In Case You Missed It: Investing in Social and Financial Returns

Must Reads: In Politico Magazine, Brookings' William Galston looks at the erosion of the American Dream and the lack of real vision over how to address it. In the New York Times, David Brooks looks at what he call the "American Precariat," which he says is a "the growing class of people living with short-term and part-time work with precarious living standards and “without a narrative of occupational development.” In Washington Monthly, Timothy Noah looks at how the erosion of geographic mobility contributes to joblessness and inequality. Also, this New York Times piece from Shaila Dewan looks at whether a credit card can help the poor get ahead.

Investing in Social and Financial Returns

In this thought provoking post, corporate attorney Bruce Campbell offers up thoughts on how investors, particularly impact investors, should be thinking about tackling wealth inequality:

Can we really expect governments, like the deadlocked one we have here in the U.S., to lead us into a different way of thinking about our relationship to money and how profits should be shared between capital and those that produce the world’s goods and services? Of course, this leads us to the question of how to determine what is the appropriate return on a particular investment. I don’t have the full answer, but it seems we need to be willing to think less – or perhaps not all – about how much money could be made if the same money were invested somewhere else. It becomes critical, I think, to consider how employees of the company are compensated relative to investor gain. And another possible factor is how much of a return a particular investor needs based on the investor’s financial circumstances. In the public company context, structural change will be more difficult as it will require large groups of diverse shareholders to assert pressure on boards and management teams. In private equity, however, we could start to experiment immediately with new investment and profit sharing models.

Pacific Community Ventures' Beth Sirull says this may be the year impact investing "ceases to be a buzzword and becomes a real option for financial firms, pension funds, and endowed institutions":

Impact investing is not meant to eclipse traditional grants; both are necessary. The point is to use impact investing dollars where appropriate and to free up more grant dollars for where grants are truly required. As Amy Klement of Omidyar Network says, "Problem first. Tool second. You really need to understand the problem and the need before you decide the best way to address it (grant, equity, debt, etc.)." ...Today's biggest challenges are helping the demand side tap into a growing supply of capital and building the field itself. Foundations have a long history of developing and implementing innovations to address social problems. Building the field of impact investing should be added to that list.

This blog post from attorneys' Susan H. Mac Cormac and Jenna Feistritzer takes a look at new corporate forms, such as B Corps, and what options they hold for investors. In the Harvard Business Review, Denise Lee Yohn argues: "Great brands are ushering in a new age by aligning their social efforts with their brand strategies and business operations. That way, they don’t need to take with one hand and give back with the other." We also have blog posts from Tony Proscio over at Duke's philanthropy blog, Richard Evans of EmcArts and Lucy Bernholz discussing Heron's year in review post by Clara Miller. Be sure to check out Heron's Spreecast webinar with Eric Henderson, Annie Donovan, and Jake Porway continuing our exploration of the use of data for investing to track social and financial performance of enterprises regardless of tax status. Here's a highlight:

You might be interested in this interview with Father Robert Sirico of Acton Institute in Forbes on his free market approach to poverty and when he thinks giving hurts.

Inequality's Social Disorder

Here is another cartoon, this time from Swiss cartoonist Chappatte:

What the Davos, Oxfam and other reports say was foreshadowed in a 2005 report by Ajay Kapur, a Citigroup global strategist, about who would prosper in the future and who would not. Plutonomy is the global future, Citigroup told investors. A plutonomy exists when the wealthy own and consume so much of a society that they render everyone else irrelevant both politically and economically... Kapur’s perceptive observations nine years ago included this about capital versus labor:

Despite being in great shape, we think that global capitalists are going to be getting an even greater share of the wealth pie over the next few years, as capitalists benefit disproportionately from globalization and the productivity boom, at the relative expense of labor.

That is sure to cause friction. Jennifer Blanke, the World Economic Forum's chief economist, warned that "disgruntlement can lead to the dissolution of the fabric of society, especially if young people feel they don't have a future. This is something that affects everybody."

The insecurity about the rising rhetoric against the one percent seems to be reflected in some controversial comments trending from wealthy investors Tom Perkins on the Kristallnacht and Sam Zell on envy and work ethic. In response, Paul Krugman writes tersely what economic inequality and work means in the 21st Century:

It’s all very well to talk in the abstract about the dignity of work, but to suggest that workers can have equal dignity despite huge inequality in pay is just silly. In 2012, the top 40 hedge fund managers and traders were paid a combined $16.7 billion, equivalent to the wages of 400,000 ordinary workers. Given that kind of disparity, can anyone really believe in the equal dignity of work? In fact, the people who seem least inclined to respect the efforts of ordinary workers are the winners of the wealth lottery. Over the past few months, we’ve been harangued by a procession of angry billionaires, furious that they’re not receiving the deference, the acknowledgment of their superiority, that they believe is their due.

