Must Reads: Check out these videos with transcripts of panels from the American Enterprise Institute featuring the Dalai Lama on "happiness, free enterprise and human flourishing." You might also be interested in AEI's Arthur Brooks piece in Commentary Magazine arguing "the conservative creed should be fighting for people, especially vulnerable people, whether or not they vote as we do." The Hitachi Foundation released its strategic plan on "creating value at the intersection between people and profit." John Halpin and Karl Agne have a new Center for American Progress report on Millennials and poverty. In Bloomberg, Peter Orszag discusses the woes of the healthcare labor market.
Last month, President Obama in his State of Union address announced his plans to raise the minimum wage to more than $10 an hour stoking the growing debates over whether mandated increases hurt employment and help poor people. Check out these cartoons from Nick Anderson and Clay Bennett:
In Forbes, Louis Woodhill argues the disappearance of jobs forecast in the CBO report are more worrisome than they might first appear:
By definition, the 16.5 million workers that would see their incomes rise as a result of hiking the minimum wage to $10.10/hour are already worth the higher wages that they would be paid. Otherwise, they would be laid off. No employer will pay anyone more than they are worth... In sharp contrast, the 0.5 million people that would lose their jobs (or not be hired in the first place) because of a $10.10/hour minimum wage would be knocked off the first rung of the ladder of opportunity. Many of them would fall into the black hole of permanent joblessness. After all, being older, and having been unemployed longer, does not increase one’s attractiveness to employers.
John Schmidt over at the Center for Economic Policy Research discusses CBO findings and whether workers would be better off:
[A]n important feature of low-wage jobs is that they tend to have high turnover. Even if half the workers in a low-wage workplace are in stable long-term jobs, the other half of positions might turnover completely once or even twice in a year. High turnover is an important context to keep in mind when evaluating the costs and benefits of the minimum wage. Even if the CBO’s central estimate of job loss is correct, very few low-wage workers will receive pink slips. Given high turnover, employers who want to reduce employment are much more likely to make any adjustments implied by the CBO estimates through attrition –failing to replace a few percent of the workers who leave on a regular basis. Workers looking for jobs at the new, higher minimum wage may be looking in a slightly smaller job pool, for a slightly longer period of time. But, when they find a job, it will pay substantially more than the job they would have found somewhat more quickly at the old, but lower minimum wage.
Over at the NYT's Economix blog, Jared Bernstein argues that job quality should be just as important as job quantity, "especially in the low-wage sector, where the decline in the real value of the minimum wage, the increase in earnings inequality (meaning less growth finds its way to the low end of the wage scale), and the low bargaining power of the work force have placed strong, negative pressure on wage trends for decades." Check out this chart from CNNMoney breaking down the demographics for minimum wage workers:
There also is a third, less prominent argument on the minimum wage put forth by Demos and others on subsidizing private employers costs via social safety nets needed by workers. Here is the Washington Post's E.J. Dionne's take on this issue:
Ron Unz, a Silicon Valley millionaire and one-time Republican candidate for governor of California, is championing an initiative to raise his state’s minimum wage to $12 an hour.Unz has argued that a minimum wage hike “would function as a massive stimulus package.” ...He also pointed to the fact that government — through wage subsidies in the tax code, Medicaid and food stamps — is now conferring substantial benefits on employers of low-wage labor. “One of the strange things in our society right now is that we have all these low-wage workers who are getting $7.50, $8 or $9 an hour,” Unz said, “and because they earn such small wages, the government subsidizes them with billions or tens of billions of dollars of social welfare spending that comes from the taxpayer. It’s a classic example of businesses’ privatizing the benefits of their workers while socializing the costs.”
You might also be interested in this letter from more than 600 economists supporting a minimum wage hike, in the form of "a three-step raise of 95 cents a year for three years—which would mean a minimum wage of $10.10 by 2016." The New York Times also has a new interactive that allows you to explore assess general household expenses and whether you could get by on current state minimum wages.
We have more thoughts on inequality this week. First up is Rex Nutting over at the WSJ's MarketWatch discussing his take on the great wealth divide:
I'm not saying corporate executives, lawyers, and financiers don’t deserve to be well compensated. Running complex organizations and providing expert advice is extremely difficult to do well, and those who do it well earn their pay. But while some CEOs add real value to their company, many others are mediocre at best. And mediocre ones often make just as much as the talented ones.
The market that determines CEO pay is fixed, like a kangaroo court. CEOs aren’t paid according to the value they bring to their company; their pay is set using a method that’s guaranteed to inflate CEO salaries without any relation to value added. And once CEO salaries are inflated, so are all the other salaries and compensation packages for top executives.
