Annals of the Great Recession IX.

Posted on June 22, 2015 by jsh54

In the first five years after the “Great Recession” (i.e. 2008-2013), 60 percent of the new jobs that were created in the “recovering” American economy were low-wage jobs. By early 2013, a quarter of jobs paid less than $10 an hour. At the same time, from 2006 to 2012 the top 50 companies that relied on of low-cost labor paid $175 billion in dividends to stock holders. That is, middle and upper-income group stock portfolios rebounded from the recession while lower-income group earnings were held down. This created the much debated problems of the “working poor” and the legal minimum wage.[1]

Who are the “working poor”? The answer depends on your definition. One definition is people living in families in which at least one member is working but earns under the government-defined poverty line: $11,702 for an individual and $23,021 for a family of four. By this count, there are 46.2 million “working poor” in the United States. A broader definition, favored by activists, is anyone working who cannot afford the basics: food, clothing, housing, transportation, child-care, and health-care.

Who falls into this group? About 10 percent are white, mostly living in the South and Southwest. More than 25 percent each are African-American or Latino, distributed much more evenly around the country. Big business chains (Walmart, Target, fast-food chains like McDonald’s and Pizza Hut) that base their strategy on low-cost labor employ a lot of these people. Broadly, poor people come from poor families. Men from poor communities tend to have little education when the modern economy puts a premium on education; they have lousy jobs and are frequently unemployed; often they don’t get married or get divorced; lots of kids grow up in single-parent homes and go to the same lousy schools as did their parents. All this raises the prospect that we have created a hereditary under-class that amounts to a huge waste of human potential.

The federal minimum wage is $7.25 an hour. It hasn’t budged since 2009. Between 2009 and 2012, inflation raised the cost of living by 7 percent. This knocked the real minimum wage down to $6.75. Raising the minimum wage would lift many of these people a little further up the ranks of the poor. Critics warn that this would just lead to job losses through automation. (Some economists argue that these low-wage jobs can’t be automated. This is undoubtedly true of some low-wage jobs, but the self-check-out lines that are already common at grocery stores and hardware stores could easily spread to fast-food chains.)

Lots of employers appear to have privatized profit while socializing costs. Low wages and no health-benefits are possible—in part—because a lot of working people earning the minimum wage have to rely upon food stamps and other forms of public assistance. An estimated 3.5 million people—minimum wage workers and their dependents—depend on food stamps to feed themselves. The cost shifted from employers to tax payers is estimated at $4.6 billion. Raising the minimum wage to just over $10 an hour would move these people off the welfare rolls.[2]

Unionization is another possible response. This would allow workers to bargain more effectively for higher wages. Only 11.3 percent of American workers belong to unions, about half of them to public-sector unions. One barrier here is that 24 states have “right to work” laws that obstruct unionization.

Then, perversely, the federal government offers incentives to the working poor to not make more money. The Earned Income Tax Credit (i.e. transfer payment from higher income groups) falls as the recipient earns more money. In one case, each additional dollar earned reduces the EITC by 88 cents. Working more hours or getting a slightly better paying job doesn’t make any sense.

In short, the problem of the “working poor” involves a lot of difficult problems that have deep roots and have been building up for a long time. That doesn’t mean that we should just throw up our hands in despair. Simple and obvious solutions, however, may have unforeseen effects or even none at all.

[1] “Working, but still poor,” The Week, 8 February 2013, p. 11.

[2] “Noted,” The Week, 21 March 2014, p. 16.

Digging deeper.

Posted on June 14, 2015 by jsh54

Sometimes, the investigation of one thing turns up evidence on something else. That’s one of the hazards—or pleasures—of historical research, journalism, and policing. That’s the case with the follow-on to a couple of recent traumatic events.

