The Economy's Needful Things
In the government's continued attempt to better regulate banks post-2008 economic crisis, the Obama administration has failed to approve the proposed "living wills" of the five largest U.S. banks. This is what the Wall Street Journal's Greg Ip had to say on making too much of size:
The preoccupation with banks’ size is well-founded. The havoc when big banks fail, and the perception the government won’t let that happen, enables them to borrow cheaply and grow still larger. Yet as in technology, size confers unique benefits in banking: economies of scale in technology, branding and risk management; network effects that attract customers; and broad geographic and sectoral diversity. If regulators ignore these attributes while dwelling solely on the danger of size, they risk leaving the economy worse off, not better.
Apparently one thing not too big too fail was coal giant Peabody, which joined an ever growing number in the sector filing for bankruptcy. Tom Sanzillo and Davis Schlissel also note that thanks to a sweet deal with the government allowing them to self-bond, these bankruptcies are leading to a very dirty legacy:
[T]axpayers are at risk of having to foot the bill as mining companies either file for bankruptcy or redirect their dwindling dollars elsewhere to stay afloat — including paying obscenely generous compensation packages to executives. A recent congressional estimate puts outstanding cleanup liabilities nationally at $3.6 billion...
At the same time, many of the communities that depend on the coal industry not only for jobs but also for tax revenue are facing real trouble. In Campbell County in Wyoming, public officials are worried that Arch and Alpha will not make good on $50 million in local taxes due in May. In western New York State, NRG Energy’s closing of its coal-burning Huntley Station power plant in Tonawanda means layoffs, reduced tax revenue and an abandoned site.
Meanwhile, the NYT's Nicholas Kristof also discusses why loopholes in the tax code may make top corporate executives the biggest welfare cheats:
I know you see the words “tax code” and your eyes desperately scan for something else to read! Anything about a sex scandal? But hold on: The tax system is rigged against us precisely because taxation is the Least Sexy Topic on Earth. So we doze, and our pockets get picked...
One academic study found that tax dodging by major corporations costs the U.S. Treasury up to $111 billion a year. By my math, less than one-fifth of that annually would be more than enough to pay the additional costs of full-day prekindergarten for all 4-year-olds in America ($15 billion), prevent lead poisoning in tens of thousands of children ($2 billion), provide books and parent coaching for at-risk kids across the country ($1 billion) and end family homelessness ($2 billion).
In the New York Times, Dan Lyons recounts his time with a tech start-up and why he thought it was more sweatshop than innovation hub:
We were told we were “rock stars” who were “inspiring people” and “changing the world,” but in truth we were disposable. Many tech companies are proud of this kind of culture...
Treating workers as if they are widgets to be used up and discarded is a central part of the revised relationship between employers and employees that techies proclaim is an innovation as important as chips and software. The model originated in Silicon Valley, but it’s spreading. Old-guard companies are hiring “growth hackers” and building “incubators,” too. They see Silicon Valley as a model of enlightenment and forward thinking, even though this “new” way of working is actually the oldest game in the world: the exploitation of labor by capital.
And now for some good news from Vox: There are jobs that are automation-proof. Why? Because people like being and interacting with other people:
When a manufacturing company automates one of its factories, customers benefit from lower prices and the company benefits from lower costs. But in the service sector, automation is often very partial and relies on offloading work onto customers...But with a small and shrinking share of our economy devoted to producing physical goods, further progress in agriculture and manufacturing is contributing a smaller and smaller share to economic growth. To continue growing, we need to increase the productivity of our service sector — our restaurants and hospitals and classrooms.
The Political Dead Zone
Because your editor cannot seem to help it, let's start with more discussion of politics and voter anger. Over at Raw Story, Drake University's Anthony Gaughan argues the U.S. elites "selfish worldview" led us to this incredibly angry campaign season:
The extraordinarily low rate of charitable giving among the rich offers more evidence. Even though we live in a time of entrenched income inequality, poor Americans actually give a higher percentage of their income to charity than the rich do. The lack of generosity among America’s upper classes shows no signs of abating. Although the overall wealth of the upper classes is growing, levels of charitable giving continue to fall among the rich.
The selfish worldview of America’s upper classes is underscored by their demand for ever greater financial rewards. In the last 50 years, CEO compensation rates have skyrocketed. For example, in 1965 the typical CEO made about 20 times as much as average workers. By 2013, the CEO-to-worker pay ratio grew to nearly 300 to 1...
The rich have also poured money into the campaigns of candidates who cut the government programs that most benefit middle-class and working-class Americans, such as public schools and healthcare. And the wealthy increasingly cluster in neighborhoods that isolate them from other social classes.
Meanwhile in the New York Times, UCLA's Lyn Vavreck argues it may be political parties, not the economy, driving voter sentiment. Your editor also enjoyed Ivan Krastev's argument on why American politics is becoming more European and not so crazy as we imagine: "If anyone is failing to 'get' America these days, it’s Americans themselves. They don’t see that their country is rapidly becoming 'normal,' unable to rely on infinite, widely shared economic growth and splendid geopolitical isolation."
