Tag Archives: living wage

Our Thirty Five Years of Mythological Economics

trickle down economics

The only problem with this cartoon version of  Trickle Down economics is that the bird at the top should be getting larger as the years extend.  Likewise, the birds in the middle range should be getting more stressed as they attempt to stay on their middle income perches.  It’s a nice touch that the background is in blue, suggesting we’re about to be washed up in a tide which only serves those who are perched high enough to avoid drowning.

Meanwhile, the  best response to the sentence “A rising tide lifts all boats,” is “Where Are The Customers’ Yachts?”  For those who have not yet read this 75 year old classic – it’s still available, and still germane to American economics.  It was true then, and true now.  The problem is that the financial sector has hijacked significant portions of our economic thinking, in ways that have left us prone to being bedazzled by BS.   Thus, we’d prefer to rail against the Wall Street Casino rather than believe we’ve been following some very foolish advice offered, in turn, by some very foolish, and very self serving,  people. And, there are people challenging the BS rendition of American capitalism.

Those who missed Mrs. Clinton’s speech at the New School (NYC) on our economic challenges can view the C-SPAN broadcast here. (55 minutes)

The initial response from journalists was “Hillary’s bashing Wall Street.” [Reuters] This makes for a convenient headline – Beltway Shorthand for her support for regulation of Wall Street investment bankers’ transactions – however, it doesn’t come close to adequately summarizing what both candidates Clinton and Sanders have been saying about financialism in American economics. The Beltway Media is missing the point, perhaps because it doesn’t fit neatly into a template predetermined by editorial policy, or a simplistic code for easy lead paragraphs.

The point is that we have had 35 years of what President George H.W. Bush called Voodoo Economics (although bless his heart he promoted it like any good Republican), and it doesn’t work in the real world. Why? Because the mythology violates the simple principles of American capitalism:

”So here’s an idea worth spreading. In a capitalist economy, the true job creators are consumers, the middle class. And taxing the rich to make investments that grow the middle class is the single smartest thing we can do for the middle class, the poor and the rich.” [LAT]

With this basis in mind, let’s tackle some of the mythology and deal with a bit more economic reality.  We might as well start with the “job creators” sound bite.

#Job transference is not necessarily job creation.  Yes, Home Depot has about 340,000 employees. [USAT]  However, in order to achieve those numbers, how many local hardware stores went out of business, or had to shave employment numbers, because they were hard pressed to compete with the Big Box Stores?  Of the 340,000 Home Depot employees only 21,000 were salaried, the rest were working on a temporary basis or for hourly wages.  The average hourly wages for employees in the retail sector are $14.36 per hour. [Monster] Further, we know that about 1/3rd of all retail sector employees are working part time. If we take a closer look we find that the median wages for retail employees (full time) in building materials and garden equipment were about $12.21 per hour. [BLS]

So, we have to ask ourselves, if a Big Box Store moves in an puts a local supermarket or hardware store out of business, does that translate into “job creation” or simply the transference of personnel from one job into another – possibly lower paying – job?

#Low wages make stocks attractive and the overall economy weaker.    The largest fast food chain in the U.S. has approximately 440,000 employees. [USAT]  And, what do food service preparation employees earn?  About $19,300 per year, or approximately $9.28 per hour. [BLS]  The average weekly hours for all employees are currently estimated as 25.8 per week, and for nonsupervisory employees at about 24.6 hours per week. [BLS] Significantly, before we fall into the hype-vat argument about the “kid’s first job,” only about 30% of fast food workers are teenagers, another 30% are between the ages of 20 and 24, and the remaining 40% are 25 years of age and older. [CEPR]

From the shareholder perspective it makes perfect sense to keep wages low, employee turnover high, and continue to appeal to those who have a “quarterly value” vision of America.   From the perspective of other business owners in the area, those low wages translate to minimal disposable income, which means fewer customers for their products and services.  In short, the yacht at the top is sailing along while the little boats bounce around the rocks.

