Perhaps it’s a sign of the times that one man’s act of altruism has attracted national attention. Raymond Burse, interim president of Kentucky State University, has given up more than $90,000 of his annual salary in order to boost pay for the lowest-paid workers at the college, some of whom earn as little as the minimum wage of $7.25 an hour. His donation will bump their wages to $10.25.
Burse has noted that his sacrifice will hardly leave him impoverished. He is a retired General Electric executive (as well as a former president of the college) with good benefits, as he told the Lexington Herald-Leader. While his job as interim president is “not a hobby, in terms of the people who do the hard work and heavy lifting, they are at the lower pay scale,” he said.
Yet, Burse is not Mitt Romney rich, and he could easily have kept his entire $349,869 annual paycheck without raising an eyebrow among his peers. As acting head of a historically black institution, he’s not in the growing circle of college presidents whose annual compensation tops a million bucks. Still, his act of generosity shines a spotlight on the growing divide between the haves and the have-nots, the well-off and the working stiffs, the 1 percent and the rest of us.
The nation’s growing income inequality is one of its biggest challenges, a widening rip in the social fabric. The United States is not held together by a common religion or language or ethnicity, but by its promise of equal opportunity for all. While that’s always been a bit exaggerated, the nation has generally made good on the ideal that those who work hard can at least provide for their families.
But that notion has been less and less true since the 1980s, as globalization and technology starting stealing the factory jobs that paid good wages and gave average workers a toehold in the middle class. Then came the financial meltdown of 2008, which sped the decline. It’s no wonder that 49 percent of Americans, according to a new NBC-Wall Street Journal poll, think the country is still in a recession.
The Great Recession, though, just put rocket-boosters on a trend evident for decades. The problem is systemic. We’ve managed to create an economy that makes the rich richer while most others struggle to get by. Those with college degrees generally fare better than those with high school diplomas, but there are lots of twenty-something college grads working part-time jobs and living with their parents. They can’t afford to rent an apartment.
The economic climate isn’t the fault of Congress or the president. This globe-shaking dislocation is a mega-trend — the sort of frightening reordering of the universe that shook millions at the start of the Industrial Revolution. It’s not necessarily a bad thing that thousands of bank tellers, for example, are slowly being replaced by smart ATMs, but it does signal the disappearance of jobs that paid a decent wage.
Most Americans, however, aren’t buying the mega-trend explanation. They place the blame for their economic decline squarely on the shoulders of their elected leaders. The NBC-Wall Street Journal poll, conducted late last month, found that “seven in 10 adults blamed the malaise more on Washington leaders than on any deeper economic trends,” the Journal said.
That is easy enough to understand. Even if political leaders didn’t instigate a tectonic shift in the economy, they have done next to nothing to ease the dislocations. Indeed, a dysfunctional Republican Party, now comfortable in its role as enabler to the rich, will barely acknowledge the growing income gap.
Democrats, for their part, have recognized the problem but present few long-term solutions. Yes, raising the minimum wage would help, but it’s just a start. The nation needs an overhaul of its educational system, cheaper college costs and a public works program that pays a decent wage.
Burse’s noble sacrifice could help a few workers, but it’s not clear that it will stay in effect after he leaves. Still, his gesture is a step in the right direction. Too few men and women in his position have even noticed the plight of their poorly paid workers.
By: Cynthia Tucker, Visiting Professor, The University of Georgia; The National Memo, August 9, 2014
On Sunday The Times published an article by the political scientist Brendan Nyhan about a troubling aspect of the current American scene — the stark partisan divide over issues that should be simply factual, like whether the planet is warming or evolution happened. It’s common to attribute such divisions to ignorance, but as Mr. Nyhan points out, the divide is actually worse among those who are seemingly better informed about the issues.
The problem, in other words, isn’t ignorance; it’s wishful thinking. Confronted with a conflict between evidence and what they want to believe for political and/or religious reasons, many people reject the evidence. And knowing more about the issues widens the divide, because the well informed have a clearer view of which evidence they need to reject to sustain their belief system.
As you might guess, after reading Mr. Nyhan I found myself thinking about the similar state of affairs when it comes to economics, monetary economics in particular.
Some background: On the eve of the Great Recession, many conservative pundits and commentators — and quite a few economists — had a worldview that combined faith in free markets with disdain for government. Such people were briefly rocked back on their heels by the revelation that the “bubbleheads” who warned about housing were right, and the further revelation that unregulated financial markets are dangerously unstable. But they quickly rallied, declaring that the financial crisis was somehow the fault of liberals — and that the great danger now facing the economy came not from the crisis but from the efforts of policy makers to limit the damage.
