Tag Archives: economics

Can the Country Survive Without a Strong Middle Class?

My Comments: Most of the recent talk about the Constitution comes in the wake of the tragedy in Parkland, Florida, for obvious reasons. The attention is well deserved but I’d have you think about more than just the 2nd Amendment.

At the national level, if not across the globe, society is re-evaluating itself. Are the values we hold dearly still valid? Are the roles played by the various participants serving our best interests? Are you willing to let the so called ‘elite’ change the economic and social landscape that most of us enjoy without allowing us to express our thoughts? Have we given them so much power that it now makes no difference?

If you’ve followed me for long, you’ve heard me talk about income inequality and the subtle effects it has on not just our society, but in virtually every society on the planet. I hope you will read this, regardless of your political leanings, as it will influence every aspect of the lives of your children and grandchildren. And the clowns in Washington, DC are not helping matters.

Rebecca J. Rosen / Mar 21, 2017

In a powerful new book, the legal scholar Ganesh Sitaraman argues that America’s government will fall apart as inequality deepens.

The U.S. Constitution, it is fair to say, is normally thought of as a political document. It lays out the American system of government and the relationships among the various institutions.

But in a powerful new book The Crisis of the Middle-Class Constitution, the Vanderbilt legal scholar Ganesh Sitaraman argues that the Constitution doesn’t merely require a particular political system but also a particular economic one, one characterized by a strong middle class and relatively mild inequality. A strong middle class, Sitaraman writes, inspires a sense of shared purpose and shared fate, without which the system of government will fall apart.

I spoke with Sitaraman about his book last week at The Atlantic’s offices in Washington, D.C. A transcript of our conversation, edited for clarity, follows.

Rebecca J. Rosen: Your new book, The Crisis of the Middle-Class Constitution, is premised on the idea that the American Constitution is what you call a middle-class constitution. What does that mean?

Ganesh Sitaraman: The idea of the middle-class constitution is that it’s a constitutional system that requires and is conditioned on the assumption that there is a large middle class, and no big differences between rich and poor in a society.

Prior to the American Constitution, most countries and most people who thought about designing governments were very concerned about the problem of inequality, and the fear was that, in a society that was deeply unequal, the rich would oppress the poor and the poor would revolt and confiscate the wealth of the rich.

The answer to this problem, the way to create stability out of what would have been revolution and strife, was to build economic class right into the structure of government. In England, you have the House of Lords for the wealthy, the House of Commons for everyone else. Our Constitution isn’t like that. We don’t have a House of Lords, we don’t have a House of Commons, we don’t have a tribune of the plebs like they had in ancient Rome.

At the time, people debated having a wealth requirement for entry into the Senate, but that didn’t happen. That would have been a common thing in the generations and centuries prior to the creation of the U.S. Constitution. So there’s actually a radical change in our Constitution that we don’t build economic class directly into these institutions. The purpose of the Senate, with its longer terms, is to allow representatives to deliberate in the longer-term interest of the republic, and that’s the goal of the Senate.

What we have is a constitutional system that doesn’t build class in at all, and the reason why is that America was shockingly equal at the time in ways that seem really surprising to us today.

Rosen: Of course, the point here isn’t only that class is ignored, or left out of the Constitution, but that the Constitution actually relies on a kind of equal society in order to function. Could you explain the premise there?

Sitaraman: That’s exactly right. The idea is that the Constitution relies on a relatively equal society for it to work. In societies that are deeply unequal, the way you prevent strife between rich and poor is you build class right into the structure of government—the House of Lords, House of Commons idea. Everyone has a share in government, but they also have a check on each other.

In a country that doesn’t have a lot of inequality by wealth, you don’t need that kind of check. There’s no extreme wealth, there’s no extreme poverty, so you don’t expect there to be strife, to be instability based on wealth. And so there’s no need to put in some sort of check like that into the Constitution.

That’s how our Constitution works. The reason why it works this way is that when the founders looked around, they thought America was uniquely equal in the history of the world. And I know that seems crazy to say, but when you think about it, it makes sense. If you imagine in the late 18th century, America is a sparsely populated area, just on the coast of the Atlantic, with some small towns and cities, and lots of agrarian lands, and it’s really at the edge of the world, because the center is western Europe. It’s London, it’s Paris, and when Americans look across the ocean at those countries, what they see is how different it is. They see that there’s a hereditary aristocracy, something that doesn’t exist in America. There’s feudalism, which doesn’t exist in America. There’s extreme wealth, there’s extreme poverty, neither of which really exists in America. As a result they don’t need to design a House of Lords and a House of Commons, they don’t need a tribune of the plebs in order to make their constitution work.