First, since the indictment of six Baltimore police officers in the death of Freddie Gray on 1 May 2015, Baltimore has suffered 55 murders.[1] That is twice the “normal” rate and the highest levels seen in the city since the very violent 1970s. Why the surge in homicides? African-American community leaders blame what amounts to a police strike since the indictment of the officers. The arrest rate dropped sharply. This alleged stand-down by the street cops “gave criminals space to operate.” This isn’t very credible as an explanation. Murder rates vary across months of the year, while the police presence remains basically stable. One kid living near a drug market told the New York Times that “Summertime: that’s when they do all the killing.” A more compelling explanation is the one offered by Baltimore police officials. During the riot in April 2015, 27 pharmacies were looted. Officials estimate that 175,000 doses of Oxycontin disappeared.[2] Oxycontin moves on the street for $30 a dose, so that’s $5.25 million of drugs that landed in the hands of dealers.[3] Because it was cost-free, it all represents pure profit after the distribution costs to the dealers. They key to profit, then, appears to be control of marketing outlets, rather than control over supply. That means a war for the corners and increased murders.

Second, the death of Eric Garner while being arrested in July 2014 reveals something about police-community interactions beyond the standard “broken relationship” trope.[4] In their longer-term context, police-community relations deteriorate when the community feels that it has been abandoned by the police to the criminals. Rebuilding that relationship requires the police to act effectively and to be seen to be acting effectively against crime. When William Bratton headed the New York Police Department (NYPD) in the 1990s, he introduced the “broken windows” strategy. This involved addressing the many small signs of social decay to clear away the underbrush that both shielded and could grow into serious crime. The NYPD also adopted a more analytical, statistics-based approach to targeting resources. Those approaches have remained in effect to this day. Crime rates have dropped dramatically, although people often contest claims that “broken windows” policing is responsible for the drop.

Tomkinsville Park on Staten Island had emerged as one area of statistical concern to police leaders. A little over half way through 2014, there had already been 696 calls to 911 about the area. There had also been 11 posts to the city’s hotline for complaints, called 311. Between March and June 2014, these reports had reached senior police commanders and the local commanders on Staten Island had been instructed to address the issue.

One of the 311 complaints came from Gjafer Gjeshbritaj, who owned an apartment building in the area. He complained of drug dealers hanging out in front of his building. His earlier efforts to disperse them had led to a physical confrontation. Moreover, Gjeshbitraj complained, the dealers used the people selling “loose” (illegal untaxed) cigarettes as cover for their own business.

This converged with the “broken windows” strategy and Mr. Gjeshbitraj belonged to the community of law-abiding citizens with whom the police were trying to build ties. Police visits to Tomkinsville Park increased and so did arrests, summonses, and warnings.

On 17 July 2014, a police lieutenant passing by noticed the crowd of cigarette sellers and others on the sidewalk near the park. He called the local precinct to tell them to send some men. All the rest followed.

[1] Richard Oppel, Jr., “Looking for Gains in Policing, Baltimore Finds Fewer Police,” NYT, 13 June 2015. Forty-two murders in May and 13 so far in June.

[2] I conjecture that large amounts of Sudafed disappeared as well. Following cultural stereotyping, I further conjecture that this all was unloaded to wholesalers in West Virginia and on the Eastern Shore.

[3] To get a sense of proportion, the Federal Government’s Small Business Administration announced a program to grant $1 million in small business loans in Baltimore following the riot. See: http://www.baltimoresun.com/news/maryland/baltimore-city/bs-md-ci-business-riot-recovery-20150529-story.html

[4] Al Baker, J. David Goodman, and Benjamin Mueller, “Beyond the Chokehold: The Unexplored Path to Eric Garner’s Death,” NYT, 14 June 2015.

Education as an Investment.

Posted on June 13, 2015 by jsh54

The median survival rate for metastatic breast cancer is three years from time of diagnosis. However, as any recently-diagnosed patient—or their desperate SO—will tell you, statistics are agglomerations of individual cases. They don’t tell you YOUR fate. It’s the same with college degrees. On average, over a lifetime people with college degrees earn a lot more than do people without college degrees. That doesn’t mean that all college graduates earn more than all non-graduates. That also doesn’t mean that the extra income earned is worth the cost of getting the degree.[1] Peter Cappelli, who teaches at the University of Pennsylvania’s Wharton School, elaborates on a theme he first sketched out in a WSJ Op-Ed in November 2013.[2] Cappelli’s deeply-researched book addresses a raft of issues of the day.