#Wealth created from indebtedness doesn’t trickle anywhere.  Median household earnings are slowly, very slowly, emerging from the last Recession.

real median household income If we find more jobs transferred from, say, smaller local firms to larger national ones, or more jobs are being created in sectors like food and beverage service with notoriously low wages, then we might expect to find household incurring debts to maintain a middle income life style.

Consumer indebtedness, which was down to 4.88% of disposable income in the fourth quarter of 2012, is now back up to 5.30%. [Fed]  There are a couple of ways to see this, first as an indication that people are feeling better about assuming credit card or personal debt because their incomes are more stable, or secondly that while they’re feeling a bit better, the credit card has become a way to keep afloat.  However, those debts are the basis for altogether too much of what constitutes Wall Street wealth accumulation.

Household debt Whatever amounts of these debts are securitized means that they’ve gone into the Wall Street Casino to be used as the basis for hybrid financial products.  So, what’s been happening to the securitization of auto loans?  It’s “coming back strong” but not at “pre-crisis levels.” Translation: It’s not a bubble. [FRB ATL]  It’s lovely to know the Federal Reserve doesn’t consider the securitization of auto loans at the Bubble Level, but it’s also a bit worrisome to note that what is gained from that securitization isn’t trickling down anywhere near the automobile product consumer.

Nor is there much happy news about securitization and the student loan business.  ZeroHedge offers this gloomy prospect:

“So just as we have been warning about for sometime now: an underestimation of the impact of deferral and forbearance and weakness in the job market is likely to trigger defaults on billions in student loans and because these loans comprise the collateral pool backing ABS sold to investors, the ripple effect is magnified and we wonder if the July 2007 moment for the student loan-backed ABS market may come sooner rather than later.”

The ‘wealth’ produced on Wall Street is based on the loan the students took out to pay for educational expenses, securitized, tranched, sliced, diced, and repackaged for the ‘benefit’ of the investors – those who may very well get burned in this round of Securitization Bingo.

Evidently lost on the Sultans of Securitization is the simple fact that an asset based security requires someone to be able to afford the purchase of educational services or automobiles, or the other stuff on the credit card – the original assets.

It’s one thing to announce that “middle class incomes” are back where they were in 1995 – and another thing entirely to notice that the costs of college tuition are up 61% since ‘95; that home prices are up 13%; that the price of gasoline is up 94%; and that Big Mac is up 28%. [moneyCNN] These numbers aren’t the sort to make anyone comfortable who’s taking out the student loan or buying the house. Eventually, even Wall Street may have to take notice of the fact that no matter how much revenue it can generate in terms of ABS and the hybrids related thereto, if American consumers can’t generate sales – and jobs – then investors are caught trying to ride the bubbles.  Bubbles always pop, that’s why they’re bubbles.

The ‘wealth’ from the sales, and hedges, and bets, on asset based securities, again, trickles down nowhere near the average home owner or car buyer.  However, no one is arguing that ABSs don’t have value.  They are a way to spread the risk around, and that’s positive.  They are negative when we see them mask intrinsic cracks in American capitalism, and negative when we see that the revenue generated never quite manages to trickle back down to the local economies perhaps in the form  of better roads, better schools, better parks, better libraries, and better public services like broadband.

Candidates Clinton and Sanders aren’t “bashing Wall Street,” they are simply trying to point out that the lurch from one bubble to the next isn’t a productive way to run an economy, and lunging from one volatile market to the next isn’t the way to insure that the capacity of the average consumer to purchase the assets on which the securities are based remains steady and profitable for everyone.  If Wall Street can’t divest itself of its 35 Year Investment in imaginary economics, and can’t restrain itself from short term financialist thinking, then someone has to be the adult in the room.  The adult is called reasonable regulation, and that’s all they are asking.