The Atlantic looks at the wealth gap between the 1 percent and well the .01 percent, check out this chart:

The richer you are, the more likely your riches come from stocks, not salary. For the three groups graphed above—1 percent, 0.1 percent, and 0.01 percent—capital gains account for 22, 33 and 42 percent (respectively) of their average income. At the very tippy-top of the economy, the 400 richest tax returns analyzed by the IRS take home about 50 percent of their income from capital gains. Practically all the growth in average income at the top comes from stocks. Between 1992 and 2007, the average salary of a top-400 tax return doubled, but average capital gains haul increased 13X. Wages are for normal people. The richest get richer from their investments.

Meanwhile in the Wall Street Journal, the Daily Caller's Mickey Kaus says folks are focused on the wrong aspect of inequality:

When we think honestly about why we really hate growing inequality, I suspect it won't boil down to economics but to sentiments. No, we don't want to "punish success"—the typical Democratic disclaimer. But we do want to make sure the rich don't start feeling they're better than the rest of us—a peril dramatized, most recently, in the "Wolf of Wall Street" and its seemingly endless scenes of humiliation and rank-pulling... Social equality—"equality of respect," as economist Noah Smith puts it—is harder to measure than money inequality. But the good news is that if social equality is what we're after, there may be ways to achieve it that don't involve a doomed crusade to reverse the tides of purely economic inequality. As Reagan's quote suggests, achieving a rough social equality in the midst of vivid economic contrast has been something America's historically been good at, at least until recently.

British researchers Richard Wilkinson and Kate Pickett discuss how "greater inequality redoubles status anxiety, damaging our mental health and distorting our personalities — wherever we are on the social spectrum":

Humans instinctively know how to cooperate and create social ties, but we also know how to engage in status competition — how to be snobs and how to talk ourselves up. We use these alternative social strategies almost every day of our lives, but crucially, inequality shifts the balance between them... It is hard to avoid the conclusion that we become less nice people in more unequal societies. But we are less nice and less happy: Greater inequality redoubles status anxiety, damaging our mental health and distorting our personalities — wherever we are on the social spectrum.

What's in the Jobs' Data

Checkout this editorial cartoon on the state of the union from Jeff Koterba: 

The government released January's job statistics showing, according to their evaluation, the jobless rate remained at 6.6 percent, around where it was in December. Economix’s Annie Lowrey isn’t sure the rate as stated is useful:

[T]he unemployment rate itself has become a less and less reliable indicator. The sluggish economy has discouraged hundreds of thousands of workers from seeking a job, and the retirement of the baby boomers has shrunken the labor force, too. That means that the decline in the unemployment rate is sharper than the growing employment figures suggest it should be.

Rex Nutting in WSJ’s MarketWatch says the job survey is made up of two smaller surveys for households and businesses, which produced drastically different unemployment numbers, check out this chart:

[T]he divergence in the two trends reminds us that even the best data aren’t 100% accurate or reliable. Markets want to react instantly to each piece of new data, but sometimes the truth is revealed only over time.

This interactive from the Wall Street Journal allows comparisons of the jobless rates for up to five states at a time since the beginning of 2011. You might be interested in International Business Times’ five takeaways from the report and  this article from PBS’ Paul Solman, who has come up with an interesting way of valuating data by adding in part-time workers. Over at the Economic Policy Institute, Heidi Shierholz says the December jobs numbers reveal that market remains far less than robust, take a look at this embedded interactive:

[T]here are 10.4 million job seekers and only 4.0 million job openings, meaning that there are only enough job openings for 38.5 percent of job seekers. This means that more than 60 percent of job seekers were not going to find a job in December no matter what they did. In a labor market with strong job opportunities, there would be roughly as many job openings as job seekers. We are clearly not in a strong labor market. Furthermore, the 10.4 million unemployed workers understates how many job openings will be needed when a robust jobs recovery finally begins, due to the existence of 5.7 million would-be workers who are currently not in the labor market, but who would be if job opportunities were strong.

Meanwhile in the New York times, Eduardo Porter says we may just need another "New Deal" to address the jobs question:

There are potentially great benefits to government investments in public works at a time like this. The legacy of the Works Progress Administration of the 1930s included half a million miles of highways, 100,000 bridges and as many public buildings. It includes the Dock Street Theater in Charleston, S.C., and the Timberline Lodge on the slopes of Mount Hood in Oregon. And it would not even be very expensive. With the borrowing costs of the federal government below the rate of inflation, investments would actually help reduce the nation’s debt burden. Lenders are, in effect, paying the government to borrow money. Perhaps the best argument for government investment to increase jobs and raise demand is that the alternatives seem much worse.

Porter goes on to say the "Fed's huge stimulus to encourage lending — seems dangerously similar to the wanton credit expansion that led to the crisis of a few years ago," and that the House Republican hopes to "slash government spending and let the economy run its bedraggled course would probably transform our economic emergency from a painful though temporary setback into a permanent feature called stagnation." In the Wall Street Journal, Mark Peters and David Wessel report on what is going on with the 10.4 million men of "prime working age" who are out of work (be sure to check out the smart accompanying audio and video packaged with the story). In the Boston Review, Claude Fisher also weighs in on male job insecurity. Meanwhile, RealClearPolicy's editor Robert VerBruggen discusses the role education plays in affecting opinions on whether it is okay for women to be the bread winners.

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