In yet another signal that poverty will play a major role in the 2016 election, potential presidential candidate Jeb Bush gave a speech in Detroit on the plight of low income Americans, arguing "the recovery has been everywhere but in the family paychecks," reports Jonathan Martin in the New York Times. In Slate, John Dickerson looks at what Republicans might to do to earn more credibility on the issue of poverty. In the Fiscal Times, Mark Thoma looks at the political discussion swirling around social safety nets and why some conservatives may have skewed view of the poor:
There are always exceptions, but most of the poor are hard-working families who do their very best, often working multiple jobs, but have trouble making ends meet. As Washington University professor Mark Rank explains, “the notion that poverty affects a relatively small number of Americans, that the poor are impoverished for years at a time, that most of those in poverty live in inner cities, that too much welfare assistance is provided and that poverty is ultimately a result of not working hard enough. Business cycles, and the unemployment, homelessness, lack of adequate food, and so on that come with them can all be mostly eliminated under socialism, but in a capitalist system a worker who does everything right to provide for his or her family – show up every day, works hard, etc. – can suddenly find themselves out of work and struggling to make ends meet. Business cycles are an inherent feature of a capitalist system, and globalization and technological change add to the insecurity that workers feel.
The Vera Institute of Justice has a new report out looking at the cost of the prison system for taxpayers by state. In the New York Times, Timothy Williams says the report shows that the U.S. jails have become "vast warehouses made up primarily of people too poor to post bail or too ill with mental health or drug problems to adequately care for themselves." Meanwhile in the Guardian, Missouri's Nicole Bolden recounts her trip to jail for unpaid traffic tickets and an unregistered car, arguing that despite laws against debtors' prisons, people who can't pay still go to jail:
People are so desensitized to what it means to lock a human being like me in a cage that they now think it’s OK to do it over money. They don’t care that locking people up doesn’t help them earn any money. It just costs people like my momma money they don’t have. When the people being jailed are poor or from communities of color, the court is even less likely to give it a second thought... If you go to court and say you can’t pay, they’ll hold you and lock you up. If I’m sitting in jail, I definitely can’t pay you – but they don’t care. It’s all about the money – but they’re spending money and I’m losing money. Everybody loses. We all lose.
A new Stanford study finds that men are less willing to give on poverty issues, but when it is explained that poverty hurts everyone, their charitable giving increases. Can gentrification be good for neighborhoods with concentrated poverty? Over at Brookings, Jonathan Grabinsky and Stuart Butler say despite fears, gentrifying could be helpful.
Also in the Guardian, readers were asked where they think they fall in the middle class spectrum, getting 360 respondents. "The general theme: downward economic mobility is real, and it’s a constant risk":
It seems that the only thing keeping many Americans out of poverty is a weekly paycheck. Rather than opting to describe themselves as poor, an increasing number of Americans describe themselves as lower middle class. According to Pew Research Center, that number has reached 40% in 2014. Lower middle class, or working class, is also a label that over 100 of our readers chose to describe themselves. Dependent on their weekly paychecks, those who define themselves as working class struggle to pay off loans, save for retirement, buy homes or go on vacation. Some of our readers don’t go out. Others wear the same clothes over and over. Doctors’ appointments get postponed and cancelled until the situation becomes critical. The extra expenses of co-pays, prescriptions or car repairs are too much of a strain on their budgets...
The safety net of savings, of a rainy-day fund, of a chance at retirement is what separates those who view themselves as lower middle class and those who believe they are solidly in the middle class.
At RealClearMarkets, Brookings' Elizabeth Sawhill also looks at the potential second-earner solution and whether it would boost the income earnings of the middle class.
The Obama administration is attempting to crack down on the $46 billion payday lending industry, reports Danny Vinik over at the New Republic:
[B]orrowers are rarely able to pay back their loans in two weeks. So they "roll over" the payday loan by paying just the $55 fee. Now, they don't owe the $375 principal for another two weeks, but they're hit with another $55 fee. That two-week, $375 loan with a $55 fee just effectively became a four-week, $375 loan with a $110 fee. If, after another two weeks, they still can't repay the principal, then they will roll it over again for yet another $55 fee. You can see how quickly this can spiral out of control...
