In this issue: prospects for a universal basic income; ending sub-minimum wages; rising suburban poverty; and investor primacy v. social capitalism.
In the World Economic Forum, the Peterson Institute's Pedro Nicolaci da Costa looks at automation and other job killing trends as well and lists many more policy options beyond UBI including a negative income tax, a government jobs guarantee, taxing the robots, and expanding the safety net. This podcast from LinkedIn takes on the universal basic income that is much beloved of the tech industry but faces skepticism from workers, some of whom went so far as to call it "anti-American."
Economist Michael Spence offered up these thoughts: "Our identity based on work-definition and our rugged individualism, might in the next two decades, take a significant hit. As our current employment rate is lower than it has been in a long time; we have to think carefully of how we will problem solve automation and what we will tolerate our most vulnerable to experience during this period."
You also might be interested in this feature by Lisa Miller in New York Magazine that looks at a Michigan town facing car-plant layoffs and what it means for policymaking:
In 1978, the American auto industry employed 1.2 million people; by 2009, that number had been reduced by half. It’s not personal, and there’s no single culprit. Competition, especially with the Japanese, toppled the Big Three’s primacy. Automation eliminated whole categories of jobs. Globalization forced consumer prices down, putting crushing pressure on automakers to continually cut costs. These forces have devastated the American industrial-labor market over the past half-century, like oceans rising and flooding the landscape. The jobs that remain are a mixed bag. Some are appealing: in management, engineering and robotics, industrial design, and even machine learning. And union workers on the line can still earn about $30 an hour. But thanks in part to the decline of unions and the ever-increasing (market-driven) corporate focus on profit margins, assembly jobs are no longer as stable or as lucrative as they once were, and the vast majority of autoworkers — 72 percent — now work in separate auto-part plants, most of them as independent contractors often doing dirty, dangerous work for significantly lower pay. So when Donald Trump tweets “JOBS! JOBS! JOBS!,” as he did in March, taking credit for Ford’s moves in Wayne and elsewhere, he is marketing a nostalgic fantasy of a time when a job at Ford meant a house, a boat, a pension, and a backyard grill.
But time doesn’t go back. The Ford of 2017 wouldn’t survive if it hired a hundred thousand Americans to work its lines or reinstated lifetime benefits for those it does employ. Its factories are already making as many cars as people want to buy (and maybe more), and a new generation of competitors like Tesla and Google promise to change the game — again — completely. So what help is possible?
Over at Salon, Mike Adams looks at the marijuana industry and whether it has potential to be a blue-collar jobs engine:
The latest market analysis from New Frontier Data shows marijuana legalization’s power to create new jobs could be a salvation’s wing for the “middle class,” the pulse of the U.S. economy, by creating more jobs (nearly a quarter of a million) within the next few years than the combined offering of the manufacturing and government sectors.
What’s more is the full job-creating potential of legalization is far from being realized.
Reports show that long before the first gram of marijuana is ever sold in a legal state, money is being made hand over fist by those members of the business community with, perhaps, little to no interest in legal weed. Contractors specializing in everything from construction to heating & air are being called upon in the beginning stages to assemble the various components of the cannabis industry. This situation alone is responsible for putting thousands of people to work — contributing new money to local economies.
In the American Prospect, Ben Spielberg discusses a new congressional proposal to raise the minimum wage and end sub-minimum wages:
That sub-minimum wages exist isn’t all that commonly known, but the one you’re most likely to have heard of is for tipped workers—people who, for example, wait your tables when you go out to eat, drive you around in taxis, cut your hair, and park your car. Businesses do not need to pay these workers the federal minimum wage of $7.25 an hour; instead, these workers are only guaranteed $2.13 an hour from their employers, a wage floor that hasn’t changed since 1991. The idea is that tips will make up the difference. In theory, employers are required to make up that difference themselves if a worker’s tips for the week don’t add up to the minimum, but this requirement is notoriously hard to enforce. Worse yet, employers sometimes confiscate tips...
The minimum wage is meant to rebalance power between workers and employers, who often pay not what workers are worth (as the standard economic model erroneously teaches us) but as little as they possibly can. It is an ethical standard that defines what workers deserve and the kind of economy we should have. Allowing businesses to pay some workers less or carving out exemptions for some businesses sends the message that paying substandard wages in a multi-trillion dollar economy is okay, that we view a business owner’s right to make profits as more important than a worker’s right to earn a decent living.
In the New Republic, we have a photo essay that offers a window into some of the struggles going on in the Appalachian region:
A “forgotten land,” Saturday Review declared in 1968. If we wished to believe in the American dream, we had to view the poverty and despair of Appalachia as somehow separate from our national aspirations: an American nightmare of its own making. The region and its people remain poor for a simple reason: They were shaped by a legacy of extraction and exploitation. As Appalachia has been systematically stripped of its coal and timber and other resources—the wealth of an entire region converted into energy and capital for industrial America—the poverty rate has soared to 35 percent in mining communities like McDowell County, West Virginia. Many residents lack access to basic necessities like health care and transportation, let alone broadband internet. If some turn to an easy and self-destructive alternative, be it conservative politics or opioid painkillers, it isn’t because they lack the intelligence or strength of character to improve their own lot. It’s because false promises and cheap drugs are the only things the rest of America exports to Appalachia in plentiful supply.
In the Atlantic, Annie Lowery looks at why Maine's welfare policies reflect the sentiments about the deserving and undeserving poor:
Kane is one of tens of thousands of Mainers affected by sweeping changes made to the state’s anti-poverty programs by the state’s Republican governor, Paul LePage. His administration has tightened eligibility for Medicaid, food stamps, and welfare, and hopes to do yet more: adding work requirements to Medicaid, removing young adults from public health coverage, and eliminating the state’s general-assistance funds for the indigent. The broad aim of these reforms is to create a safety net that provides help for the disabled, elderly, and children, but prompts able-bodied adults to help themselves. “It is this idea that all welfare should be workfare,” said Michael Hillard, an economist at the University of Southern Maine.