Above all, there were many dire warnings about the evils of “printing money.” For example, in May 2009 an editorial in The Wall Street Journal warned that both interest rates and inflation were set to surge “now that Congress and the Federal Reserve have flooded the world with dollars.” In 2010 a virtual Who’s Who of conservative economists and pundits sent an open letter to Ben Bernanke warning that his policies risked “currency debasement and inflation.” Prominent politicians like Representative Paul Ryan joined the chorus.
Reality, however, declined to cooperate. Although the Fed continued on its expansionary course — its balance sheet has grown to more than $4 trillion, up fivefold since the start of the crisis — inflation stayed low. For the most part, the funds the Fed injected into the economy simply piled up either in bank reserves or in cash holdings by individuals — which was exactly what economists on the other side of the divide had predicted would happen.
Needless to say, it’s not the first time a politically appealing economic doctrine has been proved wrong by events. So those who got it wrong went back to the drawing board, right? Hahahahaha.
In fact, hardly any of the people who predicted runaway inflation have acknowledged that they were wrong, and that the error suggests something amiss with their approach. Some have offered lame excuses; some, following in the footsteps of climate-change deniers, have gone down the conspiracy-theory rabbit hole, claiming that we really do have soaring inflation, but the government is lying about the numbers (and by the way, we’re not talking about random bloggers or something; we’re talking about famous Harvard professors.) Mainly, though, the currency-debasement crowd just keeps repeating the same lines, ignoring its utter failure in prognostication.
You might wonder why monetary theory gets treated like evolution or climate change. Isn’t the question of how to manage the money supply a technical issue, not a matter of theological doctrine?
Well, it turns out that money is indeed a kind of theological issue. Many on the right are hostile to any kind of government activism, seeing it as the thin edge of the wedge — if you concede that the Fed can sometimes help the economy by creating “fiat money,” the next thing you know liberals will confiscate your wealth and give it to the 47 percent. Also, let’s not forget that quite a few influential conservatives, including Mr. Ryan, draw their inspiration from Ayn Rand novels in which the gold standard takes on essentially sacred status.
And if you look at the internal dynamics of the Republican Party, it’s obvious that the currency-debasement, return-to-gold faction has been gaining strength even as its predictions keep failing.
Can anything reverse this descent into dogma? A few conservative intellectuals have been trying to persuade their movement to embrace monetary activism, but they’re ever more marginalized. And that’s just what Mr. Nyhan’s article would lead us to expect. When faith — including faith-based economics — meets evidence, evidence doesn’t stand a chance.
By: Paul Krugman, Op-Ed Columnist, The New York Times, July 6, 2014
“Jobs And Skills And Zombies”: Skills Gap, An Idea That Should Have Been Killed By Evidence But Refuses To Die
A few months ago, Jamie Dimon, the chief executive of JPMorgan Chase, and Marlene Seltzer, the chief executive of Jobs for the Future, published an article in Politico titled “Closing the Skills Gap.” They began portentously: “Today, nearly 11 million Americans are unemployed. Yet, at the same time, 4 million jobs sit unfilled” — supposedly demonstrating “the gulf between the skills job seekers currently have and the skills employers need.”
Actually, in an ever-changing economy there are always some positions unfilled even while some workers are unemployed, and the current ratio of vacancies to unemployed workers is far below normal. Meanwhile, multiple careful studies have found no support for claims that inadequate worker skills explain high unemployment.
But the belief that America suffers from a severe “skills gap” is one of those things that everyone important knows must be true, because everyone they know says it’s true. It’s a prime example of a zombie idea — an idea that should have been killed by evidence, but refuses to die.
And it does a lot of harm. Before we get there, however, what do we actually know about skills and jobs?
Think about what we would expect to find if there really were a skills shortage. Above all, we should see workers with the right skills doing well, while only those without those skills are doing badly. We don’t.
Yes, workers with a lot of formal education have lower unemployment than those with less, but that’s always true, in good times and bad. The crucial point is that unemployment remains much higher among workers at all education levels than it was before the financial crisis. The same is true across occupations: workers in every major category are doing worse than they were in 2007.
Some employers do complain that they’re finding it hard to find workers with the skills they need. But show us the money: If employers are really crying out for certain skills, they should be willing to offer higher wages to attract workers with those skills. In reality, however, it’s very hard to find groups of workers getting big wage increases, and the cases you can find don’t fit the conventional wisdom at all. It’s good, for example, that workers who know how to operate a sewing machine are seeing significant raises in wages, but I very much doubt that these are the skills people who make a lot of noise about the alleged gap have in mind.
And it’s not just the evidence on unemployment and wages that refutes the skills-gap story. Careful surveys of employers — like those recently conducted by researchers at both M.I.T. and the Boston Consulting Group — similarly find, as the consulting group declared, that “worries of a skills gap crisis are overblown.”