So what should that regulation look like? Bourke points to Colorado as an example. Lawmakers there capped the annual interest payment at 45 percent while allowing strict origination and maintenance fees. Even more importantly, Colorado requires lenders to allow borrowers to repay the loans over at least six months, with payments over time slowly reducing the principal. These reforms have been a major success. Average APR rates in Colorado fell from 319 percent to 129 percent and borrowers spent $41.9 million less in 2012 than in 2009, before the changes. That’s a 44 percent drop in payments. At the same time, the number of loans per borrower dropped by 71 percent, from 7.8 to 2.3.
Millennials don't really want to work in sales, which they view as risky and exploitative, reports the Wall Street Journal. "Companies are rethinking their compensation strategies to appeal to young people who want more of a financial safety net, favoring a higher base pay with a lower proportion of the riskier commission pay." Bloomberg View's Megan McArdle says the shift to these jobs and others that aren't steady reflect the changing nature of work:
In some sense, the 9-to-5 salaried position is an artifact of the industrial era. Such jobs existed before then, of course, in government offices and large institutions. But most jobs were much less defined. Armies of people worked for themselves, as farmers or traders or craftsmen, working only when there was demand and making only whatever profit they could eke out from their sales. Others were domestic servants, who had a steady salary but no steady hours...Before we get too sad about this change, it's worth remembering what we hated about the old system. There's a lot of nostalgia about those lifetime jobs with generous benefits, but when we had them, writers spent a lot of time bemoaning the soul-deadening nature of all that rote work, each person just a tiny cog in a huge machine. Task work carries more risk, but it also offers more autonomy and a direct connection between the work you do and the customers you're helping.
In yet another sign that U.S. unions are on the ropes, Quartz reports on the massive decline in strikes and lockouts:
In 2014, there were only 11 strikes or lockouts in the US involving more than 1,000 workers. That was down from 15 the previous year, and tied for the second-lowest total on record, according to just-released numbers from the US Bureau of Labor Statistics...
“It’s all wrapped up in long-term trends in unionization,” says Jake Rosenfeld, a University of Washington sociology professor and author of What Unions No Longer Do. “Strikes are just incredibly risky these days.”
This wasn’t always the case. In the early 1950s, the US experienced hundreds of large-scale labor fights each year. The peak was 1952, when there were 470 of them, involving nearly 2.8 million workers in total.
Queens-based Papa John's owners have been ordered to pay $800,000 in wage theft suit, alleging the pizza chain "underreported hours worked by employees over the past six years, rounded employee hours down to the nearest hour, and did not pay overtime," reports RHRealityCheck. Workers' Rights attorney Andy Schmidt in Maine's Bangor Daily News argues that boosting the minimum wage helps everyone:
[C]lassic economics wrongly perceives workers as instantly replaceable automatons, whose individual productivity is not influenced by their wages. This theory fails the reality test...studies have shown that workers are more productive when their wages rise because they feel appreciated, but also because they have something to lose if they don’t work hard.
Good news, Walter Frick in the Harvard Business Review says technology does not always beat labor, arguing that this is mostly another skills gap issue:
[W]hen the power loom was invented, in 1785, it shifted weaving from farms to factories, instantly increasing productivity yet leaving workers’ wages flat for decades, as Marx noted. But he failed to predict what happened next: From 1860 to 1890, weavers’ pay more than doubled. That’s because the value of any technology is unlocked incrementally, Bessen argues, perhaps over a generation, through on-the-job learning...
So what’s the role of government in such a scenario? After all, if the return on skilled labor is really so high, wouldn’t companies have ample incentive to invest in training themselves? The answer is not necessarily, according to Joseph Stiglitz and Bruce Greenwald in Creating a Learning Society. In this sweeping work of macroeconomic theory, the authors contend that firms in a competitive market invest in only those innovations that allow them to capture the most benefits. They skimp on green tech because they do not bear the cost of pollution, and they overspend on labor-saving tech because they don’t bear the cost of unemployment. The fiercer the competition, the worse these market failures.
