Mayoral Race

Nell Abernathy, Program Manager for the Roosevelt Institute's Bernard L. Schwartz Rediscovering Government Initiative, shares some charts that explain why inequality (or as Mayor Bloomberg puts it, "class warfare") is so important in the NYC mayoral race.

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Policy Note: Will Crowdfunding Kickstart an Investment Revolution?

Sep 5, 2013

Download the policy note (PDF) by Georgia Levenson Keohane

In a new policy note, Roosevelt Institute Fellow Georgia Levenson Keohane examines the policy and political implications of peer-to-peer financing. In recent years, crowdfunding has emerged as a financing model that allows smaller funders to invest in projects and organizations in their early stages – particularly those that would otherwise struggle to obtain capital. Peer-to-peer funding experiments first emerged in the nonprofit sector, but have since expanded to the realms of for-profit investment and political activism.

Download the policy note (PDF) by Georgia Levenson Keohane

In a new policy note, Roosevelt Institute Fellow Georgia Levenson Keohane examines the policy and political implications of peer-to-peer financing. In recent years, crowdfunding has emerged as a financing model that allows smaller funders to invest in projects and organizations in their early stages – particularly those that would otherwise struggle to obtain capital. Peer-to-peer funding experiments first emerged in the nonprofit sector, but have since expanded to the realms of for-profit investment and political activism. The proliferation of crowdfunding models and uses requires a nuanced policy response, one that balances the imperative to support the growth of small businesses and new jobs with safeguards for investor protection.

Read the policy note: "Will Crowdfunding Kickstart an Investment Revolution?" by Roosevelt Institute Fellow Georgia Levenson Keohane.

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Can President Obama's New Metrics Curb College Costs?

Aug 23, 2013Mike Konczal

(Photo Source: White House)

President Obama just announced a major initiative on higher education. Will it contain or reverse rising costs?

I want to discuss the part of it that seems most tailored to containing costs, which is creating new higher education metrics to compare schools. These metrics will be created by 2015, which will be used to determine access to federal dollars such as student loans and Pell grants by 2018.

From the fact sheet, the to-be-determined rankings will be based on three things: access, affordability, and outcomes. Access includes “percentage of students receiving Pell grants,” affordability includes “average tuition, scholarships, and loan debt,” and outcomes includes graduation rates and earnings.

Here are my initial thoughts as I try to understand this. The tl;dr version is that it is important that these metrics are used to drive down private costs relative to public, expose administrative bloat, put pressure on the states, and bring accountability to the for-profits. If they don’t do that, they’re a waste on the cost-containment front. Now, here are six more detailed points to consider about how the metrics will be implemented and what effects they will have:

1. The Goals Will Run Counter to Each Other. The efforts to increase graduation rates and have better post-graduation outcomes may require more spending by colleges. Some colleges in each of the meta-categories are likely to be booted for bad performance, or the metrics will make attending the worst-performing colleges so expensive as to drag them into a death spiral. Good as that may be for education, it will collapse the supply of higher education in the short term, putting more price pressure on existing institutions.

Which is to say that we should distinguish efforts to increase quality through access and outcomes from efforts to contain costs. Students graduating on time will make colleges de facto more affordable, and perhaps that is mainly what the president is looking for.  But that is not entirely cost containment.

2. The Student-Consumer or the Government? What’s different here? As Sara Goldrick-Rab and others argue, one reason cost containment has failed in the past “may stem from the financial aid system’s strong focus on the behaviors of ‘student-consumers’ rather than education providers.”

It’s not clear to me why empowering these “student-consumers,” who go about rationally analyzing disclosed data in the marketplace for education, would give them the ability to make the demands necessary to contain costs at universities as a whole. One could see them driving out obviously underperforming institutions from the landscape, but it’s much harder to imagine them forcing institutions to contain costs, at least without political struggle.

Students themselves are quite aware of the increasing costs in the past few years, with endless “click here to know what you are borrowing” measures that likely don’t do much. There’s really little evidence that an additional range of disclosures would make the institutions here more accountable or force them to contain their costs.

Which is to say that we should focus less on disclosure and the consumer regime for cost containment, and more on how the government will force changes itself by making aid less available unless an affordability metric is met.

3 The Obvious Information to Disclose. Talking about “the problem of higher education costs” is a major category error, as they vary by institution. The factors that cause community colleges to raise tuition (decreasing public support) are different than those facing for-profits (maximizing aid extraction) or private not-for-profits (maximizing prestige and consumer experience).

Consistent across all of these is the idea that increasing administrative costs are a major driver of costs. This strikes me as the obvious, and perhaps only, metric where the consumer-student could force containment and best practices.

So a very obvious thing to inform consumers of is “how much of my tuition goes to instruction?” If consumer-students want to force down football coach salaries and investment in extravagant non-instructional benefits, this is the most obvious way to do it and can be plastered across every disclosure form.

(Another question I think is important, which would be great to deal with for-profits, is to disclose “how much of my tuition will be paid out to shareholders?” Consumers may or may not be happy with paying extra to build a more gigantic football stadium; they are probably not happy paying money that leaves the educational institution entirely.)