“The assumption of our original Constitution was that society would be relatively equal.”

Rosen: Of course, there was slavery at the time—and it was built directly into the Constitution.


Why Britain needs the immigrants it doesn’t want

My Comments: As someone born on British soil, I am more than casually interested as Britain comes to terms with it’s choice to leave the European Union. Immigration is but one of several areas with huge economic implications for Britain in the coming years.

There are parallels between what is expressed in this article by Ivana Kottasova and what the United States is moving toward in terms of immigration. The immigration fault lines in this country and the efforts of the current administration to curtail immigration will significantly influence the economic well being of your children and grandchildren in the years to come.

by Ivana Kottasová / Oct 18, 2017

Britain has a problem: It wants fewer immigrants, but its economy desperately needs more.

The British government is seeking to slash the number of immigrants from the European Union following its departure from the bloc in March 2019.

It’s planning tougher controls despite warnings that more EU workers are needed to harvest the country’s crops, build homes for its citizens and build its next startup.

The risks are especially pronounced in health care.

The National Health Service says there are over 11,000 open nursing jobs in England, and another 6,000 vacant positions across Scotland, Wales and Northern Ireland.

The overburdened system, described by the British Red Cross as facing a “humanitarian crisis,” already relies on 33,000 nurses from the EU.

“We would describe the NHS as being at the tipping point. There are huge staffing problems,” said Josie Irwin, head of employment at the Royal College of Nursing. “Brexit makes the situation worse.”

Jason Filinras, a 29-year old from Greece, was recruited last year to work as a front line nurse at a hospital just north of London.

Filinras joined the hospital’s acute admissions unit, where he runs tests and determines how to treat patients after they have been stabilized in the emergency room.

“If you have a patient who is not able to take care of themselves, you have to do all the basic things for them — from helping them with washes, helping them with toilet, feeding them,” he said.

Heis just one of 250 nurses recruited from the EU by the West Hertfordshire Hospitals Trust over the past two years to work in its three hospitals. EU citizens now make up 22% of its nursing staff.

The trust didn’t have a choice. The unemployment rate is at its lowest level in four decades, and there simply aren’t enough British nurses.

The shortage of workers cuts across sectors — from agriculture to education — and across skill levels. There aren’t enough fruit pickers and there aren’t enough doctors.

The political impetus to reduce immigration from the EU can be traced to 2004, when Britain opened its borders to workers from eight eastern European countries that had joined the bloc.

Government officials expected 5,000 to 13,000 people from the countries to come to Britain each year. Instead, 177,000 came in just the first year.

Critics say that increased immigration has changed the fabric of local communities, and undercut the wages of British workers.

It’s an argument that has currency with voters. Immigration was the most important issue for voters ahead of the Brexit referendum in June 2016, according to an Ipsos Mori poll.

Theresa May, who became prime minister in the wake of the EU referendum, has promised to bring annual net migration below 100,000. The figure was 248,000 in 2016.

It had been difficult to meet the target because EU rules allow citizens to move freely around the bloc. May says that Brexit will mean an end to free movement.

“The government is putting politics above economics, which is quite a dangerous game,” said Heather Rolfe, a researcher at the National Institute of Economic and Social Research.

Labor economists say that a radical decline in immigration would hurt the British economy.

The Office for Budget Responsibility, the government’s fiscal watchdog, said that 80,000 fewer immigrants a year would reduce annual economic growth by 0.2 percentage points.

“To lose these people would be pretty tough and it would mean that some sectors might find it very difficult to survive,” said Christian Dustmann, professor of economics at University College London.

Some EU workers, upset over political rhetoric and a lack of clarity about their legal status, are already leaving Britain. Net migration from the EU fell to 133,000 last year from 184,000 in 2015, according to the Office for National Statistics.

The impact is already being felt: The Nursing and Midwifery Council said that roughly 6,400 EU nurses registered to work in the U.K. in the year ended March, a 32% drop from the previous year. Another 3,000 EU nurses stopped working in the U.K.

“It’s all this uncertainty that will make us leave,” said Filintras. “I can’t say that I am 100% sure that I won’t think about leaving.” If he does move home, he will be hard to replace.

Irwin said the British government has made it less attractive for new British nurses to enter the profession by scrapping college scholarship programs and capping salaries. Applications for nursing courses are down 20% as a result.

Nurses make an average of £26,000 ($34,600), while German supermarket chain Aldi offers college graduates a £44,000 ($58,500) starting salary and a flashy company car.

