In this issue: wage stagnation and immigration; capitalism through a new lens; and why nonprofits should buy for-profits for social businesses.
One of the economic woes facing Americans is a lack of mobility, not just economic mobility, but the unwillingness and ability to relocate to pursue available opportunities. In the Wall Street Journal, Janet Adamy and Paul Overberg look at contributing factors:
What is troubling about this rural town and many places like it is that while lots of struggling residents see leaving as the best way to improve their lives, a surprising share remain stuck in place. For a number of reasons—both economic and cultural—they no longer believe they can leave...This drop in mobility is not only keeping rural residents from climbing a ladder to better livelihoods, it is choking off the labor supply for employers in areas where jobs are plentiful. This limits the economic growth that naturally occurs when people and capital cluster together, says David Schleicher, a professor at Yale Law School who has studied the issue. It has also contributed to the nation’s deepening political divide.
The WSJ story noted that in addition to housing costs in larger metro areas, cultural barriers such as church attendance, sexual mores and a feeling of connection to community made it hard for some folks trying entertain a move. They also note that government social safety nets provided additional disincentives for moving.
This week Republicans released a new immigration proposal they say is intended to raise wages for low-income Americans. The bill would reduce the number of greencards and place emphasis on monetary investments in the United States as well as educational achievement including the ability to speak English. Over at the Cato Institute, Alex Nowasteh says the talking points for the bill are highly misleading:
The last time Congress cut legal migration in order to raise the wages of lower-skilled Americans, wage growth actually slowed down. Michael Clemens, Ethan Lewis, and Hannah Postel looked at Congress’ 1964 cancellation of the Bracero program for low-skilled Mexican farm workers discovered that farm worker wages rose more slowly after the migration was cut because farmers turned toward mechanization and planted crops that required less labor...Immigration’s long-run relative wage impact on native-born American workers is close to zero.
The Huffington Post's Daniel Maran says the new act will do nothing to mitigate inequality as the Trump administration suggests:
There is abundant evidence that in the past 30 to 40 years, incomes at the very top have skyrocketed, even as pay growth has slowed to a crawl, or stopped altogether, for just about everyone else...But the main causes are not immigration. The growing gap is driven by the increasing share of income that goes toward owners of capital, and by the explosion in executive pay even as worker pay stays flat. From 1978 to 2016, average, non-managerial worker pay at firms with 1,000 employees or more rose just 11.2 percent, compared with 937 percent growth in CEO pay, according to a July study by the progressive Economic Policy Institute. In 2016, CEOs of those firms made 271 times what their non-managerial workers made, on average, EPI found. The rise in lucrative pay packages can be attributed to, among other things, financial deregulation policies that encourage companies to engage in practices like share buybacks that disproportionately benefit their executives and top shareholders.
CFR's Edward Alden blasted the new immigrations bill as another version of the new administration's economic policy woes:
The RAISE Act is just the latest version of Trump’s penchant for simple solutions to hard problems. “Repeal and replace” on Obamacare would have left millions of Americans with less health care coverage. His trade proposals for restricting imports would harm many American workers, and sidestep the real challenge of making America more competitive internationally and ensuring that trade rules are enforced fairly. His slash-and-burn budget would cut retraining programs and other initiatives that help Americans gain a leg up in a fast-changing economy.
Trump’s campaign identified real problems that have been too long overlooked. Now if only he could embrace some real solutions.
You might be interested in this Wall Street Journal story on how the formerly incarcerated are making inroads in the job market given tight employment. Meanwhile, New America's Anne-Marie Slaughter looks at potential uses for artificial intelligence in the personal care industry and what it might mean for workers:
The robot’s artificial intelligence can keep track of all that information, just as it can keep track of streams of health data and the latest games and exercises for geriatric wellbeing. That should free up a human caregiver to provide real companionship, the connection to other human beings that is such a large part of what it means to be human in the first place. We connect to others, if we are psychologically healthy, not simply to have our lives reflected back to us, but to learn about theirlives, take joy in their successes, and grieve with their losses. Those human caregivers of the future who can give us our best day will benefit from education in psychology, neuroscience, and geriatrics. Equally important, however, will be their capacity to tap into their own humanity and share at least a little of it with us.