The Center for American Progress' Melissa Boteach and Rebecca Vallas are back with a new report on how to cut poverty and expand prosperity, which is in response to Speaker Paul Ryan's recent push on addressing poverty:
Bipartisan interest in tackling poverty would certainly be a welcome development. Unfortunately, House majority leaders have not matched their new rhetoric with updated policies. The fiscal year 2017 House budget—which, once again, is a recipe for exacerbating poverty and inequality in America—provides a stark reminder of their priorities. While Speaker Ryan talks about his commitment to cut poverty, the House budget generates three-fifths of its spending cuts from programs that help low- and moderate-income Americans. If enacted, it would slash investments in nutrition assistance, tax credits for working families, child care, job training, education, health care, transportation, infrastructure, and more—all to pay for tax cuts for the wealthy.
You also might be interested in this Slate piece from Laura Moser looking at a recent poll of Black and Latino parents that found they believe there are wide disparities in education for their children. And Mireya Navarro looks at why racial segregation may impede New York Mayor Bill De Blasio's plan to tackle affordable housing:
There are difficult trade-offs to grapple with. Redeveloping low-income areas can increase diversity by bringing in higher-income residents. But it can also end up pricing out existing residents. Doing the reverse — investing in affordable housing in more expensive areas — can draw in low-income residents. But government subsidies often do not go as far in such neighborhoods, with the potential result that fewer rental units are priced at affordable rates...
Diversifying the demographic makeup of neighborhoods can also, in some cases, dilute the political clout of ethnic or racial groups. These tensions have been on display in the battles over the de Blasio administration’s efforts to rezone lower-income neighborhoods to build both market-rate and below-market-rate units.
A new Brookings report looks at the multidimensional aspects of poverty and why minorities are more likely to experience all of them:
The NYT's Nicholas Kristof discusses why the ultimate poverty in America may be homelessness: "If we can have a robust national debate about the way Donald Trump’s campaign manager grabbed a reporter’s arm, let’s also muster a debate about whether candidates will help end family homelessness in America. This goes to the heart of American poverty — and values."
This week the Skoll World Forum brought together a multitude of changemakers in England for its annual conference. In this video, the Ford Foundation's Darren Walker joins other other experts to discuss inequality:
You might interested in reading this piece on how borrowing directly from the wealthy might be a solution for some small businesses. There is also this October 2015 interview with Bill Gates on the future of energy and the role of government vs. the private sector that is worth a read.
Just in the past few months, both Morningstar Inc., in partnership with research firm Sustainalytics, and MSCI Inc.’s MSCI ESG Research have rolled out platforms that rate mutual funds based on their environmental, social and governance characteristics.
They join other firms in the business like RobecoSAM, which works with S&P Dow Jones Indices, a unit of McGraw Hill Financial Inc., to publish a series of sustainability indexes. Meanwhile, the nonprofit Sustainability Accounting Standards Board, or SASB, is trying to establish uniform disclosure of sustainability metrics by public companies.
The organizations differ not only in what type of information they consider pertinent to a company’s sustainability, but also in what specific information they consider material within those parameters. “We don’t believe there’s one definition of sustainability or materiality,” says Michael Jantzi, chief executive of Sustainalytics. “While I think we need to bring some semblance of order, because I understand it’s confusing, I also believe there’s strength in the diversity of opinions.”
Over at FastCompany, Adele Peters looks at arguments on whether rich college endowments should pay taxes if they aren't being used to pay for education:
In total, the exemptions that rich universities receive from federal, state, and local government can add up to far more than other schools get in aid. One report estimated that a student at Princeton, for example, gets a subsidy of about $100,000 a year because of tax exemptions; nearby, a student at Rutgers gets a little more than $12,000. Someone attending a New Jersey community college might get government support of around $2,000. While funding is cut for many state schools, schools that arguably don't need the help get massive subsidies.
That report suggested another use for taxes on endowment income: The government could use the funds to help students struggling at other schools. Last December, the Congressional Research Service said that if returns from endowments were taxed at 35%, the revenue for the 2014 fiscal year would have been more than $16 billion.
In Fortune, three advocates for "sustainable capitalism" say businesses could be part of the solution on inequality by helping shrink the opportunity gap, such as helping employees attain higher education:
In collaboration with Southern New Hampshire University, Anthem Insurance ANTM -0.21% recently began making associate’s or bachelor’s degrees available at no cost for 50,000 eligible workers. Another company, FedEx, partners with nearly 20 higher education institutions including Western Governors University. There, students pursue competency-based education, in which progress and degree completion depend on one’s understanding of subject material, not by time clocked in the classroom. As some skillsets lose their value, facilitating quick mastery of new ones prevents employees from falling behind.
The Mott Foundation's Ridgway White in a blog post in Philanthropy News Digest discusses the questions and cautions that the Flint, MI water crisis raises for philanthropy:
When the high levels of lead exposure among Flint children were revealed in September of 2015, Mott acted quickly to begin the long process of bringing safe drinking water back to our hometown. In addition to a grant of $100,000 to provide residents with home water filters, we pledged $4 million to help reconnect Flint to the Detroit water system. With an additional $6 million from the state of Michigan and $2 million from the city of Flint, that switch took place on October 16.
Our decision to help pay for the switch was a no-brainer. Since our founding ninety years ago, we've had a deep and unwavering commitment to our home community...But after taking swift action, the question then becomes "What next?"
...We firmly believe the state of Michigan and the federal government must provide the resources — financial and otherwise — needed to address the harm caused. There's little doubt that any government restitution Flint receives will fall far short of what will be needed to address long-term health, infrastructure, and economic concerns. That's all the more reason we must call on state and federal government to provide maximum resources to Flint. And it's partly why we haven't rushed to make subsequent commitments. We don't want government officials to think it's okay to send fewer dollars to Flint.