In implementing these changes, Maine has become a bellwether. A number of other states are copying the state’s reforms or devising similar ones of their own, with numerous states mulling attaching work, volunteering, and job-training requirements to safety-net programs...The point is to separate out the “deserving” from the “undeserving” poor, a concept that has its roots in Tudor England, when local parishes were instructed to punish and even execute the idle. Where the federal government is now going, Maine has led the way.
Over at Quartz, we have a new look look at rising poverty in the suburbs that is challenging the safety net and assumptions about who is poor and where they live:
Recent research by the political scientist Scott Allard shows that, in absolute numbers, this no longer holds true. The University of Washington professor estimates that there are 17 million people living in poverty in the suburbs of the US’s big cities—4 million more than in cities themselves...Allard believes that the challenge of addressing suburban poverty is exacerbated by the fact that the scope of the problem is so often portrayed—by Trump and others—as being limited to the urban poor. He found that, in 2010, there were about eight times as many articles in major US newspapers containing the words “urban” and “poverty” than “suburban” and “poverty,” and that this media coverage is disproportionately focused on black Americans. He cites a wide range of research that suggests support for social-assistance programs declines when Americans believe that poverty is mostly found in urban, minority settings.
Over Vox, Dylan Matthews discusses two new reports and says proposals to replace current social safety nets with universal basic income would have many worrisome trade-offs:
Both the OECD and AEI reports suggest that an immediate cashing out of big social programs to fund a UBI would be kind of a mess. It’d create massive disruption with big winners and losers, and given the scale of change required, it probably isn’t the most effective way of alleviating poverty you could imagine. Indeed, many of the models they consider would lead to poverty going up, not down.
But it’s important not to interpret these results as implying that any attempt to offer cash without work or other requirements is bound to be ineffective or require gutting necessary programs. It just suggests that there are better avenues for advocates of cash to explore than a large-scale UBI reform.
For example, both these papers assume that the basic income would be paid out to everybody: homeless people with no earnings, plus Bill Gates, plus everyone in between. That might make sense if you fund the program with bigger taxes on high earners, so as to claw back the benefits, but none of the plans modeled rely on that as their primary financing mechanism.
Playtime is crucial for children's mental and social development but is increasingly scarce if the child is poor, writes Livia Gershon in TalkPoverty. In the Washington Post, we have a story on how real estate developer Jared Kushner was able to take advantage of subsidies meant for low-income communities to build a luxury tower. You also might also be interested in this ACLU lawsuit against a county in South Carolina that may be engaging in a type of debtor's prison:
Under the Trial in Absentia Policy, the complaint says, Lexington County courts order the arrest and incarceration of people unable to pay fines and fees in connection with trials and sentencing proceedings that are held in their absence. Even if the individual contacts the court to request another hearing date and to explain why they cannot appear at the scheduled hearing, courts will convict them in absentia, and sentence them to jail pending payment of fines and fees. Before notifying these individuals of their sentences, courts issue bench warrants ordering law enforcement to arrest and jail the individual, again unless the full amount owed is paid.
In the New Yorker, Sheelah Kolhatkar looks at whether social capitalism is losing ground based on events following the purchase of ride sharing company Juno:
Juno’s founders had adopted the language of a doing-well-by-doing-good philosophy that has spread in the business world in recent years. Some call it conscious or socially responsible capitalism, but the basic idea is that any business has multiple stakeholders—not just owners but employees, consumers, and also the community—and each of their interests should be taken into account. The idea arose in response to an even more powerful principle: the primacy of investor rights. In a new book, “The Golden Passport,” the journalist Duff McDonald lays much of the blame for that thinking at the feet of a Harvard Business School professor named Michael Jensen, whose “agency theory,” developed in the nineteen-eighties, sought to align the interests of managers with those of the company’s investors. (Gordon Gekko spoke eloquently on its behalf in the movie “Wall Street.”) This alignment led to huge stock-option pay packages for top corporate managers and, McDonald argues, provided an intellectual framework that justifies doing anything (within the law) to increase a company’s stock price, whether that be firing workers or polluting the environment.
In this philosophical tension, the investors-above-all doctrine seems to have triumphed over the more inclusive approach. “I think what’s recent is maybe being so completely blatant about it,” Peter Cappelli, a professor and labor economist at Wharton, said.
In the Wall Street Journal, Warren Stephens laments that young people like social entrepreneurship and free enterprise but are skeptical of capitalism:
This disconnect is at best confusing; at worst it’s troubling. Without access to capital, budding entrepreneurs see their ideas wither; without capital, there is nothing to fuel innovation. Capital is the lifeblood of our economy. It must flow freely to ensure the economy’s vitality and health.
I recognize that young people have come of age during some troubled economic times. I suspect this contributes to their discontent and their misguided belief that government interference is the answer. In truth, government meddling is a large part of the problem...I hope for a day when young people no longer reject that concept but revel in it. As a country, we need to reclaim our pride in capitalism and remember that the markets have the greatest power when they are free, and that free markets empower one and all, not just the few and the select.
Bloomberg reports that Apple CEO Tim Cook says any corporate tax reform should include a levy on any income no matter where it is held: "It should be a required tax," Cook said in an exclusive interview with Bloomberg Television. "And so you’re not asking the people that have had earnings from their international subsidiaries if they’d like to bring back money. You’re saying that, you must pay the government X percent now or over some period of time."