The more intertwined human and robotic care becomes, the better, and better-paid, care jobs will be—from education to health and life care to advising, mentoring, and coaching of all kinds...Defining care as “investing in others” makes the contours of the future care economy both broader and more appealing to men, which will be good both for men and for the quality and pay of the jobs in question.
In the Hill, Georgetown's John Jacobs says do not mistake the Dow's record highs as a sign of widespread prosperity:
The Dow is a handful of public companies; it is not all public companies and public companies are only a fraction of the overall U.S. economy. There are large parts of America that are still unemployed or under-employed, a raging stock market means nothing to them on a daily basis. In fact, it still means to many people in that situation that "I am being left behind." I think that message came through loud and clear in the last election.
In this 2015 TEDx Talk, European journalist Kajsa Ekis Ekman discusses what we know and don't know about capitalism:
"Now capitalism isn't good or bad in of itself. It doesn't have a moral. But the point is it doesn't have a plan, it doesn's have a responsibility...for the climate, the economy, the country or the world."
In this very interesting Vox interview, Eric Weinstein, the managing director for Peter Thiel's investment firm, contends that technology has so transformed society that capitalism cannot survive without some form of socialism:
I believe capitalism will need to be much more unfettered. Certain fields will need to undergo a process of radical deregulation in order to give the minority of minds that are capable of our greatest feats of creation the leeway to experiment and to play, as they deliver us the wonders on which our future economy will be based.
By the same token, we have to understand that our population is not a collection of workers to be input to the machine of capitalism, but rather a nation of souls whose dignity, well-being, and health must be considered on independent, humanitarian terms. Now, that does not mean we can afford to indulge in national welfare of a kind that would rob our most vulnerable of a dignity that has previously been supplied by the workplace.
People will have to be engaged in socially positive activities, but not all of those socially positive activities may be able to command a sufficient share of the market to consume at an appropriate level, and so I think we're going to have to augment the hypercapitalism which will provide the growth of the hypersocialism based on both dignity and need.
In a similar sentiment over at the Guardian, Martin Kirk says that capitalism's excesses belong in the dustbin of history:
[T]he binaries of capitalism v socialism, or capitalism v communism, are hollow and old-fashioned. Far more likely is that people are realizing – either consciously or at some gut level – that there’s something fundamentally flawed about a system that has as its single goal turning natural and human resources into capital, and do so more and more each year, regardless of the costs to human well-being and to the environment...
The single-minded focus on the growth of the capital supply is why, for example, corporations have a fiduciary duty to grow their stock value before all other concerns. This prevents even well-meaning chief executives from voluntarily doing anything good, such as increasing wages or reducing pollution, when doing so might compromise the bottom line – A\as the American Airlines CEO, Doug Parker, found earlier this year when he tried to raise workers’ salaries and was immediately slapped down by Wall Street. Even in a highly profitable industry – which the airlines are, despite many warnings – it is seen as unacceptable to spread the wealth. Profits are seen as the natural property of the investor class. This is why JP Morgan criticized the pay rise as a “wealth transfer of nearly $1bn” to workers.
You may also be interested in this interview with Al Gore on how the climate fight is the canary in the coal mine for wealthy political donors' subversion of reasonable policy. “In order to fix the climate crisis, we need to first fix the government crisis,” he says. “Big money has so much influence now.” And he says a phrase that is as dramatic as it is multilayered: “Our democracy has been hacked.”
