Must Reads: Slate's Krissy Clark looks at food stamps, store sales, and low-wage jobs, with estimates that Wal-Mart alone takes in 18 percent (roughly $13 billion) of all food stamp purchases. This New York Times "Room for Debate" tackles the rise of inequality and Karl Marx's predictions about capitalism's demise. In the Wall Street Journal, Columbia Business School's Glenn Hubbard argues for changes to policy that he says creates disincentives to work. And in the Atlantic, James Fallows reports on one Georgia high school's answer to helping low-income students attain decent jobs after graduation by re-imagining the technical school.
In the Pioneer Post, British social entrepreneur James Perry says foundations should evolve with the times and take on impact investing:
Historically, a charitable foundation would delegate responsibility for the management of its capital to asset managers who – for a fee – put it to work in order to maximise its financial returns. These returns would then be given away as grants (100% loss capital) by trustees who decided where that capital should be allocated in response to petitions from charities. Clickety clack. It is perfectly correct for trustees – whose fiduciary responsibility is to further the objects of the charity, on behalf of its beneficiaries – to do this if the only financial instrument available to them to further their objects is a grant. But it is now clear that other instruments are available to achieve certain social outcomes and charitable objects – what the Charity Commission defines as ‘mission-related investments’ and ‘mixed purpose investments’. These are otherwise known as social and impact investments. It is also clear that there are negative externalities resulting from the profit-maximizing investments of charitable foundations that might run counter to their objects.
In the South China Morning Post, the Fung Global Institute's Andrew Sheng says "the rise in impact investing lays to rest the notion that greed is good":
Sometimes, the most profitable companies are also the most polluting. A person may be investing in a company that acts against his or her religious beliefs or conscience. Investments can also have unforeseen side effects. During the Asian financial crisis, some large stockholders who lent their stocks to other shareholders to improve their yield and liquidity found these stocks were used to short-sell their stock prices. Social impact investing arose because many enlightened investors decided they wanted to improve society or the environment without just donating to charity. Utilising the entrepreneurial spirit of the marketplace can have a tremendous impact. The poor do not need charity - they prefer to be taught how to make money on their own and be given the chance to compete on an equal footing.
In the New York Times, Dax Devlon-Ross profiles a new social impact bond to reduce youth incarceration:
In January Roca was selected to lead the seven-year, $27 million Massachusetts Juvenile Justice Pay for Success Initiative, in partnership with five private foundations and Goldman Sachs’ Social Impact Fund... The arrangement requires Roca to realize a 40 percent reduction in incarceration days compared to a control group among a cohort of up to 1,320 young men in Chelsea, Springfield and Boston over the next seven years. If Roca hits that target, investors will receive $22 million in success payments. If it does even better — if it reduces the days by 70 percent — investors could realize close to $27 million in payments and Massachusetts would save $45 million in taxpayer dollars. However, if the project fails, then the Goldman fund would lose its $9 million loan, as would each of the junior philanthropic lenders, including Roca, who put up 15 percent of its service fees in the deal — more than $4 million.
You may also be interested in this piece from the American Enterprise Institute's Arthur Brooks discusses the psychological rewards to charitable giving in the New York Times. Fox Business reports on "alternative asset" classes for investors including impact investing. Can a new type of matchmaking service tricks and gaming entice millennial philanthropists and fund nonprofits? One Pennsylvania company is betting on it, reports Fast Company:
Along with its technology, the platform’s emphasis on impact is also in line with millennial thinking. “Younger philanthropists and tech entrepreneurs have been at the forefront of the donor movement toward impact and wanting to make sure that their gifts are really moving the needle on problems that the country and the world faces,” says Nicole Wallace, a senior editor at the Chronicle of Philanthropy. For charitable causes, the platform offers the obvious allure of free access to potential donors. But there’s more: money. As nonprofits complete different sections of their profiles, they unlock payments in a way that’s reminiscent of online gaming. Finish inputting your organization’s financial data, get paid.
You may also be interested in this TED discussion with Bill and Melinda Gates on their giving.
Here's this Institute for New Economic Thinking video with U. Mass's William Lazonick on the practice of maximizing shareholder value and his take on how it harms workers and economic prosperity:In the Democracy Journal, venture capitalist Nick Hanauer and economist Eric Beinhocker offer up a reframe of what capitalism is for and question the focus on money and efficiency:
How can it be that great wealth is created on Wall Street with products like credit-default swaps that destroyed the wealth of ordinary Americans—and yet we count this activity as growth? Likewise, fortunes are made manufacturing food products that make Americans fatter, sicker, and shorter-lived. And yet we count this as growth too—including the massive extra costs of health care. Global warming creates more frequent hurricanes, which destroy cities and lives. Yet the economic activity to repair the damage ends up getting counted as growth as well. Our economic policy discussions are nearly always focused on making us wealthier and on generating the economic growth to accomplish that. Great debates rage about whether to raise or lower interest rates, or increase or decrease regulation, and our political system has been paralyzed by a bitter ideological struggle over the budget. But there is too little debate about what it is all for. Hardly anyone ever asks: What kind of growth do we want? What does “wealth” mean? And what will it do for our lives?