4. Taking on Private Universities. It’s worth noting here that these metrics will be applied to private schools as well, using all of the government’s Title IV money (grants and student loans and everything else) as the leverage. And this is probably the major challenge, as private schools will not like this, and they have a lot of political coverage. Who among the elite hasn’t gone to a prominent private university?

In a recent editorial on these new metrics, Sara Goldrick-Rab notes the danger that President Obama will “cave to the private higher-education lobby.” For if private higher education’s “expenses are so merited, we should see bigger gains at private elites than at we do at less-expensive institutions, not just higher graduation rates. None of that is happening now.”

I’m curious how the metrics will “compare colleges with similar missions.” Will they compare public schools and private schools on the issue of cost containment at a given a level of quality? They should, as directly funded public options can drive down the costs of privately allocated goods, but if they do, that will necessarily put a lot of pressure on private schools.

Interestingly, this could lead to a situation where private universities just leave the federal support system. Harvard, for instance, could just say “forget you” to the federal government and fund whatever aid it wants out of its own endowment. This move might split reformers, even though it would likely be for the best.

5. Taking on the States. This is the most incoherent part of Obama’s pitch about the metrics. In the fact sheet, President Obama noted that “[d]eclining state funding has forced students to shoulder a bigger proportion of college costs; tuition has almost doubled as a share of public college revenues over the past 25 years from 25 percent to 47 percent.” Yet at the same time he talks about bloat and waste as drivers. Both could be true, but if the first is a main driver then individual rankings of schools will have a problem.

One way to balance this would be to rank states themselves alongside schools. Demos proposes “an additional ratings system: why don’t we rate state legislatures on their per-student investment in higher education?” This could be useful in giving people in different states a much better sense of what their public higher education looks like. Crucially, it would also adjust for the fact that state education systems function as a continuum with multiple levels and transfers up and down the educational ladder.

6. Political Battles. A lot of commentators are arguing this is a battle between President Obama and liberal professors, so it is unlikely to trigger GOP opposition. I’m not sure about that. The real people who will disproportionately end up in the crosshairs if this is done well, as listed above, are (a) administrators taking inflated salaries, (b) private and flagship schools that provided little value at very high costs, and c) for-profits.

I think Josh Barro misses that for-profit schools are a major GOP constituency. George W. Bush’s Assistant Secretary for Postsecondary Education, Sally Stroup, was a former University of Phoenix lobbyist, and led a successful effort to remove restrictions on for-profit schools. On the campaign trail, Mitt Romney name-dropped a for-profit school that happened to donate to him. Insofar as the Obama administration will try to use these metrics to get a second bite at curbing the for-profit industry as it failed to do in its first term, that will set off alarm bells.

Meanwhile, as noted above, basically every elite within 100 yards of D.C. politics, particularly in elite media and Democratic politics (e.g. “He was my professor actually at Harvard”), functions like a member of a private higher education lobby. How will they react if the hammer comes down there?

There’s a lot of emphasis on getting poor students on Pell grants into high-end schools. That is a good goal. However, the issues with costs and higher education go far beyond this and affect families who are not rich but don’t qualify for means-tested aid. They are the ones who will increasingly demand cost containment.

Something will eventually give. The question remains as to whether or not these metrics will be used to drive down private costs relative to public, expose administrative bloat, put pressure on the states, and bring accountability to the for-profits. If they do, it’s a positive sign; if not, a waste or worse when it comes to cost containment.

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(Photo Source: White House)

President Obama just announced a major initiative on higher education. Will it contain or reverse rising costs?

I want to discuss the part of it that seems most tailored to containing costs, which is creating new higher education metrics to compare schools. These metrics will be created by 2015, which will be used to determine access to federal dollars such as student loans and Pell grants by 2018.

From the fact sheet, the to-be-determined rankings will be based on three things: access, affordability, and outcomes. Access includes “percentage of students receiving Pell grants,” affordability includes “average tuition, scholarships, and loan debt,” and outcomes includes graduation rates and earnings.

Here are my initial thoughts as I try to understand this. The tl;dr version is that it is important that these metrics are used to drive down private costs relative to public, expose administrative bloat, put pressure on the states, and bring accountability to the for-profits. If they don’t do that, they’re a waste on the cost-containment front. Now, here are six more detailed points to consider about how the metrics will be implemented and what effects they will have:

1. The Goals Will Run Counter to Each Other. The efforts to increase graduation rates and have better post-graduation outcomes may require more spending by colleges. Some colleges in each of the meta-categories are likely to be booted for bad performance, or the metrics will make attending the worst-performing colleges so expensive as to drag them into a death spiral. Good as that may be for education, it will collapse the supply of higher education in the short term, putting more price pressure on existing institutions.

Which is to say that we should distinguish efforts to increase quality through access and outcomes from efforts to contain costs. Students graduating on time will make colleges de facto more affordable, and perhaps that is mainly what the president is looking for.  But that is not entirely cost containment.

2. The Student-Consumer or the Government? What’s different here? As Sara Goldrick-Rab and others argue, one reason cost containment has failed in the past “may stem from the financial aid system’s strong focus on the behaviors of ‘student-consumers’ rather than education providers.”