Trouble also looms in other sectors.

A third of permanent workers supplying Britain with food are from the EU, according to the Food and Drink Federation.

The British Hospitality Association, which represents 46,000 hotels, restaurants and clubs, has warned that the sector faces a shortfall of 60,000 workers a year if the number of EU workers is sharply curtailed.

KPMG estimates that 75% of waiters and waitresses and 37% of housekeeping staff in Britain are from the EU. British farms are heavily dependent on seasonal workers from the bloc.

“If you cannot harvest your strawberries anymore … then supermarkets might buy the strawberries directly from Poland,” said Dustmann.

Business groups and labor unions have repeatedly called on the government to moderate its negotiating position. But May has shown no signs of backing down.

“The government is interpreting the vote to leave the EU as a vote against immigration … and to some extent that is true,” said Rolfe.

Boston, a town on the east coast of England, shows why: According to census data, the town’s foreign-born population grew by 467% in the decade to 2011. In 2016, the town had the highest proportion of voters choosing to leave the EU.

The End Of Capitalism Is Already Starting–If You Know Where To Look

My Comments: I argued last week (Is Capitalism Killing America?) that pure communism and pure capitalism are flawed economic models for society. They simply define the ends of a continuum along which we as a society are struggling to place ourselves.

I think this topic needs a better understanding. Mindful that economics is as easy to understand as Gaelic to any newcomer, an effort to get ones arms around it will go a long way toward solving the political riddle that is consuming us these days, not just in America but across the planet.

In terms of how the underlying economic model defines our lives, at one end, the individual has complete freedom to say and do whatever comes to mind. At the other end, the individual has virtually no freedom to say and do. Control instead lies with the state, which in today’s world means a geographically defined area administered by the state.

In times past, this might have been a kingdom, or perhaps a tribal group with loosely defined geographic borders. Today we are defined by areas with largely agreed upon boundaries which 99% of the world’s population accepts as reality.

The challenge for all of us it to determine just where on that continuum is the soft spot that defines a comfort zone for those living within those agreed upon boundaries. These comments by Eillie Anzilotti help us better understand the search for equilibrium.

By Eillie Anzilotti / Sep 18, 2017

These days, Richard Wolff is feeling pretty glad he stuck around teaching this long. Now in his 70s and lecturing at the New School University and having become, over the course of his nearly 50-year-long professorial career, one of America’s most prominent Marxist economists, Wolff is used to being fringe. That’s no longer a word that can apply to him, or to his ideas. Over the summer, inequality experts Jason Hickel and Martin Kirk launched a conversation on this site when they posed the theory that capitalism is at the core of the many crises gripping our world today. To Wolff, that’s not news. But it is new to him to see the same ideas he has taught for decades being met not with scorn or skepticism, but with genuine interest.

In 2011, the same year that Occupy Wall Street injected dissatisfaction with the financial system into the American mainstream, Wolff founded Democracy at Work, a nonprofit that advocates for worker cooperatives–a business structure in which the employees own the company, and share decision-making power over salaries, schedules, and where profits are directed. “If I had to pinpoint right now where the transition away from capitalism is happening in the United States, it’s in worker co-ops,” Wolff says. Though he’s been championing the cause of cooperatives–a radically democratic departure from the top-down capitalist business structure–for years, certain recent events, like the 2008 recession and the presidency of Donald Trump, poster boy for corrupt capitalism, have galvanized a distinctly anti-capitalist movement in the U.S.

“Americans are getting closer and closer to understanding that they live in an economic system that is not working for them, and will not work for their kids,” Wolff says. Growing awareness that wages have been unable to keep up with inflated costs of living have left younger generations particularly disillusioned with capitalism’s ability to support their livelihoods, Wolff says, and with CEOs out-earning employees by sometimes as much as 800 to 1, it makes sense that public interest should be swinging toward a workplace model that encapsulates shared ownership, consensus-based decision making, and democratized wages.

Admittedly, Wolff acknowledges, a small boom in the number of worker-owned cooperatives in the U.S.–consecutive years of double-digit growth in co-ops since 2010 have brought the total up to around 350, employing around 5,000 people–does not exactly scream revolution. But perhaps that’s because historical precedents for alternatives to capitalism have conditioned us to expect its end to dramatic and cataclysmic.

But that might be mean we’re looking in the wrong places. “I don’t want people to think in terms of Russia and China,” Wolff says. In their pursuit of an alternative, Wolff says, those countries neglected to do the work of transition at the micro scale, instead initiating wide-sweeping reforms at the state level and leaving their populations in the lurch.