The one piece of evidence you might cite in favor of the skills-gap story is the sharp rise in long-term unemployment, which could be evidence that many workers don’t have what employers want. But it isn’t. At this point, we know a lot about the long-term unemployed, and they’re pretty much indistinguishable in skills from laid-off workers who quickly find new jobs. So what’s their problem? It’s the very fact of being out of work, which makes employers unwilling even to look at their qualifications.
So how does the myth of a skills shortage not only persist, but remain part of what “everyone knows”? Well, there was a nice illustration of the process last fall, when some news media reported that 92 percent of top executives said that there was, indeed, a skills gap. The basis for this claim? A telephone survey in which executives were asked, “Which of the following do you feel best describes the ‘gap’ in the U.S. workforce skills gap?” followed by a list of alternatives. Given the loaded question, it’s actually amazing that 8 percent of the respondents were willing to declare that there was no gap.
The point is that influential people move in circles in which repeating the skills-gap story — or, better yet, writing about skill gaps in media outlets like Politico — is a badge of seriousness, an assertion of tribal identity. And the zombie shambles on.
Unfortunately, the skills myth — like the myth of a looming debt crisis — is having dire effects on real-world policy. Instead of focusing on the way disastrously wrongheaded fiscal policy and inadequate action by the Federal Reserve have crippled the economy and demanding action, important people piously wring their hands about the failings of American workers.
Moreover, by blaming workers for their own plight, the skills myth shifts attention away from the spectacle of soaring profits and bonuses even as employment and wages stagnate. Of course, that may be another reason corporate executives like the myth so much.
So we need to kill this zombie, if we can, and stop making excuses for an economy that punishes workers.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 30, 2014
“Aligned Agenda’s”: The Tea Party and Wall Street Might Not Be Best Friends Forever, But They Are For Now
“Our problem today was not caused by a lack of business and banking regulations,” argued Ron Paul in his 2009 manifesto End the Fed, which outlined a theory of the financial crisis that only implicated government policy and the Federal Reserve, while mocking the idea that Wall Street’s financial engineering and derivatives played any role. “The only regulations lacking were the ones that should have been placed on the government officials who ran roughshod over the people and the Constitution.”
There seems to be some confusion about the relationship between the Tea Party and Wall Street. New York magazine’s Jonathan Chait says the two “are friends after all,” while the Washington Examiner‘s Tim Carney insists that the Tea Party has loosened the business lobby’s “grip on the GOP.” So let’s make this clear: The Tea Party agenda is currently aligned with the Wall Street agenda.
The Tea Party’s theory of the financial crisis has absolved Wall Street completely. Instead, the crisis is interpreted according to two pillars of reactionary thought: that the government is a fundamentally corrupt enterprise trying to give undeserving people free stuff, and that hard money should rule the day. This will have major consequences for the future of reform, should the GOP take the Senate this fall.
On the Hill, it’s hard to find where the Tea Party and Wall Street disagree. Tea Party senators like Mike Lee, Rand Paul, and Ted Cruz, plus conservative senators like David Vitter, have rallied around a one-line bill repealing the entirety of Dodd-Frank and replacing it with nothing. In the House, Republicans are attacking new derivatives regulations, all the activities of the Consumer Financial Protection Bureau, the existence of the Volcker Rule, and the ability of the FDIC to wind down a major financial institution, while relentlessly attacking strong regulators and cutting regulatory funding. This is Wall Street’s wet dream of a policy agenda.
Note the lack of any Republican counter-proposal or framework. The few that have been suggested, such as David Camp’s bank tax or Vitter’s higher capital requirements have gotten no additional support from the right. House Republicans attacked Camp’s plan publicly, and Vitter’s bill lost one of its only two other Republican supporters immediately after it was announced. So why is there a lack of an agenda? Because the Tea Party thinks that Wall Street has done nothing wrong.
The story of the crisis, according to the right, goes like this: The Community Reinvestment Act and other government regulations forced banks into making subprime loans, and the “affordability goals” of government-sponsored enterprises made the rest of the subprime that crashed the economy. The Federal Reserve pumped a credit bubble, as it always does when it tries to push against recessions. In other words, the financial crisis in 2008 was entirely a government creation, and could have been solved by just putting all the financial firms into bankruptcy. There’s no such problem as “shadow banking,” and to whatever extent Wall Street misbehaved, it was only the result of the moral hazard created by the assumption that there would be bailouts. Or as Senator Marco Rubio said in his 2013 State of the Union response, we suffered “a housing crisis created by reckless government policies.”
This narrative is an easy one to believe for people who distrust government, but it’s far from the facts. The CRA didn’t even cover the fly-by-night institutions making the vast majority of subprime loans. The GSEs lost market share during the housing bubble and subprime loans account for less than 5 percent of their losses. Low interest rates likely account for only a quarter of housing price shifts, and even then, low interest rates likely offset capital coming into the country from abroad.