Brookings' Richard Reeves offers these thoughts on inequality today, which he says is trinary rather than binary problem:
At the top, we can see an elite doing well in a labor market offering big returns to human capital. This is perhaps not the just the top 1% (much though politics might be easier if that were so) but, say, the top decile, or 10%, of the income distribution... Below this affluent class is a broad swath sometimes dubbed the ‘squeezed middle.' This group have decent labor market participation rates, but wages that are rising slowly. In many cases, two wages are needed to support the family. They own a home, but are not otherwise wealthy. Savings exist for emergencies or one-off expenditures, but run out fast if the households has a serious downward shock to income... At the bottom of the social scale are those whose poverty is entrenched. Labor market attachment is weak, with many people in long-term unemployment. Teen pregnancy is still heard of, unlike in most communities today. Poverty is felt in most domains of life - crime, health, education, parenting, drug addiction and housing. The growing economic segregation of neighborhoods further isolates this group from chances of work, better schooling or valuable social networks.
Meanwhile, the Manhattan Institute's James Piereson in the Wall Street Journal argues that at "a time of slow economic growth, mounting government debt, a stalemated politics and the impending retirement of the 'baby boomers,' the attacks on the 'one percent' look more and more like a diversion from the nation's real problems." U.C. Davis' Gregory Clark in the New York Times discusses social mobility and how our ancestors social status often is an indicator of our lot in life. AP's John Boak reports that the wealth gap seems to be most extreme in some of America's largest cities. Similarly Brookings' Alan Berube discusses inequality in big cities, check out this chart:
You also might be interested in this piece from AEI's Richard Vedder over at Bloomberg asking why folks who are supposed to care about inequality give institution's like Harvard a pass on favorable tax treatment. And check out this New York Times "Room for Debate" about the rise of the "aflluenza defense" and what it says about inequality.
In the New Yorker, Russ Juskalian discusses Andrew Carnegie and today's philanthropy:
Our own time has increasingly been called a New Gilded Age. A few weeks ago, after Oxfam International published a report showing that the richest eighty-five people in the world have the same combined wealth as the poorest half of the population, Slate’s Will Oremus wrote: “Global capitalism, we have a problem.” ...At the center of this debate is how to quantify the positive impact of philanthropy by the world’s wealthiest people on the world’s poorest, along with the negative impact of inequality—both tasks that are difficult, and perhaps impossible. Giving by the ultra-rich is significant but makes up only a small proportion of total giving. A recent report puts total annual giving by individuals in the U.S. at around two hundred and thirty billion dollars—about thirty times the amount given last year by the people on the Philanthropy 50 list. The Philanthropy 50 list suggests that rich donors spend less on causes having to do directly with poverty alleviation than on other areas. The categories that got the greatest amounts of funding from the fifty highest givers were foundations, colleges and universities, and hospitals and medical centers.
Meanwhile in Forbes, wealth adviser Phil DeMuth discusses "big charity" and younger givers:
Americans love to be charitable, and the tax-deduction for charitable contributions is nearly as old as the tax code itself. The ultra-high-net-worth, when faced with enormous tax bills, would rather give their money to charity than to big government. For charities, this has created an interesting arbitrage: as long as they could be only slightly less wasteful than the government, plus could plate up some ancillary perks in the form of social recognition and a “feel-good” giving experience (where the IRS notably falls down, in my opinion), they held the trump card. But once you go beyond the photograph of the baby seal and the donor cocktail party fabulous, you find agency problems galore. That is to say, these institutions are principally interested in their own aggrandizement. The mission statement over the door is just a magic carpet to that end. Invariably, their charity begins at home. My pal Ben Stein described in The New York Times how Yale University today is basically a hedge fund with a small college attached. Consider that the worst thing for the American Cancer Association would be if someone actually found a cure for cancer... The young ultra-affluent have figured all this out. They are bypassing their parent’s antebellum eleemosynary institutions. Which means these Tutankhamen-sized charities are headed for the mothballs right along with the mink stoles.
And, over at Pollen Jame Toscano discusses where philanthropy is headed:
The idea of philanthropic assistance in creating wealth is not new. Just look at the worldwide phenomenon of microloans, which have indeed promoted independence, employment, and wealth.
The difference now is that wealth creation is becoming the significant driver among those new philanthropists who value increasing social mobility, using their resources to achieve this important aspect of the American Dream.
The new philanthropists envision funding going beyond grants and loans to a new focus on investments in nonprofits, for-profits and any combination for solutions, for cures. They use rigorous metrics, leverage of all types, and intensive due diligence to find their philanthropic investment targets.
In the Pioneer Post, Sophie Hudson offers up seven things you need to know "about de-risking impact investing."
Over at the Economix blog, Jared Bernstein argues before we can assess "the state of technological unemployment, we have to get rid of bad policy-induced unemployment." In the Fiscal Times, Bruce Bartlett discusses the Fed and the challenges of economic forecasting. In the New York Times, Paul Krugman contends that perceptions of stimulus failure put the country on the austerity road and "job creation almost disappeared from inside-the-Beltway discourse." In the Boston Review, Claude Fischer looks at attitudes toward risk sharing and reducing economic uncertainties.