The “Great Recession” is but the latest shock to the American economy (and the “American Dream” come to that). It led students to focus on career-oriented majors as defined by Labor Department projections, rather than a broad liberal arts education; their parents usually resolutely back them up in this choice. This has been very distressing to broad liberal arts educators and to the skinny ones as well. Cappelli warns that many of these majors are so knowledge-specific and so likely to be drowned in new graduates that students are actually doing themselves long-term harm. For example, 30 percent of recent engineering graduates couldn’t get jobs in engineering. Capelli argues that liberal arts degrees often are actually a better preparation for adapting to unexpected developments than are the loud-mouthed “career” majors.

American students (and their families in equal measure) pay about four times as much for a college degree as do students in other Western industrial countries. A lot of this is financed through debt, rather than from savings. Senator Bernie Sanders has floated the idea of a free college education at America’s public colleges. Both those who graduate and those who fail to graduate can find themselves burdened by a lot of debt. Naturally, consumers have become enraged at the sellers. Conservatives have argued that the expansion of financial aid and borrowing by students has just allowed colleges to raise their tuition. Critics rightly point out that the administrative component of college staffs have grown 50 percent faster than have instructional staff. As presented to the public this fact conjures visions of Rolex-adorned Assistant Vice Deans for Something-or-Other. In fact, most of the growth is in support staff dealing with the reality that Johnny can’t read, claims he will go to pieces under the pressure of college, and only came here to play baseball anyway.[3]

One of the reasons that college educated people do better than the others is employer-bias in hiring. Currently, at least 40 percent of graduates end up in jobs that don’t require a degree. Employers still preferred them to people without degrees. (Nearly 60 percent of parking lot attendants have some college.[4]) What happened to the other job applicants? They got shoved farther down the income ladder, displacing teen-agers just trying to get some work experience and pocket money. This displacement may be part of the explanation for the mounting drive for a higher minimum wage.

Above all, there is an evident mismatch between American education and the economy.

[1] Peter Cappelli, Will College Pay Off? A Guide to the Most Important Financial Decision You will Ever Make (PublicAffairs, 2015).

[2] See “Major Uncertainty,” November 2013.

[3] See the Cardale Jones Twitter mishagosh for an extreme example of the latter. https://en.wikipedia.org/wiki/Cardale_Jones#Twitter_controversy

[4] They can’t all be living hand-to-mouth while they write the Great American Novel.

American Public Opinion in June 2015.

Posted on June 8, 2015 by jsh54

In 2014, 30 percent of people described themselves as social liberals, while 34 percent described themselves as social conservatives. That totaled 64 percent of the vote, while the other 36 percent were mostly “moderates.” In June 2015, 31 percent of people described themselves as social liberals, while 31 percent described themselves as social conservatives.[1] That totaled 62 percent of the vote, while the other 38 percent were mostly “moderates.”

What’s a “social liberal”? The share of the population favoring social liberal causes greatly exceeds the share identifying as social liberals. If the social liberals are added to the moderates in the two polls, we end up with totals of 65 percent in 2014 and 69 percent in 2015. Some 55 percent favor legalizing recreational marijuana, support gay marriage, and say that it is acceptable for two gay men to kiss in public.[2] All these would once have been identified with social liberalism. If it is posited that social conservatives would oppose these measures, then that makes it possible to conjecture how many “moderates” hold social liberal views. If 30 percent identified as social liberals in 2014 and 55 percent of the total favored the liberal causes, then 25/36 of the moderates supported these social liberal causes. Applying the same calculations to 2015, 24/38 of the moderates support these social liberal causes.

To belabor the obvious, there has been a shift of public opinion toward social liberal causes between 2014 and 2015: liberals added 1 percent who migrated from the moderates, and the moderates picked up 3 percent who migrated from conservatives. Any Republican wager on a socially conservative position in 2016 looks to be a loser. At the same time, the social liberal causes mentioned in the polls are all about enhancing individual rights, especially with regard to identity. The polling doesn’t tell whether the moderates will also support social liberal causes when it comes to expanding social welfare.