Instead, Wolff says, it’s instructive to look to the transition to capitalism, and understand that it’s the smaller waves and shifts in the way things are done that signal true change.

Before capitalism emerged in Europe, there was feudalism, a radically different system in which nothing–neither land nor labor–was for sale, and serfs orbited their feudal lord like ribbons tethered to a maypole. Feudalism’s inhumanity was different from capitalism’s: Instead of being unable to work and earn money to pay for rent and necessities, serfs were dependent on the lords for their livelihoods and their schedules and for a piece on land upon which to labor. Their stability was contingent on the lord’s generosity or lack thereof.

Sometimes, serfs would get squeezed, Wolff says–maybe a serf who was permitted to work his own land three days a week was cut down to two, and had to work on the lord’s the rest of the time, struggling to feed his family. Those serfs would run away. They’d jet off into the forests around the manors, where they’d encounter other runaway serfs (this is the origin of Robin Hood). That group of runaways, who’d cut ties with the feudal system, would establish their own villages, called communes. Without the lord controlling how the former serfs used their land and their resources, those free workers set up a system of production and trade in the communes that would eventually evolve into modern capitalism.

“The image of the transition from feudalism to capitalism was the French Revolution, and that was part of it,” Wolff says, “but it wasn’t the whole story. The actual transition was much slower, and not cataclysmic, and found in these serfs that ran away and set up something new.”

In the U.S., businesses converting to cooperative workplace models are the functional equivalent of those runaway serfs. Around 10 cities across the U.S. have, in recent years, launched initiatives specifically to support the development of worker co-ops, which have been especially beneficial in creating job and wage stability in low-income neighborhoods. Because workers are beholden to themselves and each other, rather than a CEO and a board of directors, the model parts ways with the capitalist structure and advances something that more closely resembles a true democratic system.

“This is the beginning of the end of capitalism,” Wolff says. “Whether these experiments–which is what we have to call them at this point–will congeal into a massive social transformation, I don’t know. But I do know that massive social transformations have never happened without this stage. This stage may not do it, but change won’t happen without it,” he adds. These subtle shifts away from capitalism are not just apparent in the development of more co-ops, Wolff says. Over the past year, he’s been called in to meet with CEOs at large financial firms, who seemed to Wolff to be steeling themselves for a dethroning. As CEOs continue to disproportionately outearn their employees, the call for a dismantling of the system has become loud enough that they seem to have no choice but to pay attention. While it’s a flimsy gesture, some have distributed their bonuses to their employees.

“The move toward co-ops and the change in consciousness I’ve witnessed in workplaces and among my students are the two mechanisms of transformation that are now underway globally, and I’d like to say–it’s more a wish than anything else–that it’s too late to stop them,” Wolff says. “And the sheer beauty of this is that nothing fuels this movement more than capitalism’s own troubles, and the displeasure, disaffection, and anxiety it produces.”

Of course, the thought currents and little blooms of democratic workplaces are not enough to engineer a new economic system. These developments are all happening outside of the political system; in the White House and in Congress, the presence of big capitalist businesses continues as strong asever. But the fact that local governments like New York City and Austin have launched incubator programs for worker-owned cooperatives indicates that they’re not incompatible with the current political system.

Could it look something like inviting Medicare and Medicaid recipients into the legislating body that decides the future of healthcare in this country? Could it look something like involving women in the legal processes that determines what resources they can access to care for their own bodies? Something like a cooperativized Housing and Urban Development department that brings those people it aims to serve into the process of determining how best to do so?

Or what about developing a justice system that relies not on removing people from the formal economy via mass incarceration, but that emphasizes cooperative employment and job training at both points of re-entry and pre-incarceration? Kimberly Westcott, associate counsel in the New York-based Community Service Society, a 172-year-old anti-poverty organization, has begun a program through Democracy at Work to teach cooperative work within prisons. If the cooperatives that could form inside prisons could function just like those on the other side, are the walls necessary?

FIA: Dream Investment or Potential Nightmare?

My Comments: The article below by Jane Bryant Quinn in the AARP Bulletin are fine, as far as they go.

My initial reaction was to reject her comments out of hand as they reflect a bias that to my mind is not accurate. But then I decided to expand on her thoughts. I apologize if I made this too technical for some of you.

Most of the Fixed Index Annuities (FIA) sold are probably very close to having the features and limitations she describes. If there is indeed $60B flowing into FIAs each year, then they are being sold by every run of the mill agent across the planet. And most of those are probably selling whatever their company is telling them to sell. A strong reason for them to sell FIAs is that they make good money for the company. If the client benefits, it’s an incidental benefit for most of them.