It’s not clear to me why empowering these “student-consumers,” who go about rationally analyzing disclosed data in the marketplace for education, would give them the ability to make the demands necessary to contain costs at universities as a whole. One could see them driving out obviously underperforming institutions from the landscape, but it’s much harder to imagine them forcing institutions to contain costs, at least without political struggle.

Students themselves are quite aware of the increasing costs in the past few years, with endless “click here to know what you are borrowing” measures that likely don’t do much. There’s really little evidence that an additional range of disclosures would make the institutions here more accountable or force them to contain their costs.

Which is to say that we should focus less on disclosure and the consumer regime for cost containment, and more on how the government will force changes itself by making aid less available unless an affordability metric is met.

3 The Obvious Information to Disclose. Talking about “the problem of higher education costs” is a major category error, as they vary by institution. The factors that cause community colleges to raise tuition (decreasing public support) are different than those facing for-profits (maximizing aid extraction) or private not-for-profits (maximizing prestige and consumer experience).

Consistent across all of these is the idea that increasing administrative costs are a major driver of costs. This strikes me as the obvious, and perhaps only, metric where the consumer-student could force containment and best practices.

So a very obvious thing to inform consumers of is “how much of my tuition goes to instruction?” If consumer-students want to force down football coach salaries and investment in extravagant non-instructional benefits, this is the most obvious way to do it and can be plastered across every disclosure form.

(Another question I think is important, which would be great to deal with for-profits, is to disclose “how much of my tuition will be paid out to shareholders?” Consumers may or may not be happy with paying extra to build a more gigantic football stadium; they are probably not happy paying money that leaves the educational institution entirely.)

4. Taking on Private Universities. It’s worth noting here that these metrics will be applied to private schools as well, using all of the government’s Title IV money (grants and student loans and everything else) as the leverage. And this is probably the major challenge, as private schools will not like this, and they have a lot of political coverage. Who among the elite hasn’t gone to a prominent private university?

In a recent editorial on these new metrics, Sara Goldrick-Rab notes the danger that President Obama will “cave to the private higher-education lobby.” For if private higher education’s “expenses are so merited, we should see bigger gains at private elites than at we do at less-expensive institutions, not just higher graduation rates. None of that is happening now.”

I’m curious how the metrics will “compare colleges with similar missions.” Will they compare public schools and private schools on the issue of cost containment at a given a level of quality? They should, as directly funded public options can drive down the costs of privately allocated goods, but if they do, that will necessarily put a lot of pressure on private schools.

Interestingly, this could lead to a situation where private universities just leave the federal support system. Harvard, for instance, could just say “forget you” to the federal government and fund whatever aid it wants out of its own endowment. This move might split reformers, even though it would likely be for the best.

5. Taking on the States. This is the most incoherent part of Obama’s pitch about the metrics. In the fact sheet, President Obama noted that “[d]eclining state funding has forced students to shoulder a bigger proportion of college costs; tuition has almost doubled as a share of public college revenues over the past 25 years from 25 percent to 47 percent.” Yet at the same time he talks about bloat and waste as drivers. Both could be true, but if the first is a main driver then individual rankings of schools will have a problem.

One way to balance this would be to rank states themselves alongside schools. Demos proposes “an additional ratings system: why don’t we rate state legislatures on their per-student investment in higher education?” This could be useful in giving people in different states a much better sense of what their public higher education looks like. Crucially, it would also adjust for the fact that state education systems function as a continuum with multiple levels and transfers up and down the educational ladder.

6. Political Battles. A lot of commentators are arguing this is a battle between President Obama and liberal professors, so it is unlikely to trigger GOP opposition. I’m not sure about that. The real people who will disproportionately end up in the crosshairs if this is done well, as listed above, are (a) administrators taking inflated salaries, (b) private and flagship schools that provided little value at very high costs, and c) for-profits.

I think Josh Barro misses that for-profit schools are a major GOP constituency. George W. Bush’s Assistant Secretary for Postsecondary Education, Sally Stroup, was a former University of Phoenix lobbyist, and led a successful effort to remove restrictions on for-profit schools. On the campaign trail, Mitt Romney name-dropped a for-profit school that happened to donate to him. Insofar as the Obama administration will try to use these metrics to get a second bite at curbing the for-profit industry as it failed to do in its first term, that will set off alarm bells.

Meanwhile, as noted above, basically every elite within 100 yards of D.C. politics, particularly in elite media and Democratic politics (e.g. “He was my professor actually at Harvard”), functions like a member of a private higher education lobby. How will they react if the hammer comes down there?

There’s a lot of emphasis on getting poor students on Pell grants into high-end schools. That is a good goal. However, the issues with costs and higher education go far beyond this and affect families who are not rich but don’t qualify for means-tested aid. They are the ones who will increasingly demand cost containment.

Something will eventually give. The question remains as to whether or not these metrics will be used to drive down private costs relative to public, expose administrative bloat, put pressure on the states, and bring accountability to the for-profits. If they do, it’s a positive sign; if not, a waste or worse when it comes to cost containment.

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