In June 2014, 53 percent of Americans regarded Hillary Clinton as trustworthy. Then came the e-mail story and the questions about the Clinton foundation accepting donations from foreign donors with business before the State Department. In June 2105, 41 percent of Americans regarded Hillary Clinton as trustworthy.[3] As views on her trustworthiness declined, her favorability numbers went up. In April 2015, 36 percent had a favorable view of Hillary Clinton; in May 2105, 42 percent had a favorable view[4]; in June 2015, 45 percent had a favorable view. Thus, although 45 percent of the June 2015 polling sample viewed her favorably, only 41 percent viewed her as trustworthy. So, some 4 percent of voters—all of them Democrats?—are rubbing their hands together and going “she’s a liar, good!” The same percentage, 49 percent, do not regard her as trustworthy (not trustworthy + don’t know) and view her unfavorably. It is likely that the people who distrust Clinton are divided between Republicans, Independents, and dissident Democrats. The size of the dissident Democrat community is nothing to be sneezed at. In June 2015, 45 percent of self-identified Democrats believed that their party had too few candidates running for President in 2016[5], while 52 percent were pretty sure of for whom they would vote.[6] The dissident Democrats are never going to vote Republican. If push comes to shove, they will hold their nose and vote for Clinton.

[1] “Poll Watch,” The Week, 5 June 2015, p. 19.

[2] “The way we were in 2014,” The Week, 31 December 2014, p. 12. Curiously, 72 percent are OK with lesbians kissing in public. This groups all social liberals with all moderates and about one in seven social conservatives. Probably explained in part by the popularity of lesbian porn among men.

[3] “Poll Watch,” The Week, 12 June 2015, p. 17.

[4] “Poll Watch,” The Week, 15 May 2015, p. 17.

[5] In particular, there is reason to think that most Democrats would be happier if a different Clinton was running for President. One poll reported that 42 percent listed Bill Clinton as the most admired president of the last quarter century. At 18 percent President Obama ranked second. See: “The way we were in 2014,” The Week, 31 December 2014, p. 12.

[6] “Poll Watch,” The Week, 5 June 2015, p. 19.

More degrees than a protractor factory.

Posted on June 8, 2015 by jsh54

Senator Bernie Sanders favors making a BA at the 629 public four year colleges a free good for all “qualified” applicants. He says that this would be on the European model. https://www.facebook.com/OccupyDemocrats/photos/a.517901514969574.1073741825.346937065399354/844186619007727/?type=1&theater

What is the American model?

	Number	Enrollment
Public 4-year institutions	629	6,837,605
Private 4-year institutions	1,845	4,161,815
Public 2-year institutions	1,070	6,184,229
Private 2-year institutions	596	303,826
Total	4,140	17,487,475
Undergraduate		14,473,884
Graduate		2,097,511
Professional		329,076

See: http://www.infoplease.com/ipa/A0908742.html

What is the European model?

European universities.

Country. Universities. Students. Percent.[1] Cost. Drop-out rate.

Britain. 115 2.6m. 43 E10,500. 8.6 percent.

France. 80 2.3m. 39 E 177. 42.0 percent.

Italy. 79 1.8m. 43 E1.5-3,000 45.0 percent.

Germany. 108 2.4m. 42 Free. 28.0 percent.

Poland. 98 1.8m. 54 N.A. 24.0 percent.

Source: http://www.theguardian.com/world/interactive/2012/may/31/european-students-statistics-interactive

The obvious lesson to draw here is that if something costs you something, you value it more. Where college costs are high, the drop-out rate is low; where college costs are low, the drop-out rate is high. “Eh, I’ll take a shot at it instead of looking for work, but if the professors want real work (or if the girls won’t come across), I’ll bag it.”—Anonymous.

http://www.bbc.com/news/education-11438140

So, France, Germany, and Italy all have virtually free tertiary education, BUT they spend one-third to one-half of what the USA does. How do they make it work? They admit a lot of kids from good schools, then throw them in the deep end of the pool and tell them to swim for it. No hand-holding. No office hours with professors. No counseling. No Writing Centers and Math Centers for free tutoring. No “second chance” when young Bobby messes up. You need help writing a paper? Hire a grad student with your own money. Short of money and you don’t want to admit to your parents that you’ve messed up? Try dealing hash. (I’m told that the “Milkweg” in Amsterdam used to be a good place to go, but how would I know? See: http://en.wikipedia.org/wiki/Melkweg ). Also, no sports teams. No dorms and dining halls. No marching bands. Just cafes on the Left Bank and Gitanes.

