Must reads: In an end of year special, LinkedIn thinkers share their big ideas for 2014 including this one from Sallie Krawcheck arguing Wall Street should "move away from its tired value proposition" and embrace impact investing. You also may be interested in this report from the Atlanta Federal Reserve by Anil Rupasingha, which finds that "employment provided by resident-owned businesses is positively associated with county income and employment growth and inversely correlated with change in poverty." In this very interesting piece from earlier this year in Yes Magazine, author David Korten uses nature as way we might reframe how we think about our economic values.
Let's start with the Wire's David Simon, who gave an impassioned speech at the Festival of Dangerous Ideas in Sydney contending that U.S. capitalism has lost sight of the social contract:
That may be the ultimate tragedy of capitalism in our time, that it has achieved its dominance without regard to a social compact, without being connected to any other metric for human progress. We understand profit. In my country we measure things by profit. We listen to the Wall Street analysts. They tell us what we're supposed to do every quarter... And that notion that capital is the metric, that profit is the metric by which we're going to measure the health of our society is one of the fundamental mistakes of the last 30 years. I would date it in my country to about 1980 exactly, and it has triumphed. Capitalism stomped the hell out of Marxism by the end of the 20th century and was predominant in all respects, but the great irony of it is that the only thing that actually works is not ideological, it is impure, has elements of both arguments and never actually achieves any kind of partisan or philosophical perfection.
Dow Jones' Michael Casey similarly says markets just don't work anymore:
In societies like the U.S., we are supposed to tolerate inequities in wealth and income because the greater good is served by a market system that rewards effort, competitiveness and innovation and which punishes those that fall short of those standards. History has taught us that this model is greatly superior to that of a planned economy like that in the former Soviet Union.
But there are now such distortions in global financial markets, these benefits are all but lost. Partly that’s because such innovations as high-speed trading have overridden the principles of value investing and long-term fundamental analysis.
But it’s also because the flood of money into financial markets has made it harder and harder to distinguish deserving winners and losers. The Fed’s money-printing has raised all boats equally, when what’s really needed is for different boats to rise or fall to differing degrees. The current homogeneity in investment strategy means society steers insufficient funds to valuable projects that would deliver decent returns over time — such as U.S. infrastructure, paid for with historically cheap Treasury borrowing rates — and too much money into less worthwhile enterprises.
The Federalist's David Harsanyi in the Columbus Dispatch had this argument criticizing Pope Francis' stance on unbridled markets that leave the poor behind:
[H]ow many reasonable people argue that market-based economies — and the morality that drives them — haven’t done more to alleviate poverty worldwide than any other system? For the most part, in fact, the more unfettered a nation’s economic system is, the more prosperous the population becomes and, consequently, the more it spends on charity and safety-net programs. When we match up The Heritage Foundation’s Index of Economic Freedom with the World Bank’s measure of per capita income, we find that the countries with the most unencumbered systems and the most financial “speculation” usually have the least poverty. Rather than credit those who do their best to balance this imperfect system that lifts millions out of impoverishment, the pope attacks them for the prevalence of imaginary economic Darwinists who callously keep equality from blooming.
Similarly in the Atlantic, Cato's Marian Tupy argues "the dystopian world that Francis describes, without citing a single statistic, is at odds with reality." You also might want to read this Politico report from Ben White and Maggie Habberman on why "the titans of American finance today find themselves alienated from politics to a surprising degree."
Check out this editorial cartoon from Joe Heller:
Over at Atlantic Cities, Richard Florida calls for more place based minimum wages to address differences in regional economies:
In many of the cities near the top of the list, local efforts have already raised the minimum wage above federal standards. But those rates are still quite below our suggested minimum... Some business owners and conservative economists argue that raising the minimum wage will drive up prices and could force some people out of work. But [Arindrajit] Dube notes that raising the minimum wage can help the economy in other ways. In a 2010 study, he and his colleagues found that a hypothetical 10 percent hike in the minimum wage would have no statistically significant negative effects on restaurant or retail industry employment. And in a forthcoming Department of Labor study, Dube found that, on an aggregate level, this same increase in the minimum wage reduces poverty by about 2 percent. But raising the minimum wage is clearly just a first step. Wages in the $22- to $25-an hour range will be needed to create good, family-supporting jobs – comparable to what manufacturing jobs paid back in the day – in many of America’s largest cities.
This interactive report from the Brookings Institution looks at the struggles of lower middle class families with incomes ranging from $15,000 to $60,000, noting that they face "many of the same challenges as those in poverty, however, including food insecurity and a reliance on government programs for income support." In the NYT's Economix blog UC-Irvine's David Neumark discusses the minimum wage relative to the earned income tax credit:
So suggesting that federal policy addressing low-wage work and low-income families has somehow failed because the minimum wage has not kept pace with inflation ignores the fact that we have moved away from a focus on the minimum wage — a policy with many flaws — and toward the earned-income tax credit. We shouldn’t be asking simply how much the real minimum wage has changed, but rather how much the combined income floor generated by the two policies has changed.