In other news, Nobel Laureate economist Joseph Stiglitz argues tax cuts for the rich solve nothing because the challenges of meeting a revenue-neutral agreement will leave someone the biggest loser and many of those proposed losers have major clout:
Although America’s right-wing plutocrats may disagree about how to rank major problems in the United States — for example, inequality, slow growth, low productivity, opioid addiction, poor schools, and deteriorating infrastructure — the solution is always the same: lower taxes and deregulation, to “incentivize” investors and “free up” the economy...Most economists would agree that America’s current tax structure is inefficient and unfair. Some firms pay a far higher rate than others. Perhaps innovative firms that create jobs should be rewarded, in part, by a tax break. But the only rhyme or reason to who gets tax breaks appears to be the effectiveness of supplicants’ lobbyists...The sordidness of all of this will be sugarcoated with the hoary claim that lower tax rates will spur growth. There is simply no theoretical or empirical basis for this, especially in countries like the US, where most investment (at the margin) is financed by debt and interest is tax deductible. The marginal return and marginal cost are reduced proportionately, leaving investment largely unchanged. In fact, a closer look, taking into account accelerated depreciation and the effects on risk sharing, shows that lowering the tax rate likely reduces investment.
In Standford Social Innovation Review, Lars Boggild and Andrew Greer discusses the acquisition of for-profits by nonprofits and charities that are considering starting social businesses:
Given recent trends in demography, business turnover, and the movement for more social enterprise, the time is ripe to consider this option. This sort of acquisition can open up much-needed opportunities for small businesses across North America to become enduring assets for our communities, while strengthening the charitable sector.
It’s often difficult for smaller family business to find potential buyers when younger generations are not willing to take over, especially if the business is located outside a major urban center...[R]ather than go through the process of building a new business with the intent to generate profits to support a social mission, why not consider a pathway that leapfrogs the startup stages? By acquiring established, operating businesses from owners looking for succession, nonprofits across North America can acquire cash-flow-positive businesses with established processes and pre-existing customers.
Over at Impact Alpha, the GIIN's Amit Bouri asks whether the impact investing tent is big enough:
There are continuing calls for tighter definitions of what qualifies as an impact investment, and greater clarity on how the various segments of the impact investing community — from big pensions to small, early-stage funds — fit together. These are important issues, springing from our community’s shared desire to safeguard the integrity of impact investing so it can reach its great potential.
While these discussions are very important, I believe they are best held with an eye toward building an even bigger tent than the one we have today...
It is important to recognize, though, that every investment has an impact. Some newcomers entering the market may be bold in their pursuit of impact, and others may be more incremental and cautious. That is only natural. What we encourage is a heightened consciousness about impact adopted throughout the global population of investors, driving greater flows of capital to high-impact enterprises. For those who choose to start more incrementally, we wish to embed the mindset that this is the first step in their journey, not the final destination.
Folks are still looking at the Obama-era fiduciary rule to lower costs and raise trust for small investors getting financial advice but some critics say not the rule, while not perfect, should not be put in danger. Bloomberg's Ben Steverman says the real issue is that the financial advisory system is not built to care about you so much as the income you could generate:
You’d be forgiven for assuming your relationship with a financial adviser carries the same sort of solemnity as, say, attorney and client or doctor and patient. An attorney is bound to zealously represent you; a doctor pledges to do no harm. So why aren’t financial advisers subject to the same duty? Well, the economics of the industry—fees, commissions, quotas—can end up standing in the way.
The Fiduciary Rule, finalized under Obama and originally set to take effect earlier this year, seeks to cure this disconnect. All advisers were to be required to put clients first when handling retirement accounts, where the bulk of everyday Americans’ savings reside...
But if the Fiduciary Rule is weakened or killed, much of the pressure for better financial advice may dissipate. Well-educated investors can usually find ways to get high-quality advice, but the more vulnerable will continue to lose out. And all advisers—even the most trustworthy ones—will remain under suspicion of being salespeople, not professionals.
In the Intercept, Susan Antilla looks at proposed changes to the rule and the lobbying behind it.