So, one follow-on question is which countries have people with degrees, rather than just having attended college?

Germany and Italy have lower graduation rates than does Britain or the United States.

Obviously, there is a lot more that can be done with this data, but this is a start. For one thing, why isn’t Sanders going off on the Finnish model? Nokia and mink ranches: let’s build our future on that.

Your thoughts?

[1] Percent of “young people” (otherwise undefined) in tertiary education of any sort.

The Opinionated American Public.

Posted on May 31, 2015 by jsh54

American religious affiliation:

70.6 percent: Christian in some way, shape, or form.

23 percent: None. I’m not sure that this tells us very much about their social views.

21 percent: Catholic.

15 percent: “mainstream” Protestants.

If 93.6 percent of Americans are Christians or “nones,” then the remaining 6.4 percent are Jews, Muslims, Buddhists, Hindus, and other faiths that don’t come to mind at the moment.

If 70.6 are Christian and 36 percent belong to one of the “mainstream” religions, then 34 percent belong to some other variant of Christianity. This suggests that something between 30 and 34 percent of Americans belong to non-mainstream Protestant churches. OK, there is a small bunch of Seventh Day Adventists and Jehovah’s Witnesses, and I don’t know if Mormons get counted as “mainstream” Protestant. However, the majority probably belong to the free churches that dot the suburbs.[1] (Probably no role for Bing Crosby as the minister of one of these churches.) However, if there are 15 percent of Americans in “mainstream” Protestant churches and 30 percent in non-mainstream Protestant churches, then the non-mainstream Protestants would appear to be the mainstream and the mainstream Protestants would appear to be the non-mainstream. If you see what I mean. The media just haven’t caught up to this reality. It’s a “Christian” country and, within that, a “Protestant” country.

The decade and a half since 9/11 has been hard on American views of Islam. More than half (55 percent) of Americans have an unfavorable view of Islam, while 21 percent have a favorable view. Almost a quarter of Americans aren’t sure.[2] The math says that a lot of the “favorables” and “not sures” must come from the 70.6 percent who self-identify as Christians.

The Republicans opposed gay marriage. How did that work out for them? The Republicans are opposed to illegal immigration.[3] A recent poll showed that 29 percent of Americans want to round up and ship home all the illegal immigrants now in the United States. In contrast, 57 percent of Americans—essentially twice as many—want to let them stay and grant them the right to apply for citizenship. Only 11 percent favor granting the illegals “green cards” to stay in the United State, but barring them from pursuing citizenship.[4]

Savings patterns by income groups are a sort of opinion poll.[5] “How important is it to save for a rainy day or the monsoon of old age?” Eight percent of lower-income households save more than 15 percent of their income; Twenty-five percent of households earning between $50K and $75K save more than 15 percent of their income; and Seventeen percent of higher-income households save more than 15 percent of their income.

[1] “Poll Watch,” The Week, 22 May 2015, p. 15.

[2] “Poll Watch,” The Week, 24 April 2015, p. 17.

[3] “Poll Watch,” The Week, 22 May 2015, p. 15.

[4] Disclosure: this is my own position. The illegals came to the United States illegally. They can’t be allowed to crowd in ahead of people who took their turn. To do so would b to privilege those immigrants who have the easiest access to the United States across a land border over those who would have to cross the Pacific or the Atlantic. I admit that this is an argument that will resonate more in Britain than in France or Italy. On the other hand, I’m also in favor of open borders. Massive immigration of ambitious people would do the USA a lot of good. However, I’m also in favor of democracy and the rule of law. The fact that a lot of Republican businessmen want cheap labor and a lot of Democratic politicians imagine that Hispanics will vote Democratic doesn’t mean that the laws should just be ignored.

[5] The Week, 10 April 2015, p. 30.

The Least Generation 1.