I decided to add my two cents worth, below in red, based on what I know after 40 plus years as an entrepreneur in financial services, and the qualities and features of the FIAs I’ve chosen to present to potential clients. You should draw your own conclusions about the merits of FIAs, or the lack thereof.

by Jane Bryant Quinn, AARP Bulletin, October 2017

I’m getting mail about an apparent dream investment. It promises gains if stocks go up, zero loss if they fall and guaranteed lifetime income, too. What’s not to like? Plenty, as it turns out.

The investment is called a fixed-index annuity, or FIA, and it’s issued by an insurance company. Sales are booming — $60.9 billion in 2016. FIA contracts vary, but this is how they work. (Sales are booming, not so much because of the financial benefits, but because they offer emotional benefits as well. ie “I get to stay invested in the markets and I won’t lose any money…”)

You buy the annuity with a lump sum, which goes into the insurer’s general fund. You are credited with a tax-deferred return that’s linked to the market — for example, to Standard & Poor’s index of 500 stocks. If the S&P rises over 12 months, you receive some of the gain. For example, your credits might be capped at an increase of 5 percent, even if the market soars. If stocks go down, you take no loss — instead, your FIA receives zero credit for the year. ( Many FIAs do have caps limiting the upside potential. The one’s I offer clients have NO caps. If the index goes up 50%, you get 50%. If it goes down 50%, you get nothing credited. You have shifted the downside risk to an insurance company. It also means that when the market goes back up again, you are starting from zero and not from somewhere lower. That in turn means at the end of the next crediting period, you are higher than if you were starting in a hole somewhere.)

Each year’s gains or zeros yield your total investment return. . (Your money is NOT invested in an index, whether it’s an S&P500 index or any of dozens of other indices. The yield on bonds inside the insurer’s general fund is used to buy option contracts and the return given the client is a function of the performance resulting from those options.) But I see problems:

Low returns. Salespeople might claim that FIAs could earn 6 or 7 percent a year. But with fees, they’ll struggle to match the low returns from bonds, says Michael Kitces of the wealth management firm Pinnacle Advisory Group in Columbia, Md.(The product I prefer buys 2 year option contracts with the bond yield. Over a ten year period, any ten year period since 2000, a 2 year option result exceeds two consecutive one year options 87% of the time. Some of this is due to the fact that 2 year options are cheaper than 1 year options. In this scenario, a 6% geometric mean return is not unreasonable.)

High fees. You can’t find out what you’re paying for investment management. Costs are buried in the black-box system used to adjust the credits to your account. Sales commissions run 5 to 7 percent and may be hidden, too. Under the new fiduciary rule, which requires advisers to put your interests ahead of theirs, commissions have to be disclosed if you’re buying the annuity for a retirement account, but not for other accounts.

Salespeople sometimes claim, falsely, that their services are free. (Numbers shown in hypothetical illustrations provide by sales agents are always net of fees. At least the ones I show prospective clients. Yes there are obviously costs inside FIAs. I’m sorry but no one works for free. What is critical, however, is the net return to you the buyer.)

Profit limits. Every year, the insurer can raise or lower the amount of future gain credited to your account. You face high risk that returns will be adjusted down. (Yes, this happens. It’s a function of market cycles, of interest rates in general, and the performance of the index chosen. The FIAs I offer have NO CAPS and will credit whatever the option used calls for.)

Poor liquidity. You can usually withdraw 10 percent in cash, each year, without breaking your guarantee. But you’ll owe surrender charges if you need your money back before five or 10 years are up. You might also forfeit some gains. ( This lack of liquidity is the price you pay for shifting the risk of loss to an insurance company. It’s the same thing you do with your car, your house, your life when you buy life insurance, etc. The benefit to you from this ‘cost” is the avoidance of downside risk associated with market corrections. Without the ability to offset this risk to an insurance company, many people opt instead for ‘guaranteed’ returns which actually means you are guaranteed to go broke if you get less than the increase in the cost of living. The cost of a guaranteed returns might mean you run out of money sooner.)

Lifetime benefits. For about 1.5 percent a year, you can add a “guaranteed lifetime withdrawal benefit” to your FIA. Promised yearly payments run about 5 percent. But, Kitces asks, why do it? Your basic FIA already provides a lifetime income. What’s more, 5 percent is not a return on your investment. The insurer is merely paying you your own money back, in 5 percent increments — and charging you 1.5 percent for the “service.” If you live long enough, you’ll exhaust your money and the insurer will pay, but that doesn’t happen often. ( I choose not to offer these anciliary benefits to clients. They serve to make more money for the company by playing to your fears.)