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Filed under Economy, financial regulation

So, What About the Children?

child poverty rate

Should the Nevada Legislature care to address some issues other than those espoused by the gun-happy among us, there is one which should attract more attention than it’s getting.  23% of the children in this state are living in households at 100% of the official poverty line. [datacenter]  That’s an increase from the 2009 rate of 18%. In fact, the rate has been increasing – from 18% in 2009, steady at 22% in 2010 and 2011, up to 24% in 2012, and leveling at 23% as of 2013. [datacenter] The percentage in 2013 in Congressional District 1 was 36%, in Congressional District 2 – 18%, Congressional District 3 – 13%, and Congressional District 4 – 24%. [datacenter]  The numbers didn’t get any better in 2014.  Nevada’s 23.4% of children living in poverty was higher than the national average 22.6%. [LVRJ]

This has some significant implications for those ‘education reformers’ who are touting accountability in the public schools because the income/achievement gap was grown significantly in the last three decades.  And, this matters because, “By the early part of the 21st century, racial inequality was much lower (although far from eliminated) in terms of wages, health disparities, and residential segregation. Meanwhile, economic inequality reached historic highs (Saez, 2012). Although both remain high, economic inequality now exceeds racial inequality in education outcomes.” [ASCD] (emphasis added)

Wait, there’s more:

“The fact that the income achievement gap is large when children enter kindergarten—and does not grow substantially during the school years—suggests that the primary cause of the gap is not unequal school quality. In fact, the data in Figure 2 show that schools may actually narrow academic achievement gaps, rather than widen them. The data show the gap narrowing between the fall and spring of the kindergarten and 1st grade years—periods when students were in school—and widening in the summer between kindergarten and 1st grade—when they were not in school. Although we can’t assume that the same pattern holds in later grades, the ECLS-K data do suggest that schools may reduce inequality rather than widen it.” [ASCD] (emphasis added)

Isn’t it convenient to blame low test scores on ‘failing schools’ without looking at the impact of poverty on the kids who are entering those schools in kindergarten and first grade?  Rather than railing on about ‘failing schools’ and children not reading at grade level, it might be more useful to take a harder look at the conditions from which those children are coming.

There is a “language gap” which has nothing to do with English or Spanish, but with the vocabulary to which youngsters are accustomed in low and high income households.  We have about 50 years worth on research on this topic: [see also: ASCD, NYT, Stanford]

“…five-year-old children of lower socioeconomic status (SES) score two years behind on standardized language development tests by the time they enter school. In fact, a March 2013 study (link is external) by Fernald and colleagues titled, “SES Differences in Language processing Skill and Vocabulary Are Evident at 18 Months,” reported that signs of the vocabulary gap are evident before a child is even two-years-old.”

In short, by lumping all schools in a test-score matrix with bench marks for ‘success’ which don’t factor in poverty, we’re getting only half the picture.  How does one classify a school as failing when a significant number of kids entering it are already two years behind?  Further, if a significant number of kids attending ‘Moose Moon Elementary School’ are already behind before the doors open to them – then perhaps if the kids are reading only 1 level below ‘grade’ in the 3rd grade then we should call that success?

Poverty isn’t only a matter of vocabulary, nutrition plays a role as well.  One study conducted in Canada is instructive:

“These findings demonstrate an independent association between overall diet quality and academic performance among grade 5 students in Nova Scotia, Canada. Dietary adequacy and variety were identified as specific aspects of diet quality important to academic performance, thereby highlighting the value of consuming a diverse selection of foods in order to meet the recommended number of servings from each food group.”

There are all manner of research reports on the relationship between nutrition status and educational achievement.  [USDA, NCBI, GenYouth, NMichU]  However, we also know that, as the headline asserts, “Poverty drains Nutrition from the Family Diet.”  What tends to happen is that carbohydrates (cheap) tend to be a higher portion of the family diet as opposed to fresh fruit and vegetables (more expensive) or proteins in meat and fish.   Makes sense when we figure that Mac/Cheese comes to about 90 cents per box, with about 3 servings per box, that works out to about 30 cents per serving.  Compare that to broccoli at about 63 cents per serving, or fresh spinach at about 52 cents per serving, or even the orange at 34 cents [mdand]  and we can see where this is going.  Then there’s the lard, which can be purchased for about $5.88 for 64 oz.  The commodity markets are showing butter at about $1.61 for 16 oz.  48 oz of cooking oil go for about $2.50.  In sum, if a family is trying to make it on SNAP benefits those dollars and cents will go further on Mac/Cheese than on salmon and broccoli.