Posted on May 29, 2015 by jsh54

American education seems to be a lot like American health care: we spend more per-capita (patient/pupil) than do most countries and get less for the money than do most countries.[1] American 15 year-olds rank 15^th in literacy, 21^st in science, 24^th in problem-solving, and 25^th in math. Even in high school and college graduation rates, with schools pushing every lazy moron out the door with a diploma clutched in his/her hot little hand, America has lost ground from 1^st to 18^th place. (Now, it could be that everyone else got their ten pounds in a five pound bag and caught up to the US. I don’t know what the test scores show on this matter.) Still, American parents appear to believe that their own local schools are a happy island of excellence in a sea of national mediocrity.

The supposed crisis in American education actually seems to come down to what we do about the low performing schools, which are mostly in low-income areas.

Teachers make a difference in the lives of young people—and not always for the better. If you have three successive years of having a poor teacher, you’ll never catch up with the students in the same school who had a competent teacher. The buzz surrounding the movie “Waiting for Superman” has focused attention on teachers and especially on teachers’ unions. The unions seem bent on frustrating every effort at reform out of a selfish interest in protecting even their least-competent members at the expense of the children.

What makes a teacher “good”? According to Teach for America: setting high goals for your students, seeking to engage them by whatever means necessary, and involving the parents in the education of their children. Teachers have to be persevering and hard-working. In another view, it isn’t so much the individual teachers as the culture of the school: instill good habits and ambition, create an expectation that everyone will strive to be excellent, and put in immense amounts of time.

The Obama administration is trying to measure the effectiveness of teachers by means of a new scheme called “value-added modeling.” In theory, this allows schools to assess the contribution of individual teachers by tracking student test scores from grade to grade. The Department of Education’s $4.35 billion in “Race for the Top” awards gives the federal government a lot of leverage.

However, the current debate is missing an important part of the equation. Parents play a powerful role in shaping the educational achievement of their children. Teachers argue that homes where the parents read very little, have limited vocabularies, and don’t value education or see much chance for their kids to improve plays a major role in individual success or failure. Some of the most striking elements of successful schools in low-income areas seek to address this problem. The Knowledge Is Power Program (KIPP) charter schools operate from 7:30 AM to 5:00 PM, and the teachers must be available to answer questions until 9:00 PM. The provision of counseling and medical services by the Harlem Children’s Zone charter school goes in the same direction. Successful charter schools take over the responsibilities that many parents cannot meet. The problem is that no one actually wants to say out loud that the chief source of under-achievement is failed parents, not failed students or failed teachers or failed schools. The decline—relative or absolute—in the performance of American schools or of American students began about 1980. That would suggest that it began among children born between 1962 and 1974. That would suggest that a lot of Baby Boomers turned out to be lousy parents. The “Least Generation.”

[1] “Targeting teachers,” The Week, 15 October 2010, p. 15.

Against a Balanced Budget Amendment.

Posted on May 29, 2015 by jsh54

Some Republicans argue that the current deficit is the product of legislative indiscipline. From time to time, they have proposed a “Balanced Budget Amendment” to the Constitution as the cure for this indiscipline. Sort of like fiscal gastric by-pass surgery.[1] Allow me to disagree.

First, the whole economic history of the Twentieth Century argues against the sanctity of balanced budgets. An obsession with balanced budgets made the Great Depression of the 1930s much worse than it need have been. “Hoovervilles” were the packing-box shanty towns named after the budget-balancing president of the United States in the early Depression. Massive deficit spending—which would be outlawed by a balanced budget amendment—got the Imperial Japan, Nazi Germany, and the United States out of that Depression. You don’t have to like the company we kept to recognize what worked. Since the Second World War all countries have used deficit spending to counter down-turns in the economy. It has turned out to be a crude tool, but it has been effective. Our current problems exist because the Democrats flinched before the cost of getting us out of the mess created by the housing bubble. The stimulus package needed to be twice as big and front-loaded into the first year. Then Republicans imposed the “sequester” that further reduced government spending.

Second, a balanced budget amendment will do nothing to resolve the fundamental disputes between Democrats and Republicans which stands at the center of our current dead-lock. Republicans rightly complain that the Democrats will not address the exploding cost of entitlement programs, which cannot be supported by any model of economic growth or taxation of the rich.[2] Democrats rightly complain that they cannot sell austerity to their constituents without some tax scalps from the rich to brandish. How will a balanced budget amendment solve this basic dead-lock? Making the budget an issue subject to judicial review merely passes the buck from the legislature to the courts. If you think abortion or gun-control are subjects best avoided at the Thanksgiving dinner table, just wait until taxes and spending get on the docket!