For a guaranteed income, try a plain-vanilla immediate or deferred annuity. It’s cheaper, and you’re not apt to be led astray. (It’s possible you will be led astray. The rules today do not support a fiduciary standard. They should, but our current administration is working hard to avoid that outcome. It’s back to buyer beware despite the best efforts of some who think all financial advisors should be legally required to work in a clients best interest.)

On balance, Jane Bryant Quinn’s comments are essentially correct. But only if you are talking about the arguably poor contracts that so many companies and their agents are interested in selling. If you find someone who is happy and willing to act in your best interest, you are much more likely to find FIAs that resemble the contracts I prefer for my clients. They are a way for you to stay invested in the markets and at the same time, remove the risk of market losses within a crediting cycle.

Less Immigration Equals Less Growth

My Comments: This thought comes from Neel Kashkari, President of the Minneapolis Federal Reserve Bank. I repeat them here for two reasons: one, investment returns correlate positively with economic growth and two, young people in this country are having fewer children.

Why are we encouraged to fear immigrants and immigration? What threat do they actually pose to the rest of us? Life in these United States is almost always better with more money and more money comes from economic growth. Fewer immigrants over time will simply mean we have less money. Why is that a good thing?

This photo is of me, my mother and grandmother on June 20, 1950. It was the day I left England and immigrated to the United States.

by Ann Saphir, August 7, 2017

Reuters) – Less than week after a U.S. President Donald Trump embraced legislation to reduce immigration, Minneapolis Federal Reserve Bank President Neel Kashkari urged residents of South Dakota to embrace newcomers instead.

“Just going to math, if a big source of economic growth is population growth, and your population growth slows, either because you restrict immigration or because you have fewer babies, your economic growth is going to slow,” Kashkari said at the Rotary Club of Downtown Sioux Falls, responding to a question about a Trump-backed bill to cut legal immigration by 50 percent over the next 10 years. “Do we want economic growth, or not? That’s what it comes down to.”

Kashkari not alone in seeing immigration as key to U.S. economic growth.

Dallas Fed President Robert Kaplan routinely points out that immigrants have historically boosted U.S. workforce growth, and therefore economic growth, and has warned that the crackdown on illegal immigration could hurt consumer spending. Fed Chair Janet Yellen told U.S. lawmakers earlier this year that slowing immigration could probably hurt growth.

Most economic research suggests that immigration has little effect on wages of U.S. workers, and one recent study of what happened after the U.S. ended a guest-worker program for Mexican farm workers in the 1960s showed that growers, instead of raising wages to attract more workers, simply automated more of their field work.

The U.S. economy has been stuck at about 2-percent growth in recent years, and appears unlikely to break to out of that pattern anytime soon, St. Louis Fed President Bullard said earlier Monday.

“You can either accept slower growth; you can spend a lot of money to subsidize fertility – child care etc, very expensive – or you can embrace immigration. That’s math,” Kashkari told the audience in Sioux Falls, where the foreign-born population grew by more than a third from 2010 to 2014, figures from the U.S. census show.

“You guys have done a pretty good job of embracing immigration and that is a source of economic growth vibrancy.”

X Marks the Spot Where Inequality Took Root: Dig Here

My Comments: You’ve heard me say that income inequality is the greatest existential threat to our society going forward. If we allow the disparity between the haves and the have nots to become wider and wider, it’s only a matter of time before chaos will reign.

People want what money will buy. Companies will manufacture and produce what people want to buy. But if you allow the want to overwhelm the ability to pay for it, it’s only a matter of time before chaos will reign.

In order to survive, companies will find ways to cut costs, not just to increase profits, but to assure they remain competitive in a shrinking market place.

But the trajectory is not infinite; sooner or later they will stop manufacturing and producing stuff if there aren’t enough buyers to justify the fixed costs.

How many hat makers are there these days compared with 100 years ago? I grew up in a time when every male owned a hat. I had one when I was in high school. When was the last time you saw a male person wearing a dress hat when entering a restaurant or going to church?

We need to identify who, among our future political leaders, those who understand economics. It’s not about empowering the existing poor; it’s about making sure there are enough of us with money left to spend.

by Stan Sorscher \ August 5, 2015

In 2002, I heard an economist characterizing this figure as containing a valuable economic insight. He wasn’t sure what the insight was. I have my own answer.

The economist talked of the figure as a sort of treasure map, which would lead us to the insight. “X” marks the spot. Dig here.