It just might be more constructive, in terms of educational achievement, to stop mocking, and rolling back, school lunch nutrition requirements – even if the little darlings aren’t that fond of veggies; and to look at increasing SNAP benefits to families with children so that a few heads of broccoli and more meat and fish proteins were included in the family diet.

It often seems that families in poverty can’t win no matter what they do – Should they try to purchase more books for the kiddies they can be chastised for not spending the money on better food.  If they add a bag of oranges to the grocery trip then they can be taunted for not making the most economical use of their grocery dollars.  Heaven forefend they should add some raw spinach or broccoli to the grocery bag.   I can almost hear it now, “I was at the grocery store and the lady in front of me was buying Kale, KALE! with food stamps!”  No matter that Kale is one of the more nutritious  veggies available.

Sadly, as long as the I Got Mine Now You Try To Get Yours attitude prevails amongst legislators at the state and national level, we’ll have a “language gap” because we’ve not addressed the paucity of time and resources available for lower income working families. How easy it is to ‘save money’ by reducing the hours or staff at the public library!  And, we’ll have achievement gaps because kids are filled (or unfilled) with carbohydrate laden diets because that’s the way to stretch the grocery funds.  Even notions about increasing the minimum wage are met with vehement protests that we are creating a Nation of Takers, and speak to a Living Wage and the air fills with dire warnings of moral hazards.

What IF we tried thinking of children as an investment rather than a line item expense?  What IF we thought of them as assets in need of maintenance and care?  What IF we recognized that their poverty will be a factor in their educational achievement?  What IF we rewarded the schools which helped close the language, achievement, and nutritional gaps in their lives? Children aren’t abstractions, slogans like “freedom” don’t mean much on an empty stomach; they aren’t philosophical constructions, pronouncements on “entitlements” don’t mean much when the parents are working three or four minimum wage jobs to keep up.  We should save the sermons for the pulpits and invest in reducing the number of Nevada children who are falling into language, achievement, and nutritional gaps.  One in four is unacceptable.

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Filed under education, nevada education, Nevada legislature, poverty

Nevada Unemployment: Now can we talk about jobs?

Nevada annual unemploymentIt was the best of times, it was the worst of times,” when the annual unemployment rate in the state of Nevada dropped from 14.9% in 2010 to the current 9.5% rate finalized by the BLS as of August 2013.   Recalling that employment is a lagging indicator, the Housing Bubble which saw top home prices in Nevada in 2005 blew the bottom of the hiring line when the Bubble burst began in 2007 and headed downward until the NBER declared the official end of the Recession as of June 2009.

We should also recall that housing is a “midstream” sector, as explained by the EPI:

“Housing is a “mid-stream” sector of the economy, meaning that many other industries, both upstream and downstream, are affected by the health of the housing market. For example, the demand for building materials increases in a booming housing market, as does the demand for appliances and furnishings. Even more important in terms of dollars pumped into the economy, is appreciated home values, which have been an important source of stimulus over the past few years.”

In short, if one were to pick a sector which could create the most overall damage to the national — an by extension the state — economy, it would be difficult to find one more crucially situated than the housing sector.   We know things “blew up” but, why has Nevada’s unemployment rate stayed among the higher levels in the nation since the official end of the Recession as of June 2009?