Politico has a slide show looking at quotes from 20 politicians on the minimum wage debate. Meanwhile, the American Enterprise Institute's Michael Strain in the conservative Weekly Standard argues policymakers should make a greater attempt to help the long-term unemployed:
[T]he evidence suggests that many long-term unemployed workers are “scarred”—their lengthy spell out of the workforce is making it difficult for them because firms view workers who have been unemployed for so long as risky hires. Why not reduce the risk associated with the hire by lowering the minimum wage for long-term unemployed workers? A firm may not want to take a $7.25-per-hour risk on a long-term unemployed worker, but might be willing to take a $4 risk. If we lower the minimum wage for the long-term unemployed, then we’ll need to supplement their earnings with an expanded Earned Income Tax Credit or some other government-funded wage subsidy.
In this interview in the Washington Post, Nobel prize winning economist Edmund Phelps proposes a new tax break for employers who hire low wage workers as a way to raise employment rather than focusing on the minimum wage. On the other hand, Barbara Dyer, head of the Hitachi Foundation, says focusing on low income jobs will not get us the economy we want:
The last few decades have been characterized by the business model of maximized productivity and minimized labor costs. Focus needs to be paid to the source of middle income jobs–businesses–to discover those that actually offer good jobs with pathways and growth opportunities into, and within, the middle class. We set out to find examples of businesses that buck the trend and that maximize profit and productivity by investing in labor. To date, we've highlighted close to ninety employers in manufacturing, health care and other industries that focus on investing in their people. While there are significant differences between the sectors, we found some common themes. First, they develop products and services that are customized to better meet market demand at competitive prices. Second, they design core systems that enable them to succeed. Finally - and here's the key - they view their employees, many with little more than a high-school diploma, as valued assets in meeting their goals. They invest in training, they provide decent compensation well above minimum wage and offer pathways of advancement. They recognize that it's the people that make it possible to be better, faster and competitively priced.
Similarly Anne Fisher over at Forbes reviews a new book on a good jobs strategy by MIT's Zeynep Ton, who she says makes "a convincing case that better pay and benefits -- and giving workers a clear shot at career advancement -- yield higher customer satisfaction (including competitive prices and stellar service) and fatter shareholder returns." Meanwhile economist David Rosenberg at the wealth management firm Gluskin Sheff + Associates Inc., in the Financial Post, says that the U.S. economy is about to experience a decent upswing due to more working:
The centrepiece of next year’s expected acceleration really boils down to the consumer. It is the most essential sector at more than 70% of GDP. And what drives spending is less the Fed’s quest for a ‘wealth effect,’ which only makes rich people richer, but more organic income, 80% of which comes from working. And, in this sense, the news is improving, and will continue to improve. I’ll say it until I’m blue in the face.
Jessica Wiesberg writing for The Nation dinged President Obama for using economic mobility as the tie in his inequality speech instead of tackling it head on. Meanwhile, Mauricio Lim Miller, who heads Heron grantee the *Family Independence Initiative, had this to say in the Huffington Post on President Obama's inequality speech:
In his remarks about the current state of economic mobility in the United States, President Obama confirmed something we all know -- that today, the American Dream is simply no longer attainable for many Americans. The president laid out a plan to achieve upward mobility, but I'm afraid he left out the most important factor: the people themselves. Those communities of people who are already working hard and demonstrating amazing initiative and ingenuity... Unfortunately, there exists a strong stereotype about the nation's poor, that being low-income means being incapable, or in need of "help." As a result, most are not willing to consider and learn from the low-income families who are resourceful and find ways to solve their own problems. We don't need more roadmaps or safety nets, programs or fixes. We need to listen, observe, and build upon what low-income families are already doing to get ahead.
And you might want to spend some time on Foreign Policy's leading global thinkers of 2013 feature, which covers a number of folks who contributed on poverty, inequality and the impact of austerity.
In Mother Jones, Alex Park and Jaeah Lee delve into the investments of the Gates Foundation and in infographics examine 24 investments they contend to be contrary to the foundation's mission. You might be interested in this Bloomberg piece on why the rich "are hoarding cash." Over at slate, Matt Yglesias says ignore activist investor Carl Icahn, whose "call for buybacks reflects a malignant streak running through American corporate culture, one that emphasizes financial engineering and trading over tangible investments." There is also this Bloomberg report on whether 2013 was the year of the investor activist.
[*Editor's Note: This post has been corrected to show that Mauricio Lim Miller's organization is the Family Independence Initiative and not the Family Research Initiative. Our apologies.]