The graphic below tells three stories.

First, we see two distinct historic periods since World War II. In the first period, workers shared the gains from productivity. In the later period, a generation of workers gained little, even as productivity continued to rise.

The second message is the very abrupt transition from the post-war historic period to the current one. Something happened in the mid-70’s to de-couple wages from productivity gains.

The third message is that workers’ wages – accounting for inflation and all the lower prices from cheap imported goods – would be double what they are now, if workers still took their share of gains in productivity.

A second version of the figure is equally provocative.

This graphic shows the same distinct historic periods, and the same sharp break around 1975. Each colored line represents the growth in family income, relative to 1975, for different income percentiles. Pre-1975, families at all levels of income benefited proportionately. Post-1975, The top 5% did well, and we know the top 1% did very well. Gains from productivity were redistributed upward to the top income percentiles.

This de-coupling of wages from productivity has drawn a trillion dollars out of the labor share of GDP.

Economics does not explain what happened in the mid-70s.

It was not the oil shock. Not interest rates. Not the Fed, or monetary policy. Not robots, or the decline of the Soviet Union, or globalization, or the internet.

The sharp break in the mid-70’s marks a shift in our country’s values. Our moral, social, political and economic values changed in the mid-70’s.

Let’s go back before World War II to the Great Depression. Speculative unregulated policies ruined the economy. Capitalism was discredited. Powerful and wealthy elites feared the legitimate threat of Communism. The public demanded that government solve our problems.

The Depression and World War II defined that generation’s collective identity. Our national heroes were the millions of workers, soldiers, families and communities who sacrificed. We owed a national debt to those who had saved Democracy and restored prosperity. The New Deal policies reflected that national purpose, honoring a social safety net, increasing bargaining power for workers and bringing public interest into balance with corporate power.

In that period, the prevailing social contract said, “We all do better when we all do better.” My prosperity depends on your well-being. In that period of history, you were my co-worker, neighbor or customer.

Opportunity and fairness drove the upward spiral (with some glaring exceptions). Work had dignity. Workers earned a share of the wealth they created. We built Detroit (for instance) by hard work and productivity.

Our popular media father-figures were Walter Cronkite, Chet Huntley, David Brinkley, and others, liberal and conservative, who were devoted to an America of opportunity and fair play.

The sudden change in the mid-70’s was not economic. First it was moral, then social, then political, ….. then economic.

In the mid-70’s, we traded in our post-World War II social contract for a new one, where “greed is good.” In the new moral narrative I can succeed at your expense. I will take a bigger piece of a smaller pie. Our new heroes are billionaires, hedge fund managers, and CEO’s.

In this narrative, they deserve more wealth so they can create more jobs, even as they lay off workers, close factories and invest new capital in low-wage countries. Their values and their interests come first in education, retirement security, and certainly in labor law.

We express these same distorted moral, social and political priorities in our trade policies. As bad as these priorities are for our domestic policies, they are worse if they define the way we manage globalization.

The key to the treasure buried in Figure 1 is power relationships. To understand what happened, ask, “Who has the power to take 93% of all new wealth and how did they get that power? The new moral and social values give legitimacy to policies that favor those at the top of our economy.

We give more bargaining power and influence to the wealthy, who already have plenty of both, while reducing bargaining power for workers. In this new narrative, workers and unions destroyed Detroit (for instance) by not lowering our living standards fast enough.

In the new moral view, anyone making “poor choices” is responsible for his or her own ruin. The unfortunate are seen as unworthy moochers and parasites. We disparage teachers, government workers, the long-term unemployed, and immigrants.

In this era, popular media figures are spiteful and divisive.

Our policies have made all workers feel contingent, at risk, and powerless. Millions of part-time workers must please their employer to get hours. Millions more in the gig economy work without benefits and have no job security at all. Recent college graduates carry so much debt that they cannot invest, take risk on a new career, or rock the boat. Millions of undocumented workers are completely powerless in the labor market, and subject to wage theft. They have negative power in the labor market!

We are creating a new American aristocracy, with less opportunity – less social mobility and weaker social cohesion than any other advanced country. We are falling behind in many measures of well-being.

The dysfunctions of our post-1970 moral, social, political and economic system make it incapable of dealing with climate change or inequality, arguably the two greatest challenges of our time. We are failing our children and the next generations.

X marks the spot. In this case, “X” is our choice of national values. We abandoned traditional American values that built a great and prosperous nation. Our power relationships are sour.