Speaking in Generalities

There are some general reasons for the slow recovery.  First, the Federal Reserve wasn’t in much of a position to stimulate the U.S. economy.   The rates were already low at the beginning of the recovery, and therefore there wasn’t room to manipulate the economy via monetary policy.  When things fell to pieces in late 2008 the FED primary discount rate was 0.50, with a federal funds rate of 0.00 to 0.25 [NYFed] The federal funds rate is the important one to watch for our purposes because it’s the one which most often serves as the base rate for all other interest rates charged by lenders.   You can’t go much lower than 0.00 and thus the federal funds rate wasn’t all that useful in providing economic stimulus.

Secondly, consumers were “deleveraging.”  Consumer debt had been dropping since the fourth quarter of 2008, and didn’t pick up again until the fourth quarter of 2012. [NYFed]  As of January 2011, the San Francisco Fed reported their findings on the “slow recovery,” and linked the issue to the deleveraging of non-housing consumer debt:

“Overall, the county evidence strongly suggests that credit demand is weak because of an overleveraged household sector. This view is supported by survey evidence that the main worry of businesses is sales, not financing. The October 2010 National Federation of Independent Business survey (Dunkelberg and Wade 2010) shows that almost no small businesses viewed credit availability as their primary problem. In fact, the NFIB has reported that weak sales were the top problem facing small businesses throughout the recession. Weak consumer demand also helps explain the enormous cash balances currently held by U.S. corporations (see Lahart 2010). These results have important policy implications. If the main problems facing businesses relate to depressed consumer demand due to a household sector weighed down by debt, investment tax subsidies and lower interest rates may have a limited effect on business investment and employment growth.” (emphasis added)

What was the reason small and independent businesses weren’t recovering?  Weak demand.  Nevada’s economy, dependent as it is on tourism, requires a population ready and willing to part with their earnings, confident that the money they leave in Las Vegas (or Reno, or wherever) can stay there.

Third, we need to look at the overall slowing down of our economy, and for this perspective we should consider our “potential.”  Without diving too far down into the weeds, our GDP has “potential” and this “potential” is slowing down.  (1)  In the 1960’s we could observe a decline in our total factor productivity (TFP) a rather amorphous measurement of our use of labor and capital; (2) Then in the mid 1970’s we could discern a reduction in our potential employment.  Translation: The work force was getting older, and the number of women entering the work force has leveled out.  In the 1950’s only about 1 in 3 women were working in the U.S., by 2010 women comprised approximately 47% of the total U.S. employment. [BLS] (3) Long term unemployment, associated with this prolonged recovery, means that skills and knowledge levels erode further exacerbating the employment situation. [CBO pdf]

Fourth, there’s the old stickler — You can’t spend much more than you have.   Otherwise known as wage stagnation:

    “Between 2002 and 2012, wages were stagnant or declined for the entire bottom 70 percent of the wage distribution. In other words, the vast majority of wage earners have already experienced a lost decade, one where real wages were either flat or in decline.

This lost decade for wages comes on the heels of decades of inadequate wage growth. For virtually the entire period since 1979 (with the one exception being the strong wage growth of the late 1990s), wage growth for most workers has been weak. The median worker saw an increase of just 5 percent between 1979 and 2012, despite productivity growth of 74.5 percent — while the 20th percentile worker saw wage erosion of 0.4 percent and the 80th percentile worker saw wage growth of just 17.5 percent.”  [NYT]

Now, consider a situation in which a monetary policy solution is questionable because the (a)  Fed can’t lower its rates much further to stimulate economic growth, (b) consumer demand drops off as families try to paid down household debt, (c) we’ve just about incorporated everyone we can into the labor force without resorting to child labor and the exploitation of the elderly, and (d) there’s been a lost decade in terms of wage growth already, and things aren’t looking up in that department.   This is hardly a formula for encouraging vacationers to leave it in Las Vegas.

The hard and unavoidable conclusion is that Nevada desperately needs more people willing to spend more money on good old fashioned fun and games.  The UNLV Center for Business and Economic Research (pdf) puts this statement far more elegantly.

Solutions?