The mainstream account of the crisis, as Dean Starkman pointed out in The New Republic, is that we’re all to blame—or, as Georgetown law professor Adam Levitin wrote in his recent survey of the crisis, that it was a “perfect storm.” Starkman argues that the Everyone-Is-To-Blame narrative is partially responsible for the lack of serious homeowner help in the Home Affordable Modification Program. As he demonstrates in his piece, “there’s a big and growing body of documentation about what happened as the financial system became incentivized to sell as many loans as possible on the most burdensome possible terms.”
The lack of any Republican policy on financial reform is the result of several factors. Mitt Romney thought it would be a liability to put forward his own agenda in 2012. By voting nearly unanimously against Dodd-Frank, Republicans were able to make this moderate, lukewarm response to the crisis look like a partisan takeover of finance (financial reform is hard and may not work, so all the better to have Democrats own the issue so they can be clubbed with it later). Rather than wage total war against Dodd-Frank through partisan outfits, the smartest minds on the right are weakening the law through law firms and K Street. And the conservative infrastructure has been solely focused on privatizing the GSEs completely.
This lack of policy has allowed the far right and Austrian School acolytes to occupy the intellectual space in the party. It’s the minority party for now, but all it takes is a few Senate seats changing hands before the Tea Party narrative becomes the prevailing one on the Hill—and nothing would delight Wall Street more.
By: Mike Konczal, The New Republic, March 21, 2014
“The Wall Street That Cried Wolf”: Banks Complain About Onerous New Regulations While Reaping Record Profits
The headlines have been nothing short of dazzling: “Bank of America profits soar“; “Citigroup’s profits surge“; “Bank boom continues: Goldman Sachs profit doubles.” In fact, the six biggest Wall Street banks – Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Wells Fargo and Morgan Stanley – all beat their profit expectations in the most recent quarter, according to results announced over the last week. JP Morgan Chase is even on pace to make $25 billion (yes, billion with a b) this year.
If you’re thinking that these numbers don’t at all square with the ominous warnings of bank executives and lobbyists, who have been saying non-stop that new regulations meant to safeguard the financial system and prevent a repeat of the 2008 financial crisis are going to irreparably harm their ability to do business, you’re right. But that hasn’t stopped the banks’ griping.
The latest iteration of this argument played out after regulators recently announced new rules regarding bank capital – the financial cushion banks must keep on hand to guard against a downturn. Failed presidential candidate turned bank lobbyist Tim Pawlenty, for instance, said that the new rules “will make it harder for banks to lend and keep the economic recovery going.” JP Morgan Chase CEO Jamie Dimon, who has been scaremongering for years about various regulations, warned that the new rules would put U.S. banks at a competitive disadvantage with foreign lenders.
But this same dynamic has been playing out since the Dodd-Frank financial reform law was signed by President Obama in 2010. Banks and their allies complain about onerous new regulations, while at the same time reaping record profits.
And as the New Yorker’s John Cassidy explained, those profits are due to many of the same practices that helped cause the 2008 debacle in the first place: “an emphasis on trading rather than lending, a high degree of leverage, and implicit subsidies from the taxpayer.” That would seem to make the case that new regulations, rather than going too far, have not gone far enough.
Perhaps that’s why banks haven’t been crowing about their new avalanche of profits, and Dimon is even warning about an upcoming profit squeeze. As the Financial Times’ U.S. banking editor Tom Braithwaite explains:
In the next 12 months the Fed will hit the banks with a new flurry of measures. … Those are coming, they are serious and the banks fear them. There is an outside chance that lawmakers will go even further, such as by restoring the split between investment banking and commercial banking known as Glass-Steagall. There is still plenty to play for in deciding how painful the next round of regulations will be.
But, with every earnings season, warnings of calamity look more and more hollow.
One of the major knocks against Dodd-Frank – beyond the obvious one that it left the biggest banks even bigger than they were before the financial crisis – is that it left too much discretion to regulators to write new rules. Corporations and trade organizations familiar with how the agency rule-writing process works are almost inevitably going to have the upper hand in such a system. And there are still so many rules left to be written – some 60 percent, according to the law firm Davis Polk – that Wall Street will have ample opportunity to water the law down to meaninglessness.
But it’s hard to keep saying with a straight face that new regulations will spell doom for the industry when the new rules that are in place so far, which were accompanied by similarly dire warnings, have done nothing to even dent Wall Street’s bottom line. In fact, the huge pile of profits may be the best thing that could have happened for those trying to bring a modicum of sanity back to Wall Street regulation.
By: Pat Garofalo, U. S. News and World Report, July 18, 2013