Must Reads: Melinda Gates and her philanthropy work are featured in a recent issue in Harper's Bazaar. A new Center for American Progress report contends that it is time for a 21st Century social contract that promotes "an economy that works for all Americans, not just the wealthy few." In this cool set of interactive charts, the New York Times visualizes how the recession reshaped the economy. This round up of thinkers in CATO Unbound discuss whether guaranteed basic income is better than the current welfare model.
As you may recall, since Thomas Piketty's book hit the shelves late last year, a debate has raged about whether inequality has anything or everything to do with the shrinking fortunes of the poor and the middle class. Standard and Poor's analyst Joe Maguire in a recent report contended that rising inequality in the U.S. is a drag on the economy and dramatically warned "a rising tide lifts all boats…but a lifeboat carrying a few, surrounded by many treading water, risks capsizing":
Higher levels of income inequality increase political pressures, discouraging trade, investment, and hiring. Keynes first showed that income inequality can lead affluent households (Americans included) to increase savings and decrease consumption (1), while those with less means increase consumer borrowing to sustain consumption…until those options run out. When these imbalances can no longer be sustained, we see a boom/bust cycle such as the one that culminated in the Great Recession (2). Aside from the extreme economic swings, such income imbalances tend to dampen social mobility and produce a less-educated workforce that can't compete in a changing global economy.
Over at Quartz, Mile Kimball argues that the ire underpinning the debate on whether inequality's out of control is about how the rich made their fortunes:
An ideal version of capitalism—the version in the economic models taught in introductory economics classes around the world—would make it impossible to get rich without doing great good for society. There are certainly areas where doing great good for society is not understood and therefore not appreciated. But there are also many areas where the wrong things are rewarded because of market distortions, or where the government piles on rewards beyond those that are needed.
Meanwhile over at Salon, Andrew O'Hehir says the so-called "New Gilded Age" is a period of contraction and consumption and can't touch the first one in terms of its improvements to society:
When I say that the New Gilded Age is a fake, I mean that it’s even more of a fake than the first one was. It’s a forgery of a forgery of prosperity. Mark Twain and Charles Dudley Warner came up with the phrase in 1873 to indicate that the economic boom of America’s Industrial Age was covering up severe poverty and widespread social problems. They were right, of course: That boom was built largely on exploited low-wage laborers, especially Italian, Jewish and Polish immigrants packed into urban tenement neighborhoods... But with all that said, the Gilded Age boom actually was a boom, albeit an uneven and highly stratified one. Real wages rose by 60 percent between 1860 and 1890, even with a steady incoming tide of immigration, and by the turn of the 20th century, per-capita income in the U.S. was much higher than in any European country. Railroads, coal mining, steel production and electricity combined to drive economic growth so dramatic that the 20th century could never quite repeat it, except briefly (and deceptively, Piketty argues) in the aftermath of World War II.
Check out this video from the University of Chicago Booth of Business showing a panel of experts discussing how labor, robots, and inequality are intertwined: https://www.youtube.com/watch?feature=player_embedded&list=PLZ24EXLYsTyz... In The Week, Pascal-Emmanuel Gobry offers up four ideas aimed at conservatives to tackle inequality, including creating new incentives for long-term investment:
Clayton Christensen, widely regarded as one of the greatest innovation scholars of the past 30 years, has also noted that the more disruptive innovations — the ones that make poor people rich and rich people poor — tend to yield benefit only over the long term, while more process-oriented innovations — the ones that make rich people richer — have more short-term benefits. He has argued for shifting capital gains taxation to encourage more long-term investments. I would add a suggestion to make asset managers hold assets for longer, by, for example, only making the infamous carried interest loophole, which is a tax break for fund managers, available for managers who hold assets in a fund for 15 years at least.
In the Nation, Mike Konczal and Bryce Covert argue that tackling inequality means taking basic needs off the market entirely, pointing to the way in which Social Security is not tied to a person's private wealth building:
Public programs like universal healthcare and free education function the same way, providing social wealth directly instead of hoping to boost people’s savings enough to allow them to afford either... Bringing wealth under democratic accountability—rather than making everyone a tiny capitalist—has to be an essential part of any equality agenda. America’s biggest declines in poverty often follow from this approach (expanding Social Security and Medicare, for example). Otherwise, we’ll be left with a dystopic Lake Wobegon, where almost all of the men, women and children are below average, even as they hope to join the 1 percent.
Be sure to check out this NYT's Room for Debate on whether big data is creating more inequality. In one case, Princeton's Solon Barocas and Public Citizen's Andrew Selbst says bad data mining harms hiring.