Here are some possibilities to consider:  (1) Forget trying to tinker with the Federal Funds Rate and concentrate instead on a manufacturing policy.  We don’t have to be “protectionist” or “isolationists” to consider the possibility that it would enhance our overall economy if we made stuff.  We don’t necessarily have to recoup our manufacturing of frying pans if we’d concentrate on manufacturing better and more energy efficient stoves.

(2) Increase the minimum wage.   But, how the so-called representatives of ‘small business’ (like the U.S. Chamber of Commerce?) will bellow about this one — It’s a job killer?  Remember what the Number One issue was for small business during the last recession?  Demand!  It wasn’t tax policy, monetary policy, or stringent lending, it was good old fashioned demand.   People with more money in their bank accounts want more and spend more — and that’s the very definition of demand.  And, as a side benefit, if we want to reduce the number of American families who require public assistance to meet their daily needs for food and housing — how about making it a living wage?

(3) Empower the labor force.  This doesn’t necessarily mean making organizing more convenient, although that would serve to increase earnings.  It can also mean supporting those who wish to improve their skills or learn new ones in educational institutions or technical training.   How might we all benefit if student loans were even more affordable?  If apprenticeship and other training programs were subsidized? If community college associate degree programs were adequately funded?   If we invested in our own work force?

In short, we can settle for the slow growth economic predictions informed by stagnating wages, increasing income inequality gaps, debilitating student indebtedness, the marginalization of our manufacturing sector, and the altogether too common fear of long term unemployment — OR we can DO something about it. Now, can we talk about passing JOBS bills?

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Filed under Economy, Nevada, Nevada economy, Nevada politics, Politics

Round Up

DB’s not done a round up recently, which is a bad thing because there are some excellent posts and articles that deserve highlighting:

The Nevada Progressive sat in on Rep. Joe Heck’s (R-NV3) social media ‘town hall’ and reports how the Congressman’s Tea Party Agenda is definitely showing.  ICYMI: The Gleaner is promising more posts! Hurray! And this post is worth the click for wordsmithing excellence like describing Dean Heller as “Senator By Appointment Only.”   Speaking of the Senator By Appointment Only, The Nevada View takes a look at the Slippery Solon’s outreach to Hispanic citizens and his actual voting record.  The Nevada Rural Democratic Caucus blog itemizes the differences in the priorities of Our Senator By Appointment Only and his challenger, Rep. Shelley Berkley (D-NV1).

The Sin City Siren asks what word the Speaker of the Michigan House would substitute for “vagina?”  Good question!  Adalia Woodbury covers the Michigan protests at PoliticusUSAGOP Stupidity has the video. Adriana Vasquez, a janitor for the JPMorganChase Tower in Houston, TX has a question for CEO Jamie Dimon –  Why don’t you pay your employees a living wage?  It would take Ms. Vasquez 2,500 years to earn what Mr. Dimon makes in one year.  [Crooks & Liars]  Speaking of Underpaid — what about food service workers?  More at Obsidian Wings. And what’s not to love about Nuns On A Bus? (Video from Political Carnival)

What War on Women? Deep in the heartlessness of Texas, 50 votes in 10 years against health care for women. See the Burnt Orange Report.

Hey kids! Look at the Calendar — the lower student loan interest rate expires on June 30th.  NRDC informs us that the average student indebtedness in Nevada is $16,662.  For more information see the Obama campaign web page “Making College Affordable.”  Don’t miss this one: “Disaster Capitalism, K-12 Education, and Corporate Takeovers of Progressive Organizations,” in Odd Times Signatures.

The economics corner:  Is the German economy getting a little bubbly? Angry Bear takes a look at the construction industry.   Clusterstock has two really interesting pieces — “How the London Whale Got Away With Murder” — and “Jamie Dimon Exposes a Huge Loophole…”   Don’t miss the Economic History of the Last 2000 Years, from Atlantic, in four charts.

Bonus Chart for the Day: From The Gavel.

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Filed under 2012 election, Berkley, Congress, Economy, education, financial regulation, Heck, Heller, Nevada politics, Student Loans, Women's Issues, Womens' Rights