We can start rebuilding our social cohesion when we say all work has dignity. Workers earn a share of the wealth we create. We all do better, when we all do better. My prosperity depends on a prosperous community with opportunity and fairness.

Dig there.

The Consequences of the U.S. Baby Bust

My Comments: We’re in the middle of a national re-assessment of who we are as a nation, what we value, and how we want our lives to play out going forward. It’s a stressful time for a lot of reasons.

Our nation today is very, very different from the one found by father and his two siblings when they immigrated to the US. They arrived in Santa Barbara, CA in 1921, from England via New Zealand. Chances are the United States in 2071 is going to be very, very different from the one you and I know today.

One of the forces at work is our attitude toward immigrants. That, coupled with a declining birth rate in this country, is going to have a profound influence. You can like Trump or you can hate him, but he’s an expression of a natural inclination in response to societal pressures. Young people today, and they will soon represent a majority of voters, have markedly different priorities than those of us who have already fought the wars.

By Justin Fox on September 20, 2017

As people in other wealthy countries fretted in the 1990s and 2000s over what falling birthrates would mean for economic growth and retirement-program finances, the U.S. seemed to have far less to worry about. Fertility here remained at or near the replacement rate of 2.1 births per woman over her lifetime, and the country’s long-honed ability to attract immigrants and quickly integrate them into the workforce provided a further economic boost.

Times have changed. Immigration has been a contentious topic lately, and illegal immigration has gone into reverse since 2007. Still, legal immigrants are still arriving and contributing to population growth.

Babies are another matter. Over the past decade, the U.S. has joined the ranks of wealthy countries not producing enough of them to keep the population from falling, in the absence of immigration.

This data from the Organization for Economic Cooperation and Development only goes through 2015, but the Centers for Disease Control and Prevention has released provisional numbers for 2016 that show births to be down another 1 percent in the U.S. from the year before. The 3.94 million births last year were the fewest since 1995. As a share of population, the birthrate was the lowest ever.

The decline since 2008 is new enough that experts are still debating whether it’s a blip or a trend. Maybe it’s another of those millennial quirks — like putting off buying a car or moving to the suburbs — that will normalize as the economy continues to improve. The sharpest birthrate declines have been among teenagers, which seems like a positive development. Also, one could argue that population growth and economic growth aren’t so great anyway and we’d be better off with a steady-state economy.

I’m going to stick with the conventional assumptions, though, that economic growth is helpful in resolving societal conflicts, paying for social insurance programs, and generally making people’s lives better, and that population growth is a major driver of economic growth. In that case, the fact that U.S. births have fallen below the replacement rate is significant even if we can’t be sure they’ll stay so low, and worthy of more attention and consideration than it has gotten so far.

For one thing, it adds some useful context to the immigration debate. As I showed in a column last month (and economist Lyman Stone documented in far more detail a few days later), current immigration flows into the U.S. aren’t high by historical standards. But the foreign-born share of the population isn’t far from the peaks of the late 1800s and early 1900s. Why’s that? Mainly because the birthrate is so much lower now than it was then.

So does the recent fall in the birthrate mean that the U.S. needs more immigration, to keep economic growth from slowing even further, or less immigration, to keep the foreign-born share of the population from getting so high that integration is endangered? My natural tendency is to lean toward the former, but I can understand if you disagree. This is a political question, and it seems like the falling birthrate mainly just makes it an even more contentious one.

Getting the birthrate back up, then, might actually help in resolving some of our political debates over immigration. 2 But that’s a lot easier said than done! What got me thinking about this topic was an article by Bloomberg’s Raine Tiessalo about Finland, where fewer babies were born in 2016 than in any year since 1868 — the final year of a great famine that killed 15 percent of the country’s people. Yet Finland does almost everything conceivable to encourage its citizens to have kids. It is the second-best place in the world to be a mother, according to one ranking. It has great schools, ample daycare, generous parental leave, free universities and cheap health care. To top it off, all new mothers get a swell baby box. Writes Tiessalo:
Introduced in 1937, containers full of baby clothes and care products are delivered to expectant mothers, with the cardboard boxes doubling up as a makeshift cot. The idea behind the maternity packages was prompted by concerns over high infant mortality rates in low-income families. The starter kits were eventually extended to all families.

Despite these enticements, the Finns produced just 9.6 babies per 1,000 people in 2016, compared with a rate of 12.2 in the U.S., the 33rd-best place in the world to be a mother. In August, the head of the Finnish Social Democratic Party tried urging women to have more babies as a patriotic duty, and caught flak for that. Designing child-friendly policies is one thing. 3 Changing how people live and think in a free society is a lot harder.