In a 60 Minutes interview with Steve Kroft, Michael Lewis, author of “Flash Boys: A Wall Street Revolt”, says the stock market is rigged thanks to high-speed trading getting a jump on prices. (You may also be interested in Lewis' New York Times Magazine piece dubbed the "wolf hunters of Wall Street" looking at the Royal Bank of Canada analysts involved in tracing odd trades.) The issue led to the creation of a new stock exchange IEX, designed to foil high speed traders -- but just one problem, reports Quartz; financial institutions are refusing to play:
Perhaps no other constituency is more frustrated with the way Wall Street operates than entrepreneurs and investors in Silicon Valley. They’ve been vocal about their beliefs that current equity market structure actually hinders the long-term development of companies because they are so dominated by high-frequency trading, short-selling, and quarterly investor pressures. In the past, Silicon Valley heavyweights have even mused about starting alternative stock exchanges themselves over the next decade or so.
Demos' Wallace Turbeville also weighs in on the potential trouble of high speed trading offers in this academic paper.
Check out this cartoon from Mike Keefe:
NYT's Economix blogger Jared Bernstein asks why profitability isn't creating jobs:
Here’s what I think is happening. Profits equal revenues minus costs, and labor is a cost. Maximizing profits means minimizing costs, and when labor’s bargaining power is as weak as it’s been in recent years, that’s not hard to do. Revenues, or companies’ earnings, haven’t been particularly strong, and this too implies that squeezing labor costs has been the key factor driving profitability (this line of thinking implies that stock prices and earnings ratios are elevated right now, which they are in historical terms).
That very simple profit equation, by the way, explains a lot of Washington’s behavior. Why should the restaurant lobby fight so hard against a minimum wage increase, allegedly on behalf of low-wage workers, when their clients are restaurant owners? To minimize labor costs and thus boost profits, of course.
The Center for American Progress' Sally Steenland argues companies that profit off of low-wage, federal-subsidy dependent workers is unacceptable:
SNAP is an effective program, and conservative politicians should not slash its budget. It feeds families, improves the health of low-income children, and is a smart investment in our nation’s well-being and future. But why should I pick up the tab for low-wage employers—such as Wal-Mart, Target, McDonald’s, Taco Bell, and Pizza Hut—whose incomes are soaring? The fact is that millions of these employers’ workers make poverty-level wages. The current federal minimum wage of $7.25 comes to only $15,080 per year for full-time workers, which falls $4,000 below the federal poverty line for a family of three. Compare those numbers to Wal-Mart’s profits of $17 billion last year.
Also in the New York Times: this report from Tim Mullaney showing that wages at the bottom of the economic scale are improving, and this Great Divide blog post by British pay advocate Deborah Hargreaves discussing stagnating workforce wages and rising executive pay. Should the childless be taxed more to help out parents? Check out what this NYT's debate section has to say on tax policy and the middle class.
We have a March federal jobs report with U.S. businesses nearing pre-recession levels for hiring, reports the AP. Bloomberg offers a "quick take" on what the numbers mean. The Wall Street Journal's Josh Zumbrun notes that race matters in the U.S. labor market, check out this chart:
In the New Yorker, John Cassidy offered up these thoughts on the report's significant variation between racial groups:
Among white men aged twenty and over, the unemployment rate is now 5.3 per cent. For African-American men over twenty, it is 12.1 per cent. The gap between white and black females is also very large. According to the employment report, 5.3 per cent of white women aged twenty and over are out of work—the same as the rate for white men—but eleven per cent of black women in the same age group are jobless. Hispanics also have substantially higher rates of unemployment than whites, but the differences aren’t as large. Among Hispanic men aged twenty and over, the jobless rate in March was 6.9 per cent. Among Hispanic women aged twenty and over, the rate was 8.4 per cent... Many of these differences are longstanding, and that may be why they don’t receive much attention. But they shouldn’t be forgotten, especially when we are thinking about inequality. Periods of high unemployment are a scourge for everybody, but minority groups and the less educated are hit particularly hard. And, even when the economy recovers, they tend to lag behind.
The Atlantic's Ta-Nehisi Coates and New York Magazine’s Jonathan Chait dust it up in series of exchanges over poverty and black culture, causing the New York Times' Ross Dohut to jump into the fray on what he calls "the culture of poverty":
[W]e don’t have a black culture of poverty; we have an American culture of poverty. We don’t have an African-American social crisis; we have an American social crisis. We aren’t dealing with “other people’s pathologies” (the title of Coates’s post) in the sense of “other people” who exist across a color line from “us.” We’re dealing with pathologies that follow (and draw) the lines of class, but implicate every race, every color, every region and community and creed.