FiveThirtyEight's Ben Cassellman says the job market is getting better by any measure you pick, check it out:
Still, there's work to do. Task Rabbit CEO Leah Busque in this Wall Street Journal interview discusses the lack of freelance worker benefits and protection and in The Week, Sarah Jaffee discusses why this matters:
There's been a lot of attention paid in the last few years to the "precariat," the growing group of workers whose existence is defined by their lack of economic security, their moving from job to job, freelance gig to freelance gig. For many of those workers, the idea of collecting unemployment benefits at all is a distant dream. Our unemployment system was constructed back in the 1930s on the premise of a stable, long-term position, not an economy full of "fractional employees," part-timers, and freelancers...Are you a driver for Uber and your rating goes down, so you lose your gig? No unemployment for you, you're an "independent contractor."
Over at Slate, Matt Yglesias sums up a lengthy debate on freedom and labor protections and says both sides surprisingly leave the concept of "full employment" off the table:
Full employment punishes asshole bosses as a class rather than seeking to bureaucratically circumscribe them with a narrow list of specific prohibited abuses. Conversely, most of the pragmatic economic arguments against labor market regulation are developed assuming a background condition of full employment. If governments are going to fail to deliver full employment over extended periods of time...then all those assumptions are thrown out of whack. Both those who yearn for microefficient labor markets and those who yearn to empower people vis-a-vis their bosses have an enormous amount to gain from a robust full employment agenda.
In this poignant story, the New York Times Jodi Kantor looks at how scheduling software creates instability and wreaks havoc on the lives of part-time workers. Meanwhile, truck crashes are up, such as the recent high-profile case involving a Wal-mart truck, in which the driver allegedly had not slept for 24 hours. This news comes at a low point for the trucking industry, which is "having trouble" finding drivers. But the Upshot's Neil Irwin calls foul, arguing that if you want drivers, it will take better pay:
[T]he idea that there is a huge shortage of truck drivers flies in the face of a jobless rate of more than 6 percent, not to mention Economics 101. The most basic of economic theories would suggest that when supply isn’t enough to meet demand, it’s because the price — in this case, truckers’ wages — is too low. Raise wages, and an ample supply of workers should follow.
But corporate America has become so parsimonious about paying workers outside the executive suite that meaningful wage increases may seem an unacceptable affront. In this environment, it may be easier to say “There is a shortage of skilled workers” than “We aren’t paying our workers enough,” even if, in economic terms, those come down to the same thing.
In Stanford Social Innovation Review, Gradian Health's Mike Miesen discusses a potential new line of business for foundations, wholly owning social enterprises:
In legal parlance, Gradian is known as both a “single member limited liability corporation” (SMLLC) and as a “disregarded entity” of the family foundation; functionally, this means that the foundation alone owns the company, and that Gradian’s financial statements roll up to the foundation’s 990 for tax reporting. While SMLLCs are common in the business world, to our knowledge, they are little used in the social sector. Under the right conditions, however, the FOSE model can be an attractive option for both investors and investees, provided the investor is more committed to achieving a social, not just financial, return on investment... Owning a social enterprise (or creating a disregarded entity) allows a foundation to efficiently effect change using market mechanisms to sell a good or service, while using philanthropic resources to address market failures and advocate a cause.
If corruption is a problem for development aid, it is double the problem for the impact investor, writes MaxImpact editor Marta Maretich:
Corruption strikes simultaneously at both of impact’s stated aims: profit and benefit. It cripples the growth of business and drains investor returns while it chokes off the possibility of creating social and environmental benefit. Sustainable, socially beneficial businesses are unlikely to thrive in corrupt contexts. Impact investors who put money into them run risks they may not initially see or understand, including reputational risks. Impact measurement and reporting, too, can be tainted by corruption, making it impossible to assess the real effects of an investment.
Over at Inside Philanthropy, David Callahan says a recent meeting of Aspen Philanthropy Group (of which Heron is a member), did not include enough of the newer thinkers he thinks are at the vanguard for social innovation. Over at Pioneers Post, Richard Spencer, head of sustainable business for England's institute of chartered accountants, discusses working with members of the Occupy Movement to co-create how the auditing system can restore the public trust post financial crisis:
Implicit in this journey is a question about what does it mean to be a profession – what is that highest aspiration the profession above and beyond what the law requires that can be aspired to? Also it invites the question of what it means to be a professional. The answer to this must, if it is to meaningful, incorporate a notion of acting in the interests of the public; it must be about a social purpose. We expect our doctors, nurses and teachers to be driven by a sense of vocation and serving the public; of more than just financial return. Should we therefore ask the same of other professions? Why should we not expect the same of our auditors? I think if we can find a positive answer to this then there is an important role the professions can play today; if not then I wonder if they don’t start to appear something of a relic of a bygone age.