In the Harvard Business Review, David Creelman and John Boudreau discuss why the work of the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) matter to investors looking for information on how companies treat people:
“SASB has now issued standards for 45 industries in six sectors The specific issues we examine for human capital include labor relations; fair labor practices; employee health, safety and wellbeing; diversity and inclusion; compensation and benefits; and recruitment, development and retention. We have found human capital issues are likely to be material in every sector... For CEOs and leadership teams that spend substantial time and resources on talent, capability, leadership, and culture, the requirement that organizations share more information offers an opportunity to better tell their story to investors. Those with a sound and logical connection between their human capital decisions and their strategic mission will benefit as investors better understand the whole picture of value creation.
For CFOs, it is an invitation and a potential obligation to get a better handle on human capital measurement and collaborate with the CHRO and the human capital data and analytics team, to get more analytical and quantitative about human capital, beyond simply measuring its financial cost.
In a recent speech, Heron’s James Joseph says community foundations should use five forms of capital, not just grants, in their second century as institutions: http://youtu.be/yUaPYXAlhdQ Inside Philanthropy looks at JPMorgan Chase as an urban funder:
Chase launched a $250 million, five-year New Skills at Work initiative to help close the skills gap. And Chase has taken some big risks in funding long-term efforts at economic expansion and opportunity in communities like Detroit, where the firm has made a $100 million dollar commitment.Alas, the bank also has faced allegations of engaging in predatory lending that targets minority communities... Seen one way, the bank has a debt to repay to minority communities that it (along with other lenders) exploited and weakened during the go-go years of the housing boom.
In the Wall Street Journal, energy consultant Daniel Fischel says the college endowment fossil fuel divestment movement may be "feel good", but could lead to less money for core eductaion activities such as scholarships, research and other services:
What we found is that the optimal portfolio, which included energy stocks, generated average returns 0.7 percentage points greater than portfolios that excluded them on an absolute basis. In other words, the “divested” portfolio lost roughly 70 basis points compared with the optimal one—70 basis points for each and every year over the 50-year period in which the portfolios were active. A lower return is only one cost that institutions considering divestment should evaluate. Another is the costs associated with complying with such a policy, including the fees required to actively manage the portfolio to ensure it remains fossil-fuel free. The question of which companies have unacceptable “fossil fuel exposure” is not simple in most cases. The question of which companies have unacceptable “fossil fuel exposure” is not simple in most cases. For instance, what about an oil-and-gas company that also performs substantial “green” energy research? What about an automobile manufacturer? What about a bank that holds the debt of an oil-and-gas firm? What about index funds? Precisely because these questions are hard, management fees charged by mutual funds with an environmental focus appear to be, on average, greater than those funds without such a focus.
In our field notes, leaders of the American Sustainable Business Council urge conscious businesses owners to sit at the table with policymakers or warn they’ll end up “on the menu.” According to this Guardian report, Unilever may become the world's largest B Corp:
“Having a larger group of globally influential companies join gives more credibility and draws other companies in. Some technology companies [that are] interested may not be so large in revenues but have huge reach.”
You might also be interested in new asset manager WealthFront, which target Millennials and may indicate the rise of robo-financial advisors:
The Pew Study "Millennials in Adulthood" confirms the Wealthfront thesis finding that "... just 19% of Millennials say most people can be trusted, compared with 31% of Gen Xers, 37% of Silents and 40% of Boomers." If you can't trust people in general - which was the question - what hope is there for the conniving financial advisor? The technology lure of Wealthfront is unsurprising, but what is remarkable is that Millennials are so drawn to the core Wealthfront investment thesis, which argues against individual stock picking, and balances a personalized mix of actively managed ETFs instead. As they put it, "...our service is premised on the consistent and overwhelming research that proves index funds significantly outperform an actively managed portfolio."