Third, about 22 percent of federal spending goes to defense, about 22 percent goes to Social Security; and about 22 percent goes to Medicare/Medicaid. That’s two-thirds of federal spending. About 7 percent goes to debt-service. Everything else that government does is crammed into the remaining 25+ percent of federal spending. What do people want to cut? Social Security? Medicare? Defense? I would bet not. OK, we could do without the Department of Education and the DEA. What about other things? Air traffic controllers? Paving the highways? The federal courts? The Coast Guard air-lifting injured commercial fishermen off heaving decks at night in the Bering Sea? Cuts to welfare won’t do it.[3]

If the vast majority of legislators do not want to make these cuts, then the only solution that would be imposed by a Balanced Budget Amendment would be big tax increases on a very wide basis. Basically it would involve undoing the George W. Bush Administration’s tax cuts.[4] Republicans should be careful about the things for which they wish. A balanced budget amendment has a snowball’s chance in Hell of solving those problems.

[1] For a recent example, see: http://www.fredericksburg.com/news/politics/brat-pushes-for-balanced-budget/article_c82422c9-e21a-586e-b1d4-eca59612c277.html

[2] Republicans conveniently fail to provide any detailed plans on how they would contain entitlement spending. There are a bunch of ways of doing it, but not without somebody’s ox getting gored.

[3] In fiscal 2014, SNAP added $74 billion to a$3.5 trillion budget. I can’t even calculate that small a percentage.

[4] They should best be called the Bush-Obama Tax Cuts because President Obama fought hard to have 98 percent of them made permanent. According to the NYT, two-thirds of the federal revenue lost from those cuts came from people who make less than $250,000 a year.

White Flight from Baltimore.

Posted on May 21, 2015 by jsh54

Racism is widely deprecated. People of virtually all political stripes decry racism. Some Democrats deploy accusations of racism against their opponents in the sort of public shaming campaigns that other Democrats deplore when applied to other cases. However, one truth not much acknowledged in politics, the media, or scholarship is that—under most circumstances—racism isn’t illegal.[1]

The city of Baltimore offers an example of this inconvenient truth. After the Second World War, the other City by the Bay lost population, jobs, and the economic base needed to make the place run effectively. One important part of the problem arose from accelerating “white flight” from the city to the suburbs. Between 1950 and 1960, Baltimore’s population fell from 950,000 people to 939,000 people. From 1960 to 1970, Baltimore’s population fell from 939,000 people to 906,000 people. So, from 1950 to 1970 Baltimore lost 4.6 percent of its population.

Then came the riots of April 1968. Over a thousand businesses were looted, damaged, or burned down. The damage totaled about $79 million in today’s dollars. Virtually all of the businesses were owned by whites. One activist later reflected that “the riots really weren’t personal: They were against the system, not individual white people. There was only property loss.” However, property belongs to individuals. White flight accelerated, businessmen took their insurance money and moved to suburban locations, and landlords backed even farther off from maintaining property in a city where two-thirds of African-Americans rent their homes.

To make matters worse, Baltimore’s economic base declined. The Bethlehem Steel Company’s Sparrows Point complex of steel mill and shipyard provided high-wage jobs to a huge number of people in the area. During the 1970s and 1980s, Bethlehem Steel encountered all sorts of problems that it failed to master. Repeated rounds of retrenchment led to huge losses of jobs. Moreover, both the steel mill and the shipyard formed the center of networks of local suppliers of goods and services. Job losses at Sparrows Point rippled outward through the community. The decline of Sparrows Point and the attendant job loss cost the city an ever-growing amount of revenue.[2] From 1970 to 1980, Baltimore’s population fell from 906,000 people to 787,000 people. Decline continued until it reached 651,000 people in 2000. All told, Baltimore’s population fell by 28 percent between 1970 and 2000. Most the emigrants were whites. As a result, the “non-white” population in Baltimore rose from 24 percent in 1950 to 44 percent in 1970 to 65 percent by 2000.[3]

If 76 percent of the Baltimore’s population was white in 1950, that would mean that about 725,000 white people lived in the city. By 2000, whites constituted 35 percent of the population. That would amount to about 228,000 people. Almost half a million whites left the city. Property taxes pay for schools; business and operations taxes and licensing fees pay for city government functions like police and fire departments, and trash collection.

If the population was 950,000 in 1950 and half a million people left, then the city’s population should be about 450,000 people. However, the city’s 2000 population was actually 651,000 people. In all likelihood, the extra 200,000 people were African-Americans from farther South who moved North in hopes of finding greater opportunity. Need grew as resources shrank. Bitter must be their tears.

[1] Some racist actions are illegal. Racist belief, however, is not illegal and many racist actions are not illegal.

[2] See Mark Reutter, Making Steel: Sparrows Point and the Rise and Ruin of American Industrial Might (2005).

[3] http://www.baltimoremagazine.net/2007/5/1/100-years-the-riots-of-1968?p=2007/5/100-years-the-riots-of-1968

Disruption.

Posted on May 18, 2015 by jsh54

Clayton Christenson, the Harvard Business School professor whose theory of “disruption” is all the rage, once used the decline of the American steel industry as an example.[1] Leaders obsessed with profit ratios surrendered the less profitable segments of their businesses to alligators willing to accept a smaller profit in order to take over that segment. The newcomers then expanded their profit margins by investing in modern technology and pursuing efficiencies. Eventually, Big Steel found itself devoured by the alligators. From 2000 to 2013, Dan DiMicco ran Nucor Steel, one of the alligators and now the second largest steel-maker in the United States. Since leaving Nucor, DiMicco has been pondering the state of the American economy—and of the society that the economy supports. What has he concluded?[2]

First of all, he thinks that the federal government botched the 2009 stimulus bill. He thinks that the almost $800 billion stimulus could have revived the economy if it hadn’t been piddled away on subsidies to “green technology” companies, grants to limit the lay-offs caused by balanced-budget requirements of states squeezed by falling revenues, and tax cuts.[3] The failed stimulus and the obsession about cutting the deficit among Republicans have left the economy laboring along in first gear, if not in neutral.

Second, he thinks that the United States needs to create an awful lot of jobs in a Hell of a big hurry. On the one hand, there is the normal population growth that pumps out new would-be workers onto the labor market. On the other hand, the Great Recession has left a lot of people working part-time or out of the labor market entirely. He figures that the economy will have to add at least 30 million new jobs over the next decade to soak up those who want to work. The post-Great Recession economy doesn’t seem up to this task. Instead, DiMicco argues for heavy investment in a ten year plan for infrastructure as part of the basis for reviving industry.

Third, he thinks that capital-intensive manufacturing jobs are better than labor-intensive service jobs. Capital makes for high productivity; high productivity allows both high wages and high profits. In contrast, labor-intensive jobs require employers to hold down wages in order to make even a razor-thin profit. We’re never going to get strong consumer demand from an overwhelmingly service-based economy. Nucor invests in training workers for their jobs (rather than shoving the task off on colleges), so it never suffered from a supposed “skills gap.”

Fourth, he thinks that Americans—leaders and followers alike—are living in La-La Land about America’s place in the world economy. The Second World War developed the American economy while devastating those of every other country. For thirty years, American business and labor faced no serious challenge from foreign competition. At the same time, the United States promoted an open world economy because that would benefit the American economy of the Forties through the Sixties. The trouble was that the American economy did not stay “lean and mean,” while the reviving economies of Germany and Japan, and more recently China, became highly competitive. Moreover, the governments of those countries depreciated their currencies to make their countries’ more competitive with American ones. Free Trade has become a loser’s game for the United States.

There’s a lot to like in DiMicco’s bracing book.

[1] See: Larissa MacFarquahar, “When Giants Fail,” New Yorker, 14 May 2012.

[2] Dan DiMicco, American Made: Why Making Things Will Return Us to Greatness (Palgrave Macmillan, 2015).

[3] Here DiMicco is to some extent at odds with Paul Krugman. The Princeton economist wanted a stimulus bill that was twice as big, although he too derided the impact of the tax cuts.

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